Global coffee demand is expected to drop amid the coronavirus pandemic – which could be good news for Aussie cafes

• Global coffee demand is expected to drop due to the coronavirus, according to a new report from Rabobank.
• It comes largely thanks to a steep decline in people drinking coffee outside their homes.
• In Australia, it could mean cheaper commodity prices for cafes – but not necessarily cheaper prices for consumers.
• Visit Business Insider Australia’s homepage for more stories.

A new report from agribusiness bank Rabobank estimates that global coffee demand will drop by one million 60kg bags in 2020 because of COVID-19’s impact on coffee consumption.

The bank’s Q2 2020 Coffee Outlook report anticipates a global drop in coffee demand by 0.8% to 164.1 million 60kg bags this year, largely due to a drop in out-of-home coffee drinking.

Rabobank also cut its estimates on coffee demand in some countries because of the extent of the coronavirus related lockdowns and the rise in unemployment – especially in places that don’t give out unemployment benefits.

Rabobank Australia commodity analyst Charles Clack emphasised Australia’s strong coffee culture compared to other places in the world, where tea and other drinks are more preferred. But the shutdown of cafes and restrictions on travel during the coronavirus pandemic has affected this outside consumption.

“Since the COVID-19 lockdowns, the fact that people are staying at home, working from home, staying away from the office and not travelling for business or pleasure – we’ve seen that real fall in the out-of-home consumption side,” he said.

Coffee demand around the globe

Rabobank Agri Commodity Markets Research senior analyst Carlos Mera estimates coffee demand will drop by 2% in the US during 2020 because of the decline in out-of-home consumption. He added that higher supermarket coffee sales are unlikely to make up for the drop in outside coffee drinking seen in April.

In Europe, Mera didn’t expect to see a drop in coffee demand because the income levels of those who are unemployed are more protected in most EU countries.

“We initially expect a 0.5 per cent reduction in coffee demand in 2020 in the EU-27 +UK countries, with the decline concentrated in the UK, where there is a tea culture at home as well as lower unemployment benefits, and in southern Europe, where there has been a lower volume of tourists,” Mera said in a statement.

When it comes to global coffee production, this has gone relatively well without any disruptions, except for some possible delays at farms or ports. But Rabobank pointed to one risk with the world’s largest coffee producer, Brazil, as its harvest will coincide with the projected peak in coronavirus infection rates.

“In Brazil, the great 2020/21 arabica harvest is beginning in virtually all regions,” Mera said. “Preparations have been made and, as far as we can tell, there is no labour shortage for the time being, though the peak of the harvest will be in June/July.”

Low coffee demand could be good news for cafes

Clack said that, with lockdowns being lifted, it’s possible that coffee demand will pick back up again. But there will still be challenges like limited seating in cafes and social distancing “that could have a negative impact on ongoing demand.”

“In a year’s time or so, we could recover back to demand but certainly for the short term, we don’t expect to be recovering immediately back to those pre-COVID-19 levels,” he said.

The report also found that if there aren’t any major delays to coffee production – coupled with this weak coffee demand – then commodity prices for coffee is expected to fall over the short term. These cheaper prices could spell good news for Aussie cafes trying to get their businesses back on track after the coronavirus lockdowns.

“Indeed, less out-of-home purchasing has seen downward pressure on a number of soft commodities around the world, which could make the raw ingredient prices for Australia’s café and restaurant sector, including coffee and sugar, dip lower,” Clack said in a statement. “This may help these businesses as they come out of COVID-19 lockdown and over the coming year or so.”

Clack told Business Insider Australia that while demand has been falling, there has not been significant disruptions among the major coffee producers. As a result, there will be additional coffee supplies this year.

“In terms of the raw coffee beans, the prices will lower through the last three quarters of the year, in our view, as compared to the Q1 of 2020,” he said. “So those businesses that are buying that raw coffee – be that cafes or roasters – that raw material will be, in our view, cheaper.”

Clack added that it won’t necessarily mean we as consumers will get cheaper coffee. That’s because the coffee bean price itself is a fraction of the cost of everything else involved in making your favourite latte.

“You’ve also got the milk, you’ve also got the rent of where you’re purchasing from, the labour to produce that coffee, the cups, packaging and all those other aspects,” he said. “In terms of purchasing the coffee itself once a day, perhaps you won’t see the price change much.”