Shortfall of Brazilian Robusta Shakes World Market

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Photo courtesy INCAPER

Robusta shortfall in Brazil

Drought resistant varietals and new farming techniques could revive robusta production

SÃO PAULO, Brazil

Solubles manufacturers in the world’s largest robusta producing country may be forced to import coffee

By Kelly Stein

A prolonged drought in Brazil has cut the robusta crop by 25%, shifted production away from the traditional growing regions and resulted in government fines for farmers who are prohibited from using water stored on their own land to revive crops. Reservoirs are at an all-time low and the water is desperately needed by residents.

As a result the International Coffee Organization (ICO) reported that robusta prices rose significantly in October reaching a 21-month high of $1.42 per pound. Locally prices on Brazil’s (CEPEA/ESALQ) Index rose to a record $1.69 per bag on Oct. 31.

“Total coffee exports ended 2015/16 down by .7% to 112 million (60-kilo) bags… with robusta declining by 3 million bags,” according to ICO, “(robusta) exports amounted to 40.8 million bags compared to 43.8 million bags the previous year.”

ALSO: Brazil's Robusta Varietals

“The coffee market ended in a deficit for the second consecutive year, (down 3.3 million bags) but stocks accumulated in 2012/13 and 2013/14 have allowed the market to remain well supplied,” according to ICO.  Global production was 148 million bags.

Brazil’s CONAB (National Company for Food Supply) estimates Brazil’s robusta crop declined to 8 million bags, a staggering 22.2% below the previous year.

These are strange days for those who work in the coffee industry, especially those who produce coffea canephora. For the first time in history, speculators drove robusta prices briefly above arabica in the Brazilian market due to shortfalls caused by droughts in the main producing areas in Brazil.

“In 15 years producing conilon (robusta) in Espírito Santo, this is the first time that I have seen robusta’s prices reach the price of arabica!” exclaims Esthério Colnago, president of the Brazilian Sindicate and Cooperatives Organizations of Espírito Santo (OCB/ES). 

Together the states of Espírito Santo, Rondonia, and Bahia normally produce 94% of Brazil’s robusta but these numbers changed drastically due to a severe lack of rain for two years in a row, according to Esthério.

“We are able to produce an average of 12 – 15 million bags per year, but this lack of water destroyed more than 30% of our crops,” he says sadly. “It was so serious that local governments prohibited farmers from using their stored water or personal water sources to irrigate their crops. Those who ignored the temporary law would pay heavy fines,” he explained.

The unusual price increase attracted speculators, emptied warehouses and led to increased volatility (See Coffee Volatility pg. 26) during the past few months. Now producers can no longer meet industry demand.

Robusta shortfall in Brazil

Importing coffee is considered the last resort in the world’s largest coffee producing country.

Robusta market

A lack of sensorial quality and cheap production make robusta an important segment of Brazil’s coffee industry. Genetically robusta is a stronger plant with greater resistance to plagues, diseases,  and climate change. It also contains a high concentration of caffeine. Blended with arabica, a more flavorful but delicate coffee, robusta makes it possible for manufacturers to create a much more affordable cup.

Brazil’s coffee drinkers enjoy the least expensive coffee in the world. In Brazil a pound of coffee sells for $1.90 (Pilão 500 grams). A cup brewed at home averages 11 cents. Rio de Janerio and Sao Paulo residents pay an average $1.02-1.03 for coffee, the most affordable coffee among 75 major cities.

In Switzerland Zurich residents pay $5.96 for takeaway at an independent coffee shop and spend 55-cents per cup at home.

The inflation averaged price in the US is 31-cents per cup (8-oz) at home and $2.70 in a cafe. A Starbucks cappuccino costs $5.30 in New York. The global average price for a medium cappuccino at Starbucks $4.05.

“Conilon is considered neutral and with good price, a great deal for the industry,” said Eduardo Carvalhaes, director at Eduardo Carvalhaes coffee brokers and president of the Coffee Sector Chamber.

The soluble coffee industry is the main buyer, followed by domestic roasters that rely on robusta to make what is known as traditional coffee. According to the Coffee Technological and Development Center (CETCAF) report, 90% of the robusta harvest stays in Brazil. Brazilian coffee roasters can insert 55% robusta in blends destined for the local market where consumers are accustomed to a very dark and bitter coffee, always accompanied by a great deal of sugar.

Importing robusta

Domestic demand is squeezing the market and forcing local price volatility. To preserve the solubles segment it may become necessary to import robusta which has led to an intense debate between the industry representatives and other coffee sector leaders.

On one side, the Brazilian Association of Soluble Coffee Industries (ABICS) suggests importing robusta as a temporary solution. ABICS president Aguinaldo José de Lima, points out that 80% of Brazil’s instant coffee is made with robusta. This volume cannot be replaced by arabica. He says that the solubles industry would prefer not to import, but he must find a ways to keep the segment working.

The majority of coffee interests, including cooperatives, associations, producers, brokers, and members at the National Coffee Council (CNC) are deeply concerned that imports would lead to predatory competition. Considering the strict environmental and labor laws in Brazil, the cost of robusta production is higher when compared to other countries, where the same laws are not necessary respected. Importing inexpensive robusta “is not fair, especially for the Brazilian producer who is taking all the risks and the chances in the last years,” said Carvalhaes.

He said a little patience and even a momentarily loss of share in the international and national markets may be needed by “domestic market protectors.”

The shortfall is forcing new techniques, better use of water, new irrigation technology and development of robusta varietals such as clonal coffees. Combined these investments will change the shortfall scenario within two years, Esthério predicts. “I am sure that the production will be regularized or even get bigger,” concludes.

The debate is ongoing and at the time of publication, no conclusion was reached.  No one can guarantee that imported coffee will enter the Brazilian frontiers but all agree the crisis in manufacturing is getting worse.