2. MARKET ANALYSIS
2.1 Coffee Industry Overview
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立 政 治 大 學
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N a tio na
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2. MARKET ANALYSIS
This section describes the current situation of the World Coffee Market regarding global supply, demands, and prices. It also contains scrutiny of Nicaraguan coffee market as a supplier as well as an analysis of the Taiwanese market regarding its trends and coffee demand.
2.1 Coffee Industry Overview
Coffee is considered the second most significant commodity most traded after oil. According to Euromonitor International, in 2014 coffee occupied the fourth position among the most consumed beverages by volume globally. The International Coffee Organization reported in 2017 that the global coffee consumption has been increasing steadily over the last four years showing a compound annual rate growth (CAGR) of 1.9%. In the period of 2013-14 the global coffee consumption was 148,891 thousand 60Kg bags, and in the period 2016-17, the coffee consumption increased to 157,382 thousand 60Kg bags.
2.1.1 Coffee Consumption Worldwide
Figure 2 reflects the global coffee consumption by regions. Europe is the coffee biggest market in the world accounting 33% of the worldwide consumption with a CARG of 1.0%. In second place is Asia & Oceania with 22% of the total market. This region is experimenting the highest CAGR in the last four years (4%) because of the growing number of large middle-class young professionals and consumer in China and India. The third place is occupied by North America, representing the 19% of the market and its CARG is 2%. Although Asia is the fastest coffee growing market, it has a low spend per capita compared with the other two regions mentioned above, while consumers in Western Europe and North America spend US $42 and US $38 on coffee respectively, in Asia consumers pay US $4. (Comunicaffe, 2017)
The rest of regions, such as Africa, Central America and Mexico, and South America, account for 26% of the global coffee consumption. In these regions are located the majority of coffee-producing countries. Their domestic consumption has been steadily increasing showing a CAGR of 1% in the last four years.
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Figure 2: World coffee consumption by regions in thousands 60kg bags2
Many socio-demographic factors can explain the stable growth of the coffee market. The National Coffee Asociation of the United States of America reports that 44% of the total coffee demand comes from millennials. The daily consumption of 18 to 24 years-olds has increased to 48% in 2016, 14% more than in 2008. Moreover, the increment among the population between 25 to 39 years is 9% being in 2016 approximately 60%. Despite the positive trend in daily coffee consumption in the young people of the United States, this variable is experimenting a reduction in the 40-59 years old and 60 and above.
In Asia, the coffee market experiments a consolidation in the recent years. Café culture in developing and populous countries such as China and India is becoming a fashion symbol due to the westernization influence among the new generations. Another factor that has been driven the coffee market in Asia is the surge in the innovation of coffee products. According to Mintel, 2017, between 2011 and 2016 the number of new coffee products launched in Asia has risen by 95%. In comparison, the number of tea products has only grown 55% in the same period.
2 Source: International Coffee Organization 0
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立 政 治 大 學
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N a tio na
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2.1.2 Coffee Demand and Supply Worldwide
The worldwide coffee supply is done by around approximately 56 countries that are located between the Capricorn and Cancer tropics. The coffee is mainly divided into two varieties Arabica and Robusta and also classified by the nation of origin (Colombia, Brazil, Vietnam or other countries). Arabica coffee accounts 58% of the total coffee production in the world and the rest 42% represents Robusta Coffee. The sourcing of coffee has been fluctuating in the past five years between the 149,000 and 152,000 thousands of 60kg bags, however, in the crop year 2016-17 the supply of coffee went up to 157,694 thousands of 60kg bags. The 80% of the global coffee supply is produced only by seven countries: Brazil (35.0%), Vietnam (16.2), Colombia (9.3%), Indonesia (7.3%), Honduras (4.7%), Ethiopia (4.6%) and India (3.3%).
Figure 3 shows the fifteen major coffee producer countries in the world.
Figure 3. Major coffee-producing countries in the world Crop year 2016-173
The coffee supply is mainly affected by environmental factors such as climate changes, pests on crops, the increment in production costs, and the fluctuation of the international coffee price.
Regardless these drawbacks a lot of farmers in developing countries are interested in this
3 Source: International Coffee Organization 0
10,000 20,000 30,000 40,000 50,000 60,000
thousand 60kg bags
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agricultural activity due to the high demand in the international market, incentives granted by governments and also the rural development projects that ONG’s execute in coffee crops areas.
The coffee imports by countries are related to the coffee consumption behavior explained above.
In 2016 the European Union imported 51% out of the 156,653 thousands of 60kg bags that were traded worldwide. After breaking down this region, it is found that Germany, Italy, France, Belgium and Spain are the leading importer countries; however, all of them are behind the United States of America that imported the 18% of the global source of coffee. In Asia, Japan is the leading importer (5%) followed by the Republic of Korea (1.7%) and the People’s Republic of China (1.3%). (ICO, 2017)
In general terms, the global coffee market has experimented a deficit (supply-demand) in 2015 and 2016. The consumption exceeded the production by about 3.3 million 60kg bags.
Nevertheless, in 2013 and 2014 the market had a surplus, which allowed importing countries to maintain a healthy stock which is used as a buffer to relieve the short-term supply concerns.
Estimations made by the ICO reflect that for 2017, producing nations will increase their coffee supply which will help to avoid any deficit for this period.
2.1.3 International Coffee Price
One of the most critical factors in the coffee market is the price. Coffee, like many other commodities, is traded with an international price that is changing every day according to the geopolitical, climatic, global demand, and other situations. The ICO indicator prices, published daily by the International Coffee Organization in London, represent and track the price of the four main types of coffee available in the international market: Colombian mild arabicas, other mild arabicas, Brazilian and other natural arabicas, and Robustas.
These indicator prices represent spot or cash prices, quoted in the market for coffee that is more or less immediately available (or within a reasonable time-span). The four categories enable the ICO to calculate market prices for these four broad groups and so monitor price developments for each. In addition, using an agreed formula, the ICO publishes a Daily Composite Indicator Price that combines these four into a single price representing ‘all coffee.’
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Figure 4 International coffee price monthly average from January 2016 to December 20174
Figure 4 reflects the coffee price behavior in 24 months until December 2017. During this period the best price was in November 2016 when the ICO composite indicator reached US145.82 cents/lb5. During 2017, the coffee price experimented a steady fall down to US114.00 cents/lb in December 2017. Arabicas type of coffee Colombian Milds and Other Milds, mostly produced in Colombia and Central America show higher prices than the other two kinds of coffee. However, the international coffee price can be used only as a reference when trading. This prices can vary depending on the coffee quality, niche markets, and also environmental and social aspects related to the conditions of the country where the coffee was produced. Specialty coffee, for instance, attracts an extremely high premium.
4 Source: International Coffee Asociation
5 US cents/lb is the international nomenclature to express coffee prices. The abbreviation lb stands for pound.
One Kg is equivalent to 0.4536Kg 40