Consumers should brace for challenges as the global economic crisis and impacted global logistic system threatens the global coffee supply chain.
Reading time: 23 minutes.
A delay in rain that was expected to start in March, a sign of climate change in this Andrean nation, has pushed back the start of the harvest across Colombia. While large farms and producers have quickly enacted contingencies for this delay, a majority of the country’s small hold farmers are left wondering why their ancestral knowledge passed down from generations has failed them in predicting the start of their harvests.
Aside from a sure sign that climate change is upon us, this means challenges may follow for the quality of the harvest. Delayed rains can quite literally burn the beans that are ready for maturation and leaves the start of Colombia’s harvest vulnerable to disease such as the broca beetle. Small and medium producers stand to lose up to 10% of their crop if there is an early harvest infestation of this unwelcomed pest. “Some farms don’t waste time in picking these lotes since they will have more defects, but we found that not picking the damaged cherries creates a risk to increase broca that will attack the rest of the crop.” reports Manul Londono, a third generation coffee producer from Finca Las Brisas.
The damaged coffee will not be able to be sold to the international market where coffee producers can receive a majority of their harvest. Rather, in the local market low quality coffee can be sold under the name pastilla, indirectly translated to the leftovers. This loss of profit can essentially make or break a coffee producer’s bottom line and ability to reinvest into quality and innovation for the next harvest, or even worse, not even let them break even.
In the end of March Colombia enacted a national quarantine as an attempt to stop the spread of the coronavirus. Access to towns has been sealed and there is now essentially no movement of people in the country. Large farm owners interviewed reported that only 50-60% of their manual labor comes from the local town where the farms are, and since towns have sealed themselves off from outsiders this is causing a major lack of access to labor for the harvest.
Large farms have begun using strategies to make up for this shortage. Multiple farm owners interviewed mentioned recruiting workers who otherwise would be shopkeepers, restaurant workers, or school staff but are unable to continue their work due to the quarantine. Take for example Ciudad Bolivar which has many large farms, it was reported that even if they were to involve every available person of the town to pick the coffee, it wouldn’t be enough to cover the need. Considering this, if the quarantine remains they are preparing to lose an additional portion of their harvest just for a lack of available labor.
Salaries are also increasing between 10-20 % to entice the pickers to take the risk and go out of their houses and complete their work in the farms. Medium sized producers are especially vulnerable to lose their staff to higher paying large farms and effectively are seeing competition on who can offer the highest price to recruit pickers.Various farms interviewed are confident that their workers will honor the arrangements they have had over last years, since farms they have invested a lot in the community by sharing their profits, developing and improving their lives, and building loyalty, trust, and support between both parties.
A majority of the producers interviewed have had health teams visit their farms over the last weeks to establish protocols for the harvest considering the manual labor. They are mandated to provide masks, soap, water, and antibacterial before, during and after the picks. Also they will respect distancing by only delegating coffee rows to 1 person where normally there can be 5-10 in a large farm. The actions are considered easy for the producers to implement. However, it will eventually make the picking slower and cause an excess of overripe beans which will go bad, representing further losses in their production for the largest farms.
Since small coffee producers have small crops, they can pick their entire harvest with only their family members. Historic Colombian countryside culture consisted of huge families in order to have enough hands to work their land. Due to this, it is not common that they look for extra pickers and small farms will be generally not impacted by the shortage.
For many private co-ops, their operations haven’t been limited since their producers are almost all small. They have reported receiving the same amount of producers every Sunday, selling their coffee to the co-op. The activity of going to the co-op to sell coffee enevidably causes gatehrings and if farms, workers, and co-ops don’t act smartly, this could turn into the epicenter of infection for the countryside of Colombia.
In the beginning of April, Colombia’s government was offering prices for coffee at record high prices, up 70% from lowest prices offered just a year ago.
All producers interviewed had commented that price can be associated directly to the supply and demand within the country. Now should be the beginning of the “harvest season” but there is very little supply available due to coronavirus limiting manual labor needed to pick the cherries, and climate change altering the rains delaying the initiation of the coffee cherries ripening. After the first quarter, it was reported that overall production was already down 14% before April started.
Producers are expecting a price correction in the near future, however they are waiting to see how the oil situation and the strengthening dollar could impact the coffee price to remain high even once the production increases throughout April and May. (the COP to USD exchange rate has lost almost 20% of its value from mid march to beginning of April).
If the coffee price stays strong, many small and medium sized producers are planning on moving away from producing specialty coffee and to focus on commercial coffee.
Being able to sell directly to the government comes with less work, many less risks so it will be a favorable alternative to those who don’t already have long term contracts set with international buyers. Farm owner Samuel Roldan of Cafe Roldan in Ciudad Bolivar noted the thing most on his mind is “What is the proportion of people who will continue to drink good coffee or will reserve that money for more essential things and switch to cheaper coffee or stop drinking it all together? This is what is on the minds of specialty coffee producers and what we want to know in order to make decisions around our upcoming harvest” A switch away from specialty production and towards commercial coffee could seriously impact the supply to smaller artisan coffee importers.
Large producers are used to playing a game of small margins over large productions. They have ways of increasing efficiency in their crops with plant distancing, high yielding varieties, and renewals of their crops, which have given them formulas to become profitable even with low prices and low margins. If the coffee price stays high, these producers stand to gain up to 50% increase in their profits which would be a monumental moment for many farms.
What are producers doing with their increase in net profits? It isn’t going to their bottom line, with an increase in prices comes an increase in cost for pickers with farms competing for a limited labor source, prices of various essential supplies are increasing along with reduced logistics between towns creating bottlenecks in an already fickle domestic supply chain. The current high prices are almost the equivalent as 30 years ago when coffee producers earned good livelihoods which powered the expansion of the industry. If these profits could go to their bottom line this would have been the best thing to happen to modern day coffee producers.
What impacts will be felt in adjacent industries?
Farm owner Samuel Roldan of Cafe Roldan in Ciudad Bolivar rightfully noted that “If health workers are on the front line then agriculture workers are on the second. Agriculture industries can not stop or society will fall into chaos. Effects have not been realized yet, but if agriculture processes are impacted because of this virus societies will face much more than a health issue.” This statement couldn’t be more true and the more you think about it the more I’m sure it will resonate with you. What happens if agricultural or logistics stop?
Well, logistics in Colombia are a bit of a mess to put it bluntly. Fernando Castro, Dry Cargo Export Head at Champion Logistics reports on what they are seeing across the different industries they are servicing. “There have not been coffee shipments by air since the Corona crisis started here in Colombia, our local office is closed now, waiting to finish the quarantine. Sea Shipments are working but we are only at 30% of our normal volume. We are seeing equal reductions in the exports of flowers. Herbs and Milk products continue exporting at 50%, but it is difficult because many companies stopped their productions, because their employees must stay at home.”
Coffee mills and supporting industries like those who make and print coffee sacks are also being impacted. At Those Coffee People we had all our sacks stored at a warehouse of our sack printer. During the quarantine they shut down and refused to give us our sacks back, or let us go to their warehouse to get them ourselves essentially holding the sacks hostage while we an order we needed to urgently fill. This was not an isolated instance but many exporters as well had their coffee sacks held hostage turning to alternatives of either more expensive or less quality, essentially whatever they can get their hands on. Mills are also running with limited hours so finding a time or appointment to mill your coffee can be more tricky.
What are we hearing from individual end consumers?
Those Coffee People have interviewed hundreds of millennial consumers across the USA, Europe, and Asia. We asked questions such as, how have your consumption habits changed? Will you consume more at home, still go out to a cafe, or quit coffee because it’s too much effort? Here are the top answers:
- More likely to make the effort to consume at home
- “I just drink this stuff all day now at home no more sbux for me”
- “We live in a total quarantine lockdown zone so we have no other choice but to make coffee at home
- “More are using k cups or brewing at home”
- “I tried to order nespresso pods and they were really backed up on orders!”
- “I order from our local roaster and they drop it at my door and call it ding dong ditch”
- I am drinking less than when I am at work
- Giving up coffee as it is unnecessary spending
- I don’t drink coffee at cafes unless i’m meeting someone so nothing has changed
- I’m consuming some beans I got from a friend as a gift from christmas this past year
- Trying to still support local businesses when possible
- In certain cities like San Francisco the sentiment is very strong towards helping your fav local business, the loyalty is strong
Here at Those Coffee People we remain positive even amidst these challenges.
Now more than ever we are relying on our strong relationships with our producers, logistics providers, and customers to ensure we can maintain a high level of service through these challenging times. It is clear that the supply chain that we have build through our network is going to weather this pandemic, and we are really looking forward to the delayed harvest beginning and the amazing coffees our world class producers will be able to produce. It’s too soon to make conclusive statements but producers interviewed are extremely positive about the flowering that is going on now, which will be the coffee production that is realized in the next harvest in December as well.
- International logistic impact and quarantine measures drastically impact the importation and sales of coffee globally
- Manual labor shortage due to coronavirus risks productivity of harvest
- High coffee prices drive production away from specialty and into commercial production
- Increasing costs of production and operation cancel out opportunities of growth from highest Colombian government coffee prices in history
- Consumers switch from takeaway to make-at-home coffee, among other trends
This information contains primary research into the:
- Sentiment of key stakeholders on the current traviesa (mid year harvest) considering a variety of factors specifically coffee price and productivity.
- Climate change and its affect immediate and long term harvest schedules/norms
- Risks from the current coronavirus outbreak during the coffee cherry picking period of the harvest and subsequent impacts of the supply chain
- End customer impact and expectations for near future.
- Colombian coffee producers -80% from department of Antioquia and 20% from other departments. -50% large producers (more than 80 hectares of productive crops), 25% medium producers (less than 80 but more than 8 hectares of productive crops), 25% small producers (below 8 hectares of productive crops)
- Colombian exporting/ logistics/ supporting companies
- 100% of surveyed organizations have a specialization in coffee operations, 30% with additional specializations such as dairy and flowers.
- 100% based between Bogota and Medellin
- National Federation of Coffee Producers (FNC)
- Coffee buyers/importers/ cafe owners
- End customers throughout the USA, Europe, and GCC- primarily millennial age group.