The harsh weather conditions resulting from the approach of the “El Nino” phenomenon raise fears that the “Robusta” beans will be affected in the largest coffee-producing countries, such as Vietnam and Indonesia, which may lead to an increase in prices.
“The now widely expected transition to El Niño conditions in the third quarter of this year has raised concerns of lower production in Vietnam and Indonesia, both major producers of Robusta coffee,” Fitch Solutions BMI research unit said in a report.
Robusta beans are famous for their bitter properties and high acidity, and they contain more caffeine than their premium and more expensive Arabic counterpart.
The report said that the Brazilian Robusta crop was also negatively affected by the drought. This means that the cost of instant coffee and espresso, which is often made from robusta beans, could come under pressure amid supply concerns and greater demand for robusta than usual, as consumers turn to cheaper alternatives to Arabica coffee, according to the network. CNBC, and Al Arabiya.net reviewed it.
With regard to “El Niño”, it is a climatic phenomenon that is usually accompanied by a greater increase in temperature and drought than the usual conditions in the central and eastern tropical Pacific Ocean. Climate scientists expect the El Niño phenomenon to appear this year, in the second half of 2023.
Recently, Southeast Asia experienced record heat in mid-May.
“Across Southeast Asia, El Niño conditions are associated with below-average rainfall and higher temperatures, both of which limit coffee production,” the Fitch report said.
Vietnam, Indonesia and Brazil are the largest producers of robusta, according to the Food and Agriculture Organization.
Analysts said: “We draw attention to the heavy rains in Indonesia during the third quarter of the year, which had a negative impact on the quality of coffee beans, with the US Department of Agriculture expecting a decline of about a fifth in the production of Robusta coffee.”
In turn, Rabobank’s head of agricultural commodity markets, Carlos Mira, expects a 10% drop in production to 11.2 million bags of Robusta in the next harvest.
And in 2016, El Niño-related water shortages in Vietnam and Indonesia reduced global production by nearly 10%, according to the research unit’s statistics.
Robusta is in high demand
Robusta beans account for 40% of the world’s coffee production, and Arabica beans make up the remaining 60% of global coffee production. Arabica beans are usually considered to be of higher quality and command higher prices than Robusta coffee.
However, global economic pressures are driving demand towards Robusta, which has a smaller share of the coffee bean market.
Robusta prices are supported as coffee manufacturers and consumers blend Robusta beans with pricier Arabica beans to save costs during times of inflation, according to the Fitch report.
Robusta coffee prices recently rose to a 15-year high of $2,783 a tonne at the end of May. It last traded at $2,608 a ton for July futures contracts, according to data from the Intercontinental Exchange.
In addition, the premium of Arabica over Robusta fell to its lowest level since 2019 due to growing demand for relatively cheaper coffee beans.