Rising demand for coffee in emerging markets may lead to higher prices

COMMODITIES:AS THE aroma of the freshly brewed beverage reaches markets such as China, and consumption soars in producing nations such as Brazil, the global coffee industry is witnessing a boom that could reshape the market and lead to higher prices.

While the traditional markets remain central to the industry, Asia, Africa and Latin America are increasingly important.

“The coffee market is at a turning point,” says Nicolas Tamari, director-general of Sucafina, a Geneva-based coffee trading house.

“Demand in western Europe and the US is nearing a plateau, while consumption in emerging markets is rising strongly, particularly in coffee-producing countries.”

Brazil is paradigmatic of the trends. Already the largest coffee producer, it is set to become the biggest consumer next year.

The Brazilian Coffee Industry Association forecasts that domestic demand will top 21 million bags, of 60kg each, in 2012, which is up 50 per cent in the past decade and surpasses that of the US.

“The world of coffee consumption is changing,” says Nathan Herszkowicz, Abic executive director. “Brazilians are drinking more coffee each day too.”

And other emerging markets, particularly in Asia, are “shifting from tea into coffee”, he adds. The rapid increase in demand from emerging countries – which echoes other commodities markets such as oil and copper – is one of the main reasons for the surge in speculative investment in coffee, according to analysts and traders.

The rise in demand has an impact beyond the industry. For years, coffee has been a sleepy niche commodity market, largely handled by roasters and trading houses.

But lately less specialist investors have gained exposure through popular commodities indices.This week the cost of arabica coffee, the high-quality bean appreciated by espresso connoisseurs, hit its highest level in 34 years, above $3 a pound.

Arabica coffee prices have risen 125 per cent in the past year.

Supplies are running low in a larger number of countries, particularly Colombia, a top producer of premium arabica beans, while demand in producing countries such as Brazil, Indonesia, Mexico and Ethiopia is skyrocketing. –(Copyright The Financial Times Limited 2011)

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