Extreme temperatures and droughts in Southeast Asia, home to the world's second and third largest coffee bean producers, have led to lower yields. The decline in bean supply has implications not only for everyday life but also for company revenues. This was reported by the Financial Times, according to UNN.
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"First chocolate, now coffee - the supply of basic necessities of modern life is shrinking due to the changing climate," the publication points out.
A heat wave in Vietnam, the world's second-largest bean producer, could reportedly cut production by as much as a fifth this year through September, according to a U.S. Department of Agriculture forecast. Exports from Indonesia, the third-largest producer, are also expected to decline for the same reasons, marking the second consecutive year of decline.
As a result, global coffee bean futures are reportedly close to record highs. Prices for London Robusta coffee futures, the global benchmark, have risen by more than 50 percent over the past year to about $3,500 per ton.
The publication points out that we should not expect a quick return to normalcy. "After last year's record low harvest in Asia, some farmers have switched from coffee to crops such as rubber, which are easier to produce in warmer and wetter weather," the publication explained.
It is noted that now is a particularly bad time for coffee-related businesses. Consumption in Southeast Asia has skyrocketed, with demand in Indonesia alone doubling over the past decade. In China, consumption has increased by more than 130 percent, as evidenced by the exponential growth of coffee shops. The country now leads the world in the number of coffee shop chains, ahead of the United States. Luckin Coffee, China's answer to Starbucks, has more than 16,000 locations, with sales of $3.5 billion last year.
Products from Brazil, the largest producer of arabica, are in high demand: exports to China increased by 160 percent in the first two months of this year. Exports to Japan also almost doubled.
"A tight market and few alternatives mean a shortage from south-east Asian producers will quickly squeeze the margins of beverage and coffee-related businesses," the publication points out.
This retail sector in Asia, as noted, has already underperformed. In Japan, for example, the shares of Ajinomoto Food Group, the parent company of Ajinomoto AGF, which produces instant coffee, and Ito En, a Japanese beverage company that operates specialty coffee shops in Japan, have significantly underperformed the broader Nikkei 225 over the past year.
"This is bad news for coffee lovers across the region. These companies have no choice but to pass the costs on to consumers," the publication concludes.