The outbreak of the COVID-19 has affected the international trade majorly. One of the sectors which are facing the impact due to COVID-19 is coffee industry. It has highly affected the demand of the coffee market as demand and supply of various coffee stringent government rules such as lockdown has been implemented for maintaining social distancing in hotels, bars and restaurants.
According to CBI, this crisis has caused decrease in the sales volumes of coffee by 50.0% in Europe region and approximately by 25.0% in the United States. Due to decrease in sale volume, the roaster is ordering less coffee to providers as they have already warehouses full.
Drinking coffee fuels an individual to start a day for working in offices, home and many others. Due to its fueling activity, it is one of the most consumable products in the market.
Similarly, there are many other countries which consume coffee highly and they are Finland, Sweden, Switzerland, Germany, France, Italy and others.
The consumption of coffee is increasing every year and this leads to high growth in the market value.
FIGURE 1. COFFEE CONSUMPTION (2016-2019)
Due to high consumption pattern, the demand for the coffee was increasing till last year. And sudden outbreak of the Coronavirus completely impacted whole coffee market.
Till last year, the consumption of coffee was increasing as consumers were highly inclined for consuming coffee. As the pandemic started in early 2020, the destruction in the market took place. The coffee industry faced the destruction as the consumer behavior changed and hence the consumption pattern for the coffee declined.
FIGURE 2. COMPARISON BETWEEN TWO YEARS IN WORLD COFFEE CONSUMPTION (IN THOUSANDS 60-KG BAGS)
COVID-19 crisis impacts the demand of coffee on a wider range as due to lockdown in several countries, strict government rules regarding the closing of restaurants and bars and maintaining the distance is imposed which has impacted the restaurants severely and has affected the coffee demand on a wider range. Reduction in household incomes as various people lost their jobs and could translate into lower demand for coffee in volume terms.
According to strict Italian government rules, the closing of restaurants, shops and coffee bars by 6 PM, for maintain the social distance and reducing the COVID-19 impact, no gatherings and similar regulations to reduce the impact of virus are expected to restrain the consumption by 10-12% in the next quarter. Due to the delay in shipment the demand of coffee is widely affected and it is estimated to continue for a longer period if the situation is not controlled.
The pandemic led into lockdown due to which the supply and demand chain broke and the market took a decline phase. Below chart represents number of factors declining the market growth amid COVID-19.
Once the worst coronavirus crisis is over in future, the small coffee businesses or industries will recover as the lockdown will not be carried out. All the food service sectors will be open and number of customers will be visiting as of previous time. Yet, the sector believes most will survive. Again the production, consumption and international trading will be normal and the coffee sector will regain its position as of previous and may also grow with substantial growth rate in future.
The coffee demand among household consumption has been increased in the pandemic, whereas the demand of coffee in Europe and Americas were more in the food service sectors in cafes and bars. Due to the long term lockdown people are referring the coffee in their household usage. The household income has lowered the demand for coffee in terms of volume. The consumption of organic based products is gaining population including ready to drink coffee market.
The burst of pandemic panic complements a steady rise in coffee consumption and their sales that investors have largely overlooked amid the financial debacles of better-known organic coffees,
“Considering the increasingly busy lifestyles of modern consumers, we are actively expanding our ready-to-drink portfolio to meet the demand for high-quality coffee with convenience, and to cultivate new growth areas in the increasingly competitive global coffee market, The epidemic has caused an impact on us, but with recovery under the guidance of COVID-19 the government and the support of the owners, we remain optimistic about the outlook.”
“Organic product sales outperformed the growth seen in the non-organic sector in the same time period, with significant increases in purchasing of grocery items such as tea and coffee and home-baking, alongside organic wine, beef and butters and fats.”
Due to the supply chain disruption of the raw material especially cocoa beans or cocoa powder used as major ingredient coffee manufacturing have rose concern to the coffee manufacturers. Companies like Olam have taken initiatives to create the crises in opportunity by helping farmers in the plantation of the cocoa plants in Africa region.
“We have palm oil plantations in Gabon; we have coffee in several countries in East Africa and a bit in West Africa. We have cocoa – that’s another co major crop – as well as rice in Nigeria.”
“Since the arrival of COVID-19 in Côte d’Ivoire on March 11, 2020, we have seen the interest of the chocolate and cocoa industry to support the government’s actions to stop the spread of the virus and in particular to ensure that it does not reach rural areas of our country. We are grateful to the chocolate and cocoa companies that have already made contributions and are carrying out activities against the pandemic. Today’s donation announced by WCF on behalf of its members and other associations in the sector reinforces the actions already taken individually. On behalf of the cocoa community of our country, I express to them our gratitude.”
The COVID-19 spread grew into a major public health epidemic worldwide. About 1.3 million people have tested positive for the virus to date, and more than 70,000 deaths have been confirmed. Furthermore, the COVID-19 pandemic affects people's daily lives and dramatically impacts economies around the world. The COVID-19 crisis poses a shock to demand and supply impacting foreign trade flows and production chains.
Although policymakers are adopting measures to save lives and reduce the economic harm, there is a global economic slowdown. Many international organizations and research institutes expect a sharp initial downturn in economic growth and increasing unemployment, accompanied by a rebound that will depend on the efficacy of measures taken in response to the COVID-19 crisis and how rapidly confidence returns. It is likely that the COVID-19 pandemic will have a profound effect on the global coffee industry, including production, consumption and trade.
Out-of-home use is declining dramatically in the short term as an increasing number of countries accept a complete or partial lockdown. Offices, coffee shops, and restaurants remain closed to reduce virus spread. At the other hand, data at the retail and supermarket rates show that panic purchasing and stockpiling in certain countries has contributed to increased customer demand.
That is impossible, however, to have a sustained impact on consumption. Following an initial increase in market, the demand in the coming weeks and months would be proportionally lower as customers draw down stocks kept at home. The outcome of a global recession caused by the direct and indirect effects of the COVID-19 pandemic can be expected to have a deeper impact on global coffee demand. In terms of volume, reduced household incomes could translate into lower coffee demand. However, price-sensitive consumers can replace higher-value coffee with lower-value blends or brands.
Nevertheless, the coffee demand’s revenue elasticity is likely to be weak, especially in high-income countries and traditional markets with high per capita consumption levels. The following quantitative analysis aims to define the relationship between GDP growth and coffee consumption, thereby providing an estimation of the demand-side shock resulting from the pandemic COVID-19.