Welcome: Guest User

Register / Login

Urbanizing emerging markets crave more coffee

Soa Paulo, 25 June 2010

The hustle of city life is turning more of the world's poor into coffee drinkers to cope with the transition from a rural pace to the demands of a bustling urban existence. Economic development in coffee farming countries has brought urbanization and a pronounced shift in global coffee demand, where big exporters are now the top new consumers.

This has trimmed supply and driven up the price of quality arabica beans for coffee drinkers in North America and Europe over the past decade. Coffee, for centuries shipped from farms in Africa, the Middle East, Latin America and Asia to the bourgeois classes of the industrializing West, is increasingly craved in home markets, even being imported by producing countries, where wealthier drinkers are switching from cheaper instant and robusta beans to milder arabicas.


World coffee consumption will grow by 2.5 million bags from 2008 through 2010 to nearly 131 million bags, Neumann Kaffee Gruppe's (NKG) statistics director Neil Rosser said.

"Almost all of the growth in demand has came from emerging markets in the past few years," he said. Over the period, demand has grown by 1.3 million bags in Latin America and by roughly the same in South East Asia. Another 450,000-bag increase has come from the Middle East, "while North American numbers are falling," Rosser added.

Urban Cafe Culture

The first wave of global urbanization started around 1900 in the industrialized world, a time when coffee use was spreading widely in Europe and the United States. The second wave now occurring in the developing world bodes well for coffee producers.

The United Nations estimates the world's urban population has quadrupled since 1950 to 3.4 billion and will nearly double again by 2050. The taste for coffee in producers such as Brazil, Colombia, Indonesia and India is developing with the incomes of the poor and their migration to cities. Coffee drinking has doubled in China since 2002 to around 600,000 bags, International Coffee Organization data showed. Consumption was also surging in other emerging markets such as Russia, South Africa, South Korea, Saudi Arabia and Ukraine.


Brazil, the world's leading producer of coffee, may overtake the United States as the No. 1 consumer of the drink by the end of the decade, analysts say. It is already the world's second largest consumer, thanks to its growing middle class.

Coffee consumption passed unscathed through the economic crisis of 2009 and is set to grow about 5 percent in 2010, the Brazilian Coffee Industry Association (Abic) said. If not for an import tariff, Brazil would import Asian robustas, according to Abics, the Soluble Coffee Industry Association.

As it stands, of the top five producers, only Brazil and Vietnam are not expected to import coffee this year. The world's fourth and fifth largest producers Indonesia and India will be forced to import robustas from the world's No. 2 coffee grower Vietnam to feed their instant coffee industries.

"Many people are stressed out, so they go out drinking coffee," Hasan Widjaja, chairman of the Coffee Exporters Association in Indonesia -- the world's largest Muslim majority nation, said.

Indonesia, which is forecast to produce 9.6 million 60-kg bags this year, is expected to see consumption leap by more than a third to 4.5 million bags, the association said. For the first time in years, India will import beans for its instant coffee industry, totaling around 600,000 bags. Indonesia will import 800,000 bags, as will Colombia whose recent poor harvests have depleted stocks, forecast Rosser.

"With changing lifestyle, rapid urbanization, and growing income levels, we observe that instant coffee consumption is rising, especially in big cities," Anil Kumar Bhandari, a big grower member of India's state-run Coffee Board, said. Domestic coffee consumption is seen growing 3.5 percent in 2010 in India due to economic growth and a blossoming cafe culture, the board said.

"Historically, as more people move into cities, they have drunk more coffee," Rosser said. Graphic on world urbanization:

Robusta vs Arabica

Most of the growth in demand from new consumers in the emerging markets is for entry-level coffees such as instant or robusta coffee, which are less expensive than arabica beans.

But as coffee drinking takes root in a culture, consumers often shift toward smoother arabicas, which earn a premium in developed markets such as the United States and Europe.

"As Brazil develops, its consumption of quality coffee over the next decade will grow substantially," Economic Coordinator Fernando Barbosa at Brazil's No. 2 private bank Bradesco said.

Brazil and Colombia, the No. 1 and 2 arabica producers, have strong domestic consumption programs to fuel demand. Parts of Brazil now serve coffee in schools at lunch. Other coffee producers like Guatemala plan to imitate these programs. About half of the coffee drunk in Brazil is robusta.

Drought in Colombia has drawn down certified stocks and has been behind the 20 percent spike in U.S. arabica futures in the past two weeks. Robusta futures traded in London have risen as well.

But North American and European consumers who tend toward arabica beans have been paying more for their quality brews in past decade. Arabica futures have climbed 300 percent since 2002 when they bottomed out near 40 cents a pound. Today they trade around $1.67 per lb.


Per capita coffee consumption is still small in China. But with the economic boom changing the tastes and consumption habits of the Chinese, what happens if the world's most populous nation wakes up and smells the coffee?

China is a traditional tea culture, as was Japan before becoming the world's third largest coffee consumer which has more than 10,000 coffee shops and continues to add them.

By 2025, China's urban population will rise to 926 million from 572 million in 2005, as peasants in the countryside seek better jobs in cities, an increase of more than the entire U.S. population, consultants McKinsey and Company said.

"If one-tenth of China took up drinking coffee, we would be talking about almost half the population of the United States, the world's largest coffee consumer," the head of Brazil's Coffee Exporters Association Guilherme Braga Pires said.

Ends --


By Reese Ewing and Fitri Wulandari, Reuters - for Commodities Now