Trade Flows Strengthen Brazil’s Dominance
The international trade of green coffee saw strong growth in 2018, with 73m bags of green arabica exported (up 5% YOY) as well as 40m bags of green robusta (up 8% YOY). Virtually all of the growth came from Brazil and Vietnam, making the world more dependent on the two largest producers. Since Rabobank’s last coffee map (four years ago), there has also been impressive growth in Honduran exports, but the current low coffee prices are likely to prevent further growth in Central America and virtually all other countries, except low-cost producers Brazil and Vietnam.
The trade of processed coffee was much more stable in 2018, remaining virtually unchanged YOY. Italy is close to becoming the largest exporter of roasted coffee, almost overtaking Germany. There was also significant growth in soluble coffee exports from Vietnam and Indonesia in 2018, but Brazil remains the undisputed top soluble exporter. Increasing robusta production in Brazil, as exemplified by a record harvest in 2019, will make its soluble industry even more competitive going forward. Brazil’s top spot will be further solidified if a free trade EU-Mercosur agreement is reached, posing immense opportunities for Brazilian soluble coffee factories.
Consumer Trends Shaping Trade Flows
Rabobank has identified a number of coffee consumption trends that drive coffee flows, in both quantitative and qualitative terms. Some of them are global. Others are strictly local, but occur in markets with significant growth potential. The following summary highlights five key themes observed in global and local markets.
A Shift Towards Out-of-Home Consumption
Almost everywhere, out-of-home coffee consumption is growing faster than at-home coffee consumption, driven by changes in lifestyle and greater innovation from out-of-home options. Specialized coffee shops are just a small share of the total locations serving coffee, but they are changing the image of coffee and consumers’ expectations. As consumers shift purchasing patterns, Rabobank sees a greater focus on differentiated, premium, and traceable products, and Rabobank expect trends set in out-of-home consumption to trickle down to at-home consumption.
Ready-to-Drink Coffee Boosts Sales
Ready-to-drink (RTD) coffee consumption is well established in Asia – Japan alone accounts for over half of the global volumes – but it is also becoming increasingly popular in North America and in Europe, although still from a small base. Rabobank sees this as a core growth area within coffee and a high-margin, brand-building area to boot.
In North America in particular, the increased popularity of cold brew coffee is giving a strong boost to RTD coffee. It is an attractive, convenient alternative to both hot coffee and energy drinks when searching for the stimulant effect of caffeine and also to carbonated soft drinks (CSD) and other soft drinks. The recent partnership between PepsiCo and Lavazza, as well as the introduction of Costa’s RTD coffee, shows us that the lines between soft drinks and RTD coffee will continue to blur.
Continued Growth of Capsules and Pods in Developed Markets
The key success factor of single-serve portioned coffee is its convenience, specifically its ease of use and speed of preparation. For the time being, Western Europe (65%) and North America (26%) represent the lion’s share of global volumes, but demand is growing in all regions. Since convenience is one of the key drivers of global consumer demand, Rabobank expects demand for capsules and pods to continue to grow in the near future. Furthermore, their efficiency means that a shift to capsules and pods will likely have a negative impact on coffee volumes.
Premium Coffee Development in Brazil
At close to 21m 60-kg bags of coffee per year, Brazil is the second largest coffee consumer in the world, and demand is still growing. More importantly, sales of premium products, such as specialty coffee, fresh coffee beans, and, in particular, coffee capsules, are outperforming those of standard products, such as instant coffee and standard ground coffee. Rabobank expects premium coffee sales in Brazil to continue to grow double-digits through 2021 and to attract new investments from global coffee players.
An Extremely Hot Market for Coffee Shops in China
The listing of Luckin Coffee in May 2019 has spotlighted the strong momentum coffee shops (and coffee in general) are enjoying in China. The country’s coffee consumption is still quite low, but all major international and local coffee chains are racing to gain presence and visibility in the major cities. Rabobank expects even further investment: Chinese consumers expect high levels of service, and locations are far from cheap, which means that, in the long run, not all business models will succeed. But in the meanwhile, a growing number of young Chinese are incorporating a cup of coffee into their daily life. With an annual per capita consumption of only 13 cups (South Korea is 244 cups), there is significant room to grow.