How is Climate Change Impacting the Coffee Supply Chain?
After a period of high prices and low yields, the coffee market is experiencing a decline in prices that reflects the recent challenges and adjustments within the coffee supply chain. While fluctuating prices may initially signal relief, the root causes lie deeper in the unpredictable nature of climate impacts on crop production.
The current price reductions of Arabica and Robusta beans, driven by adjustments in supply expectations, have broad implications across the supply chain.
Coffee producers, retailers, and consumers all feel the effects, as production adjustments hint at a changing landscape for this essential commodity.
The climate effect
The once soaring price of Arabica coffee, which peaked at US$4.30 per pound, has now dropped to US$2.80. Similarly, Robusta has fallen to US$1.73 per pound from its earlier US$2.75. This significant price shift poses a considerable challenge for smallholder farmers whose livelihoods rely on stable profits. Their vulnerability is heightened by the volatile climate conditions disrupting agriculture.
Brazil illustrates the profound impact of such climatic conditions, experiencing 110,000 wildfires and extensive flooding within a single year. These extreme weather events are becoming increasingly frequent, posing severe risks to agricultural stability. As climate change continues to affect countries like Brazil, the cyclical nature of agricultural disruptions threatens the long-term sustainability of coffee supply.
"I think (the end of the deficits) will depend a lot on this climate issue," says Vanusia Nogueira, Executive Director, at The International Coffee Organisation (ICO)
The interplay between climate factors and coffee yields underscores the ongoing challenge of maintaining a consistent supply chain amidst environmental uncertainties.
Production uncertainty
Vietnam, the leading producer of Robusta, serves as a critical case study in understanding how climate variability affects production stability. The nation experienced a significant 20% decrease in yield due to drought conditions in the 2023/24 crop year. This reduction exemplifies the broader trends of climate-driven production uncertainties that the global coffee industry must counteract.
The ramifications of such fluctuations are evident across the industry, impacting well-known brands like Nescafé. The company has faced supply disruptions due to "unforeseen circumstances," highlighting the fragile nature of global supply chains. The need for responsive strategies becomes evident as companies strive to navigate these disruptions and deliver products to consumers efficiently.
Despite these challenges, industry stakeholders anticipate improved supply conditions in the coming years, with increased production forecasts providing a measure of optimism. The Vietnam Coffee and Cocoa Association projects a modest recovery, although uncertainties linger.
The future of coffee
Efforts to enhance coffee supply chains through strategic plantation expansion offer hope for improved stability. Initiatives in Brazil and Vietnam aim to bolster production levels by establishing new plantations poised to meet growing demand. These initiatives reflect a proactive approach to mitigating the inherent risks posed by climate unpredictability.
Forecasts by the USDA suggest a promising trajectory, with expectations of increased yields in the 2025/26 crop year. Brazil and Vietnam anticipate higher production figures, indicating a potential easing of supply chain constraints and a stabilization of coffee prices.
Looking forward, a more predictable and sustainable supply chain is on the horizon. By addressing supply pressures through concerted efforts, the coffee industry may achieve a more resilient framework that supports stable prices and sustainable livelihoods for key stakeholders.