Market Trends

Asia's Coffee Craze Spurs Robusta Bean Imports Amid Domestic Demand Surge

In the vibrant cafes lining the bustling streets of Hanoi and the contemporary coffee shops dotting the landscape of Jakarta, a new trend is brewing that is transforming the coffee industry across Asia. The region's rapidly growing fascination with coffee is not only changing the landscape of local consumption but is also impacting the global coffee market dynamics.

Vietnam's Vanishing Coffee Bean Stockpile

As coffee beans give off their aromatic scent in a small shop in Hanoi, there is an undercurrent of concern sweeping through Vietnam. The country, known as both the world's largest supplier of robusta, a variety often used for espresso and instant coffee, and the second-largest coffee producer globally, is seeing its reserves of coffee beans dwindle. This decline is poised to exacerbate an already escalating scenario of rising coffee prices on the world stage. Projections show that Vietnam's coffee output is headed for a downturn in the 2022-23 period, adding to the concerns of coffee aficionados and traders alike.

In response to growing local demand, several of Asia's most prominent coffee-producing nations are grappling with the challenge of meeting both the regional and global appetite for coffee. This insatiable craving for the caffeinated beverage is evident in city cafes from Ho Chi Minh City to Jakarta. As cultures intertwine and the inhabitants of Asia cultivate a newfound appreciation for coffee, these countries are transforming from massive exporters into significant importers of the bean.

Indonesia and Vietnam, countries revered for their large-scale cultivation of robusta coffee, are adapting to this shift by seeking out sources from Brazil's agricultural sector to satiate their booming domestic markets. The preference for importing, rather than relying on their own more expensive production, has strategic economic underpinnings, especially as the 'cool' factor of coffee continues to allure locals.

Judy Ganes, a seasoned consultant in the industry, highlights the transformative impact of coffee culture in Indonesia, where the proliferation of coffee-avocado beverages has attracted an even broader audience to the world of coffee. With disposable incomes rising across Asia, the demand for coffee is skyrocketing, further substantiating the prediction that imports will only increase despite the ebbs and flows of global production affected by extreme weather patterns and yield inconsistencies over recent years.

The Business of Java: Neumann's Investment in Indonesia

Neumann Kaffee Gruppe, esteemed as the planet's largest coffee trader, is investing in this changing landscape. The company has recently established an import office in Indonesia, forecasting that the Indonesian demand for coffee will ultimately surpass what the nation's own crops can yield. With local consumption experiencing approximately a 4% annual increase over the past decade, according to the Association of Indonesian Coffee Exporters and Industries, it's a trend that looks set to continue.

Indonesia's coffee consumption growth dwarfs the global demand expansion, which the International Coffee Organization pegs at 2.2% this year, amidst the fluctuating patterns witnessed during pandemic times. The upsurge from Brazil to Indonesia, which ranks as the world's fourth-largest coffee producer, has been striking, with shipments more than doubling last year as reported by Cecafé, the Brazilian coffee exporters' council.

Márcio Ferreira, the chairman of Cecafé, envisions tremendous potential for growth in Indonesia's coffee market, especially given that the nation's per capita consumption lags behind other global hotspots for coffee consumption. This indicates an expansive margin for growth in the years to come.

Even as Indonesian coffee-drinking habits skyrocket, the nation's bean production remains essentially dormant. Moelyono Soesilo, who heads the downstream coffee industry at the Association of Indonesian Coffee Exporters and Industries, hypothesizes that if current trends hold, domestic demand could exceed production within five to eight years.

In a bid to navigate this looming production shortfall, the association is embarking on initiatives to assist farmers in managing their estates with the aim of enhancing yields beyond the present average of 1.1 metric tons per hectare. Brazil's coffee-growing regions, revered for similar bean varieties, boast yields about 2.5 tons per hectare, setting a benchmark for potential output improvements within Indonesia's coffee sector.

Brazil's Booming Exports to Vietnam

Concurrently, the coffee scene in Vietnam is witnessing a marked rise in imports from Brazil, soaring over sixfold in the twelve-month span ending January 2023. These Brazilian imports predominantly cater to Vietnam's flourishing instant coffee industry. Tran Thi Lan Anh, deputy director of Vietnam's second-largest coffee exporter Vinh Hiep Co., notes that some companies are turning to imported beans to fulfill contractual obligations and to produce roasted coffee products.

The Weather Factor in Southeast Asia

Adverse meteorological conditions, including the dry spells provoked by the El Niño weather phenomenon, have diminished coffee production in regions like Vietnam and Indonesia. This has precipitated a sharp rise in local coffee prices, which accounts for Vietnam's coffee trading at a premium exceeding $30 when compared to Brazilian offerings—a factor that makes importing from South America increasingly appealing.

Anh from Vinh Hiep Co. further intimates that there may be scarcely any coffee left in the farmers' stocks, an indication of the current stringent market despite rising costs. Vietnam's stature as the principal robusta supplier is being challenged by extreme weather conditions and years of low profitability preceding last year's surge in prices. These factors have led some Vietnamese farmers to transition to alternative agricultural ventures, which in turn diminishes the country's global market share to levels not seen since 2008.

However, there is a flicker of hope for recovery in the coffee supplies of both Vietnam and Indonesia. As coffee prices ascend, farmers are projected to see increased revenues that could incentivize them to invest in expanding and enhancing their coffee plantations.

Long-Term Challenges and Prospects

Despite these potential short-term recoveries, several long-term challenges remain, as explained by Carlos Costa, the head of sales at Hedgepoint Global Markets. The predominance of small, family-owned coffee farms in these regions makes it difficult to achieve economies of scale. Costa speculates that Brazil may emerge as the 'big alternative' on the market, suggesting a shift in the supply dynamics.

As Asia's affection for coffee continues to manifest itself in various forms—from street-side vendors to high-end coffee boutiques—the region's impact on global coffee trade cannot be understated. This is a narrative of evolution and transformation, wherein traditional coffee giants are redefining their roles in the market to cater to an increasingly discerning and expanding consumer base.

The unfolding story of coffee in Asia is one of newfound passions and strategic trade adjustments. It is one that brings Brazil, the agricultural titan, into the spotlight as a key player supplying the beans that fuel the Asian love affair with coffee. As the situation evolves, we are likely to witness new trade patterns and consumption trends emerging—a testament to coffee's enduring allure and its ability to shape economies and cultures alike.

While this narrative keeps percolating throughout Asia's coffee-growing heartlands, the world will be watching—and possibly sipping on a Brazilian-sourced espresso—as these markets navigate the future of coffee production, trade, and consumption.

©2024 Bloomberg L.P. Original content can be found here.

In a world where the demand for coffee is relentless and the taste for an exceptional cup knows no borders, the Asian coffee culture's evolution is nothing short of remarkable. As consumers across Asia continue to embrace this caffeinated phenomenon with open arms, the global coffee trade will undoubtedly adjust and transform to meet this unstoppable demand.

The future of Asia's coffee scene promises a blend of traditional robusta charm and innovative flavors, converging to create a rich tapestry of coffee consumption that resonates beyond the continent. It seems the Asian coffee craze has only just begun to stir.