The Argentinian tea and coffee markets are steadily growing this year thanks to generally improving economic situation in the region and stable domestic demand.

Argentina has rich traditions of tea and coffee drinking. While the Covid-19 pandemic and serious financial problems of the country had resulted in a serious drop of consumption of both drinks, the market has almost completely recovered, although the rise of coffee prices by almost 150 percent in the last year put a serious pressure on the market.

For many global coffee majors, the expansion into Argentina along with Brazil, is a priority due to the potential, which is associated with the Latin American region and the exodus of business from the markets of Russia and Ukraine — once the most important emerging markets for them.

With the population of more than 47 million people and a status of the second largest country in the Latin American region, Argentina has always been under the radar of some major tea and coffee producers.

Emanuele Uccellini, the Caribbean and Latin America BU Director for Lavazza Group BU Americas told T&CTJ in an exclusive interview, that Lavazza has been present in the Argentina for many years, and that the market represents a top priority within the Latin America region for two main reasons:

1. The growing interest of consumers in high-quality coffee brands. The demand for specialty coffees has been increasing significantly, especially during the pandemic, and we’ve seen the trend keep growing, mostly among younger consumers.
2. The relevant presence of people with Italian roots: they always feel at home when they sip a good Lavazza cup of coffee.

The Argentinian coffee market has always been of interest to other global majors as well.

One of them is JDE Peet’s, which in recent years has significantly strengthened its positions in the local market. A spokesperson for JDE Peet’s, said, “JDE Peet’s does sell a range of products across our brand portfolio in Argentina including NCC capsules. We anticipate that the demand for coffee and tea will only continue to grow globally. We recently signed an agreement to acquire Marata’s coffee and tea business in Brazil, and South America in general is an area in which demand for coffee and tea is increasing.”

The Argentinian market also attracts the interest of global coffee chains, many of which are considering accelerating expansion in the local market in years to come, which is primarily done through the expansion of the existing portfolio. One example is Starbucks, which considers the local market as a priority for its growth.

A Starbucks’ spokesperson told T&CTJ, “Starbucks entered Argentina in 2008 with our first store in Buenos Aires. Today, the brand operates over 130 stores in the market, providing employment opportunities to over 1,700 green apron partners,” noting that earlier this year, Starbucks celebrated its 15^th anniversary in Argentina, together with its licensed business operator, Alsea.

In April 2023, the spokesperson said that Argentina took a significant step toward a more sustainable future by certifying its first two Starbucks Greener Stores. “This is part of Starbucks global vision to have 3,500 Greener Store-certified locations worldwide, aiming to cut our climate, water, and waste footprints in half by 2030. Starbucks Argentina also continues to expand its plant-based menu offerings in an effort to deliver increased options for our customers.”

Furthermore, in collaboration with Alsea, Starbucks announced plans to operate 2,000 Starbucks stores in the 12 markets where Alsea operates the brand globally by the end of 2025.

Starbucks and other leading Western coffee chains operating in the country have faced strong competition with local players. An example of this is Café Martinez chain, a local chain that has almost doubled the number of its outlets within Argentina the last few years and which plans to continue its active expansion in years to come.

Coffee consumption is growing

A senior researcher at Euromonitor International said that in 2022, the total volume sale of coffee in Argentina is set to post a third consecutive year of growth, following a decline during the outbreak of Covid-19. “For the current year and beyond even though consumers have returned to pre-pandemic habits, total volume consumption is forecast to grow much slower. This is due to the long-term unstable economy, increased poverty, and high inflation, which is diminishing the purchasing power of middle and low-income consumers.”

However, coffee is set to post the highest total volume and current retail value growth in hot drinks, driven by the widening use of instant coffee, which began seeing consumption growth in 2021 and 2022. Instant coffee benefits from being affordable, while offering a widening variety of coffee mixes. New coffee consumers tend to start with lighter options, with less coffee flavour and with more milk content, with the inclusion of chocolate and other ingredients.

The coffee industry has suffered a major world price hike due to drought conditions in Brazil, which led to considerably lower production and higher freight costs. Coffee pod consumption rocketed as consumers prioritised high-quality coffee with a desire to replicate foodservice experiences at home. The coffee pod category was also stimulated by a continuous entry of new brands, including La Morenita, La Virginia, Jacobs, L’Or, Viaggio, and Nestlé Argentina’s latest novelty with Starbucks. Sales of coffee pods were fueled by the growth of ecommerce, the fastest-growing channel in the hots drinks industry in 2022.

According to Euromonitor’s spokesman, retail value sales of coffee in Argentina increased by 67 percent in current terms in 2022 to ARS 80.3 billion The instant coffee mix category was the best performing one in 2022, with retail value sales rising by 75 percent in current terms to ARS 5.4 billion. Retail sales in 2022 had a CAGR of 59 percent, hitting ARS 811 billion (CAGR of 15 percent over the forecast period 2022-2027).

Coffee does grow in Argentina; however, it is produced in only a single plantation in the Yungas — a bioregion of a narrow band of forest along the eastern slope of the Andes Mountains from Peru and Bolivia. It emerged in the early 1970s under the name of Café Baritú when authorities in the province launched an ambitious plan to make Northern Argentina a coffee-producing area.

Graciela Ortiz, the owner of Café Baritú in an interview with the Argentinian iProfesional business paper said that the coffee produced on the Salta farm is Arabica. “It is actually a mixture of two Arabicas, one Colombian and the other Brazilian,” he specifies. “It has a very subtle flavour, with fruity, perfumed notes.”

As for coffee, although Argentina is still far from countries like Norway, Finland or the United States in terms of coffee consumption – being stagnant for years at a per capita consumption of only one kilo per year – the sector has shown sustained growth recently, which is mainly due to the rise of popularity of coffee among local customers.

According to a study conducted by the Argentine Coffee Chamber in collaboration with the firm The Brand Bean, today, coffee in Argentina represents 45 percent of the beverages chosen compared to all other beverages and is consumed mostly by people between 25 and 44 years old.

Most local citizens prefer milder coffees instead of stronger roasts as in many European countries. According to some media reports, an average of one kilo of coffee per capita is consumed annually (208 cups) in the country, with the instant variety being the most consumed. Nine out of 10 Argentines prepare it at home and approximately 50 percent of consumers add milk.

Regarding the most chosen varieties, young people seek to customise it and choose to consume cold and instant coffees. On the other hand, those over 35 years of age choose the capsule format.

According to experts of La Nacion, local consumers are increasingly interested in knowing everything about the product: who makes it, what differential attributes it has, what extraction method enhances it, what the differences are between varietals and what the different types of filtering are like. In addition to choosing coffees from more exotic origins, such as Kenya, the Dominican Republic, Honduras or Haiti, they also turn to cold brew when the temperature rises.

Tea-growing & consuming are strong

In the case of tea, retail value sales grew by 62 percent in current terms in 2022 to ARS 21.3 billion. Green tea was the best performing category in 2022, with retail value sales rising by 73 percent in current terms to ARS131 million.

Retail tea sales had a CAGR of 41 percent in 2022, reaching ARS 118 billion (constant value CAGR of 2% over the forecast period).

Tea sales saw growth in total retail volume terms in 2022; resulting from the increasingly positive perception of tea as a healthy option. Argentinian consumers have always been very health conscious, but the outbreak of Covid-19 increased this, with consumers discussing and looking for ways to boost their immune systems. Greater interest has been given to specific functional benefits offered by different tea varieties, particularly those claiming to strengthen the immune system or provide a calming effect. Thus, green tea and herbal/fruit tea have seen strong growth, driven by their functional fortified options.

Argentina has a more robust tea production than that of coffee. According to Argentinian Mitre Y Elcampo business paper, tea production is in the southernmost part of Argentina, located between 26° and 28° South latitude, there are about 6,800 producers with an area of 40,500 hectares. About 94 percent of them are located in the province of Misiones, and the remaining 6 percent are in Corrientes. A characteristic of Argentine tea is its high concentration of polyphenols.

Approximately 90 percent of Argentine tea production is destined for foreign markets and its volume represents almost 2 percent of world consumption. The main destination is the United States, with 70 percent of the production. Currently, Argentina is the main exporter of tea to the United States of America. Other important destinations are Chile, Poland, Russia, Germany; followed by the United Kingdom, India, Malaysia and 30 other countries

The annual volume of tea exports from Argentina are varied in range of 70,000-75,000 tonnes mostly black tea for about USD $75 – $83 million in value terms. Nearly 64 percent of the cultivated area is certified with the RAS Standard (Sustainable Agriculture Network, triple impact).

Tea consumption in Argentina has been steadily growing with the biggest demand being observed in case of gourmet tea. This has even stimulated the development of tea tourism in the region, with the province of Misiones, which is located in the northeastern corner of the country in the Mesopotamia region, at forefront of this.

• Eugene Gerden is an international freelance writer, who specialises in covering the global coffee, tea and agricultural industries. He worked for several industry titles and may be reached at gerden.eug@gmail.com.

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In 2022, the Russian coffee market experienced a price shock, as the average price per cup jumped by 27% to 36%, the Russian issue of Forbes reported, citing local analysts. Although the price had steadily grown since 2019, last year’s hike was outstanding.

Russia consumes 1.5kg of coffee per capita, importing around 230,000 tonnes of coffee beans per year, estimated Marina Petrova, CEO of Petrova Five Consulting, a Moscow-based think tank.

Over the past several years, the consumption growth has been secured by multiple coffee-to-go chains, said Albina Koryagina, partner with a Moscow-based consultancy NEO-Center. These companies put a lot of effort into waking up the market – working on the brink of profitability for years – and eventually succeeded, introducing a coffee-to-go culture to large masses of the Russian population, she explained.

As a result, coffee has become a vital product for Russians, historically perceived as tea lovers, Koryagina said. For ordinary citizens, the price of coffee is an essential indicator of food inflation and the general state of play in the country’s economy. The Russian federal statistical service Rosstat calculates the monthly food inflation ratio valuing the coffee as high as gasoline, sausages and hot water supply.

Almost half of the coffee beans imported to Russia come from Vietnam, and nearly a quarter from Brazil. Both countries have not joined Western sanctions against the Russian economy, but imports suffered nonetheless.

Price matters

As Russia does not grow coffee, the price dynamics on the market are usually tightly linked to the Russian ruble’s exchange rate. In 2022, however, the correlation between these trends surprisingly disappeared, and they even went in the opposite direction. Between February and June 2022, the Russian ruble strengthened from 84 to USD $1.00 to 58 to USD $1.00, while coffee prices skyrocketed.

To some extent, this was associated with a hike in global prices, said Ramaz Chanturia, head of the Russian tea and coffee association Roschaicoffee. Low coffee harvests in Vietnam, Brazil and Indonesia contributed to this trend, he added.

A logistics crunch was another, likely much more important factor. Before 2022, almost all coffee was imported to Russia from Europe. Last year, the sanctions blocked this route, forcing importers to seek alternative supply schemes. Some options were found, but they reportedly appeared to be way more expensive, especially since leading global cargo carriers suspended working with Russia, and almost the entire country’s banking system is disconnected from the SWIFT network.

This year, imports are sustaining new blows. The Russian ruble has weakened by 26% this year as a result of a collapse in export revenues and growing budget spending, making it the third worst-performing global currency this year. During the last 12 months, the Russian ruble lost nearly half its value against the hard currency, notching a psychological barrier of 100 per USD.

As a result, in the next few months, Russian analysts anticipate a new price jump of around 20% to 25%.

Coffee changes taste

In this background, Russian retailers and coffee chains have to seek cost-saving solutions in order to keep their prices as low as possible.

Petrova said that the Russian coffee market is undergoing some big changes. She said that even Russian retailers like Azbuka Vkusa, normally focused on selling premium food, started selling blends with a 50% to 80% share of robusta, while in the previous year, this figure was never higher than 20%. There are also signs that Russian importers have abandoned arabica owing to low demand.

“Distributors’ stocks of high-quality raw materials are running out, and consumers will soon experience changes in the taste of their usual coffee-based drinks,” Petrova said.

The daily morning cup of quality coffee may well become an unattainable dream for a large portion of the Russian population in the near future, admitted Nikolay Vavilov, senior analyst of Total Research, a Moscow-based think tank.

In addition, a mass exodus of Western brands from Russia continues. Recently. JDE Peet’s announced plans to remove its tea and coffee brands: Jacobs, L’Or, Tassimo, Douwe Egberts, Pickwick and Senseo from the country.

The worst part is that all the negative trends hurting the Russian coffee market seem only to gain steam. Alexander Miller, a Russian independent economist, assumed that the Russian ruble could plummet to 130 by the end of the year, owing to an overall gloomy economic outlook. At the same time, Russian logistics companies complained that the external conditions remain harsh for their business, and they must be increasingly creative to keep the imports running.

It is yet to be seen whether the current crisis will lower the Russian coffee consumption figures, but this scenario also should not be ruled out.

• Vladislav Vorotnikov is a Batumi, Georgia-based multimedia B2B freelance journalist writing about the tea and coffee industry since 2012.

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The country has been a Member of the Agreement since 1964, which aims to promote exchange and cooperation between consumer and producer countries. During the renegotiation of the ICA 2007, due to expire in February 2024, Stefanie Küng of Switzerland chaired the Working Group on the Future of the Agreement which enabled the drafting and approval of the new ICA 2022. Aligned with the UN Sustainable Development Goals and maintaining its intergovernmental nature, the new Agreement is characterised by streamlined and more effective governance, a fairer distribution of contributions that reflects the actual value distribution in the coffee global value chain, and stronger cooperation with and integration of the private sector and civil society. What’s more, it gives a clear mandate to the ICO Secretariat to assist Members to mobilise resources in order to realise their coffee sectors’ full potential and act sustainably.

Switzerland forms an integral part of the global coffee landscape. With an average of US$2.2 bn in net trade, Swiss companies are heavily involved in the international coffee market and Swiss coffee roasters play a leading economic role internationally. Around 10% of the world’s coffee export value is attributed to Switzerland, with its citizens enjoying 16.2 million cups every day.

The ratification of the ICA 2022 will further contribute to the sustainable development of the coffee sector at a national and global level by benefiting and involving all actors in the value chain. This includes not only coffee exporting and importing countries, but also coffee farmers, the industry, civil society, and development and financial partners, all of whom contribute towards the overall transformation of the sector.

The ICA remains one of the most significant international economic agreements ever negotiated and has a vital and immediate impact on the lives of millions of people worldwide, and an indirect effect on hundreds of millions more, influencing the political and economic future of many countries. The new ICA 2022 will address the challenges facing the sector through the multilateral channel rather than country-to-country negotiations, strengthening the key role played by the Organization as the centre of “coffee diplomacy” and reaffirming the ICO and its Coffee Public-Private Task Force as the main forum for multi-stakeholder discussions on coffee-related issues at the public and private levels.

Executive director of the ICO, Vanúsia Nogueira, said:

“Many countries have already signed the ICA 2022 and now Switzerland has shown that with strong political commitment the parliamentary process of ratification can be completed promptly and efficiently. In order to enter into force definitively, signatory governments holding at least two-thirds of the votes of the exporting Members and at least two-thirds of the votes of the importing Members must have deposited instruments of ratification, acceptance or approval.

“Because of the importance of coffee in world trade and its great social, economic and political significance to so many countries, we have a duty to shape this area of international cooperation and regulation with regard to the global sector. Thanks to Switzerland, we can inaugurate a new era for the ICO and provide an important precedent for future collective efforts in the international economic and commodity field.”

Markus Leitner, Ambassador of Switzerland to the United Kingdom, said:

“Thanks to innovative technologies in the roasting, processing and capsulating of coffee, Switzerland is a leading trading and exporting hub for coffee. We are convinced that the new ICA 2022 represents a strong instrument to promote sustainability in the coffee industry, while ensuring cooperation between governments, the private sector and civil society.”

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For centuries, coffee was a key ingredient in the Arab World’s hospitality industry and now in the United Arab Emirates (UAE), visitors are driving a new coffee consumption trend that has given the hospitality sector a more commercial meaning.

Serving coffee in the Arab world, including in the UAE, has shifted from being a mere ceremonial act of generosity to a more meticulous latest technology-driven service with coffee consumption now dominated by modern international and regional coffee companies that have now taken over from the “sheikhs and heads of tribes, elderly Bedouin men and women and owners of coffee trading shops” as the region becomes more integrated into the modern global coffee market.

For the UAE, a confederation of seven Emirates in the Arabian Peninsula, positive growth has characterised the coffee market in recent years despite being jolted by the outbreak and subsequent spread of Covid-19 in early 2020. The pandemic did indeed put breaks on exports, imports and rising consumption levels of coffee in the UAE, thus impacting sales of products such as ground coffee, instant coffee, whole bean, coffee pod and capsules.

The UAE’s coffee market growth has been attributed to the expanding urbanisation, higher living standards and fast recovery of the country’s tourism and hospitality industies post Covid-19. There has been an increase in consumption of diverse coffee products such as hot drinks, ready-to-drink and flavoured beverages as well as export and import volumes especially during the post-Covid period according to statistics by UN’s Food and Agriculture Organization (FAO).

FAO estimates the UAE’s coffee consumption per capita across all the seven UAE emirates of Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Ajman, Umm Al Quwain, and Fujairah at 0.890 kg in 2019, albeit a 15.2 percent decline from 2018 figures. However, the negative consumption levels were reversed in 2020 when the annual average rose to 1.5kg for each of the 9.9 million people in the UAE. This though was less than the 5.7kg, 5.2kg, 3.9kg, 3.9kg, 3.1kg and 2.7kg consumed in other Middle East markets of Lebanon, Qatar, Cyprus, Bahrain, Kuwait and Jordan respectively according to Mohamad Merhi, managing partner and co-founder of Dubai-based specialty coffee roastery Cypher Urban.

On average, UAE coffee consumers could have drunk 14.8 million kilogrammes of coffee in 2020, an amount likely to rise on the back of Emirates’ rising per capita income, increasing tourist arrivals, expansion of the hospitality sector and preference for spending on non-alcoholic beverages across the Middle East.

Dubai offers a business friendly environment

The surge in per capita coffee consumption in the UAE coincides with an increase in coffee retail business, especially in Dubai, as franchise coffee chains and domestic coffee retailers take advantage of the conducive environment to set up coffee outlets.

According to the the UAE’s Business Registration and Licensing (BRL) sector in the Department of Economy and Tourism, Dubai, as of March 2022, had licensed 615 companies as coffee traders hence reinforcing the Emirate as a global trading hub for the commodity.

The coffee businesses include manufacturing, wholesale, and retail, import and re-export, as well as the retail of hot coffee in cafés and restaurants, ready-to-drink (RTD) coffee in grocery stores and retail outlets according to the report.

The report showed that the total number of licences issued during 2021 increased by 148 percent compared to 2020, when 69 licences were issued, compared to 171 licenses in 2021. UAE nationals topped the list of investors in the trading of coffee at 31 percent of the total followed by other nationalities such as British, Italian, Turkish, French, Egyptian, Jordanian, and Kuwaiti.

Dubai and Deira areas accounted for the largest share of the companies engaged in coffee trading with with 368 and 243 licences respectively. At least 64 percent of the coffee businesses in Dubai, the report says, are limited liability companies with a fast-growing number of Emirati companies engaging in the coffee trading. Some have even expanded to the global coffee market from the UAE according to the report including opening outlets in several countries via the services provided by Dubai Industries and Exports, an agency of Department of Economy and Tourism.

Elsewhere, the opening of the Dubai Multi Commodities Centre (DMCC), the UAE’s largest free-trade zone located in the Jumeirah Lake Towers district of Dubai, in 2005 was a turning point for the UAE’s coffee trading as the facility has steadily transformed itself and Dubai into an international commodity trading hub.

“The tea and coffee industries are increasingly turning to DMCC because of its world-class facilities, which include superior logistical and processing support for all stages of the value chain, cutting out intermediaries to deliver increased value for farmers, producers, and consumers alike,” said DMCC in its first half of 2022 report.

In 2021, the 7,500m² temperature controlled DMCC Coffee Centre stored and processed more than 9,000 MT of both green and roasted coffee “from a broad range of producing markets across Central and Southern America, Asia and Africa.” DMCC said it “doubled its membership count, demonstrating the significant progress made by the Coffee Centre as a high-quality logistics and distribution hub.”

And in 2020, Dubai Customs reports show trade in coffee in the first half of the year grew 5 percent to AED 253m (USD $69 million) compared with AED 240m (USD $65 million) in the prior-year period with volumes traded increasing to 14,000 tonnes.

Furthermore, the FAO indicates the UAE imported more coffee than it exported for the three years to 2020 as domestic consumption spiked driven by the growing expat population, tourist numbers and a fast-emerging Western coffee consumption culture. Coffee exports reached 4383.35 tonnes in 2020 up from 2768.94 tonnes in 2018, a 58.3 percent increase according to the UN agency. The UAE imports coffee from origin markets before adding value and re-exporting the commodity to high-consuming markets.

The highest export volumes were between 2018 and 2019 when the UAE sold an additional 1199.85 tonnes more to the international market. However, in what could be an indicator of an increasing coffee consumption trend in the UAE, FAO figures indicate the seven emirates imported more of the commodity for the three years to 2020 when an estimated 6497.08 tonnes of coffee were purchased by the Emirates.

Coffee imports rise steadily

Coffee imports, just like the exports, showed an upward trend from 5246.73 tonnes in 2018 that increased steadily by 23.8 percent at the end of 2020. The highest increase in coffee imports into the UAE was between 2019 and 2020 when an additional 1047.96 tonnes was sourced by both the public and private sector coffee buyers.

Elsewhere, Merhi said the value of coffee imports by the UAE increased steadily between 2018 to 2020 from USD $104 million to $175 million. The Emirates imported USD $111 million worth of coffee in 2019. The UAE coffee imports were equivalent to 9.1 percent, 9.2 percent and 14.3 percent of the total Middle East coffee imports totals for 2018, 2019 and 2020 respectively.

However, the effects of Covid on the global coffee trade impacted 2021 coffee imports with the UAE reporting a 13 percent decline in value to USD $145 million down from $175 million in 2020. The drop in imports, does not however, reflect across the Middle East market where the value of coffee imports increased from USD $1.2 billion in 2020 to $1.4 billion in 2021.

Official projections by the UAE government show the Middle East & Africa coffee market will grow at a CAGR of 7.5 percent between 2022 and 2027 while that of the UAE would increase by 8.3 percent for the same period.

Elsewhere, the DMCC Coffee Centre has provided an enabling platform for the international coffee franchises to offer customer-driven coffee products to cater for the diverse global coffee cultures triggered by the increasing number of tourists. The FAO indicated a 58 percent increase in tourist coffee consumption in the UAE between 2016 and 2019. It said that consumption increased from 2424 tonnes in 2016 to 3850 tonnes in 2019. Visitors consumed 3466 tonnes and 3521 tonnes of coffee in 2017 and 2018 respectively.

Furthermore, the UAE’s population has been growing steadily, with the country’s labour force coming from more than 200 nationalities. The foreign population in the UAE represents 89 percent of the Emirates total estimated at 9.9 million in 2020. Due to the diverse cultures, the UAE is in the middle of a changing coffee consumption trend that is aligned more to the Western world. This change ultimately influences the UAE’s coffee trade with the rest of the world.

Meanwhile, the UAE’s coffee market and trade received a major boost from hosting the second edition of the World of Coffee Dubai, an event that was organised by integrated event management firm DXB Live in partnership with Specialty Coffee Association (SCA). World of Coffee (WOC) is touted as a suitable platform for international coffee businesses wishing to break into the Middle East’s emerging coffee industry. Both coffee producing and consuming countries exhibited at the event that was held in January.

DXB Live’s senior vice president, Khalid Al Hammadi, said the event, one of the world’s major global coffee industry events in 2023, is a major boost to the UAE’s stature as “a regional and global hub for the coffee industry.” He added that “World of Coffee Dubai 2023 also provided industry representatives with exceptional opportunities to network with their peers.”

Moreover, the UAE’s economic growth is expected to remain robust according to the International Monetary Fund (IMF), supported by “a strong rebound in tourism, construction.” With the Emirates’ overall GDP growth projected to reach above 6 percent in 2022 up from 3.8 percent in 2021, the UAE coffee market is likely to growth further as the country intensifies implementation of structural reforms that are providing investment opportunity for both the public and private coffee market players.

The UAE tea market remains strong

The UAE is also emerging as a key trading hub for the global tea market with the country increasing both its exports and re-exports to consuming markets especially in the Gulf Cooperation Council (GCC) that includes Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman.

An emerging health-conscious population, especially after the Covid outbreak and a preference for beverages that have immunity-boosting qualities, is driving the growing UAE tea trade with the International Trade Centre estimating the value of the country’s total exports and re-exports in 2020 at USD $316 million and $39 million respectively. Currently, the UAE is the world’s largest re-exporter of tea with a major share in the global market, according to government reports.

The UAE has leveraged on this growing tea trade to set up the Dubai Multi Commodities Centre (DMCC) Tea Centre within the Jebel Ali Free Zone where subscribed members have the option to 100 percent own the tea trade operations with little or no personal and corporate tax or restrictions especially in when it comes to capital repatriation. At the Centre, traders have opportunity to package their tea, sourced from various producing countries, for re-export. In 2022, the Centre produced 8,200 tonnes of packaged tea, including 400 million tea bags, the equivalent of 27 percent growth compared to 2021.

More tea trade opportunities are likely to emerge during this year’s Global Dubai Tea Forum, the first one after a five-year hiatus. The event, slated for 25 – 27 April, under the theme ‘Unpacking the Future of Tea: From consumer trends to new market opportunities’, will bring together global tea producers, suppliers, buyers, governments, and other industry stakeholders “to discuss and explore the key consumer trends, market forces, and significant opportunities that will drive tea’s global growth.”

Since its inception, the Tea Centre has transacted around 425,000 metric tonnes of tea from 12 different origins servicing about 50 brands, per the DMCC.

Key tea buyers from Dubai such as India and Sri Lanka have set up shop at the DMCC Tea Centre to enhance access to the market with possibility of expanding to the rest of the Middle East markets where tea re-exportation is popular.

Kenya, India, Sri Lanka are top suppliers of tea to the UAE in 2020 per the ITC. Kenya’s and Sri Lanka’s value of tea exports to the UAE increased in 2020. While India’s declined. Overall, the UAE’s tea re-exports of flavoured and non-flavoured tea declined by 50 percent to USD $39.8 million according to ITC statistics that have been derived from the United Nations Comtrade database aggregates.

Similarly, imports dipped by nearly 8 percent during the same period, a trend observed since 2017. The value of tea imports dropped to USD $187 million in 2021 versus $194 million the previous year.

The ITC reports that Russia, Iraq, Iran, Egypt, Ukraine are the UAE’s biggest tea re-export markets as the Middle East country rides on its flexible trade norms, favourable taxation policies and strategic geographical location to strengthen its position itself as a global tea-trade hub.

For some of the UAE’s export and re-export markets, the ITC’s statistics shows an interesting trend between 2018 and 2020 such as the emergence of Saudi Arabia as the preferred tea export destination dethroning Russia from among the top five. The value of the UAE’s tea exports to Russia in 2018 was estimated at US $49.71 million, higher than that of Iraq, Saudi Arabia, Kuwait, and Oman estimated at $48.52 million, $6.59 million, $3.96 million, and $2.34 million respectively. However, in 2020, Saudi Arabia emerged as the top export destination with tea valued at $86.48 million, more than 1000 percent increase.

Tea exports to Kuwait and Oman in 2020 grew by more than 1000 percent and 800 percent to USD $44 million and $22.56 million, respectively. Conversely, tea imports from the UAE that year by Russia and Iraq declined by 41 percent and 55.89 percent, respectively.

Consumption

Tea remains a popular beverage in the Middle East with market research firm Frost & Sullivan saying demand for tea as a hot beverage “is increasing in the GCC and is strongly backed by product innovations incorporated into the product and marketed in the region.”

The report further notes that increased interest in health and wellness is driving the demand for infused tea in the GCC market. Additionally, Frost & Sullivan find that the post-Covid period has seen an increase in demand for infused herbal tea, especially with ingredients such as peppermint, ashwagandha, ginger, and probiotics. The popularity of the teas is driven largely by the products’ overall functional property-enhancing qualities more specifically those associated with boosting of consumers’ body immunity. The UAE, like in many GCC markets, is experiencing a trend where consumers prefer green tea partly because of they have found new flavours in the product.

With the UAE’s focus on long-term growth for its coffee and tea markets backed by a deliberate move by public and private sector to integrate innovation into these commodities’ supply chains, chances of this Middle East country emerging as one of the top global markets in tea and coffee, are extremely high.

• Shem Oirere is a freelance business journalist based in Nairobi, Kenya. He has spent more than 25 years covering various sectors of Africa’s economy including the region’s agribusiness. He holds BA in International Relations and Diplomacy from the University of South Africa and earned a higher degree in journalism from the London School of Journalism and is also a member of the Association of Business Executives (ABE).

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Over the last several days, coffee has rallied to USD 242c per lb, its highest level since peaking at 260c early in the year. Calendar spreads are inverted to levels not seen since the Brazil frosts of the 1990s, certified inventory levels languish at the lowest levels in over two decades and physical prices are sky high. The coffee market is in the midst of an extraordinary time, yet with the excitement of rallies and sell-offs it is important to step back and gain some perspective.

So where is coffee market headed to from here?

Arabica is in a precariously tight situation that lends itself to rallies and volatility, and this tightness is very much front-loaded into the present. However, the coffee market is ‘forward looking’ (after all it is a ‘futures’ market) and so we need to project forward to understand where the coffee market is headed to from here.

In the original version of this article, I predicted a rally followed by a long-term sell-off. I still have the same conclusion, but now that the rally has begun in force, it may last longer than I had originally thought.

In this article, I will outline what to expect over the short, medium and long term and how it will impact the coffee market. While the outcome of lower prices is assured in the long-term (two + years), in between then and now, there is a lot of volatility that will depend heavily on currencies, supply and physical prices.

Fundamentals

When evaluating the fundamentals, I like to start top to bottom to ensure that we do not lose the forest for the trees, and in coffee, the top of the forest is the annual #Supply and #Demand Balance sheet.

The long-term fundamentals have the coffee market in a two-year deficit after the surplus of the 2020 crop and looking forward to a return to surplus in the 2023 crop year. This the fundamental basis for my ‘bullish now, bearish later’ view.

Mechanical harvesting in Brazil. Image: NKG

The further forward in time we look, the more comfortable the balance sheet looks. This plentiful forward supply is largely driven by Brazil, but other origins will pitch in too. Especially with high prices over the last year encouraging growth in coffee.

Global supply will grow in 2023 and Brazil will likely be producing record crops again by the 2024/2025 crop. Loose balance sheets manifest in bear markets and weak differentials this is what will ultimately collapse the calendar spreads and send coffee prices back down to the lows, but we are a couple of years out from that point yet.

Presently, we are in a supply crunch driven by Brazil’s biannual cycle. Brazil is the world’s largest producer of coffee, and this biannual cycle is a major factor in world supply. In the last two years, the Brazil supply suffered a one-two-punch: the off-cycle 2021 crop in Brazil was devastated by drought and the on-cycle 2022 crop was doubly ravaged by frost and drought. This effect made an already down-year worse and stunted the recovery-year.

These back-to-back disappointing crops created back-to-back global deficits in coffee, decimated global inventories and ignited coffee prices to 200c and beyond.

Destination inventories in Europe, the USA and Japan all saw massive drawdowns, not only from the deficits but also from Covid-induced lockdowns that skyrocketed freight prices and snarled logistical efforts to ship coffee.

Supply problems in Colombia and Central America further accelerated the deficit and triggered rallies in differential prices across key washed coffees.

The combination of high freight prices, high differentials and slow transit times triggered another phenomenon: certified stock consumption (more info on Cert Stocks here). With all the delays and added expense to import coffee, it became financially attractive to decertify coffee and sell it for consumption.

This certified stock draw triggered impressive rallies in calendar spreads leading to the largest backwardation since the Brazil frosts of the 1990s.

Calendar spread inversions are rare in Arabica (due to tight position limits by the CFTC) but they will occur in the front month when there are shortages of certified inventory. While consolidated in the front month, this inversion has been persistent down the futures curve as the market does not anticipate a replenishment in certified stocks anytime soon.

Moreover, is the influence of the speculator.

Coffee managed money long positions

Usually, the spec long helps to accentuate rallies, and they did so in the case of the rally that peaked early in 2022. However, volatility knocked out the spec, bringing their positions down to the lowest point of the year. This, combined with low hedging dropped open interest and liquidity down to 2017 levels that has exacerbated volatility.

However, recently, the Robusta market has led a return of the speculator (Managed Money Longs) back to the coffee markets and prices are at their highest point since the peak back in February.

The return of the speculator has been instigated by a growing consensus that the 2022/2023 Brazil crop was worse than expected. This is the crop that was damaged by frost in July of 2021 and that damage turned this present crop from an expected surplus to a second deficit year.

This is the moment in which we presently find ourselves.

However, while this seems current and exciting, the truth is, this is all old news. The current deficit was widely predicted across the board a year ago.

Numerous analysts, trade houses and pundits discussed the historic deficit, the frosts, the droughts and how it would trigger a dramatic rally.

In my own work, on June 28th when coffee was trading in the 160s, I wrote about how there was a major frost predicted and that the market seemed to be discounting it. I concluded the article with the following statement:

“The deficit year this year will be drawing down global stocks to very low levels and the market will be relying on a large 22/23 crop to replenish those stocks. If the 22/23 crop is compromised, then we may be in a situation where we need to price ration coffee. If that is the case, it will be a heck of a bull coffee market.”

This did indeed happen, and it has been a heck of a bull market.

We are now in the worst of the 22/23 deficit. The 22/23 Brazil crop has just been harvested, and there is evidence that it may be worse than originally thought (although this is not universally agreed upon, a few key players think the harvest is actually better than they thought).

Graph: the International Coffee Organisation

However, if all of this was predicted over a year ago, where will the futures market go from here? The answer is it will look forward to supply one + years out.

The conventional wisdom is that high prices plus coffee’s biannual nature mean we would have an improved 23/24 crop and that would trigger a surplus that would bring down prices. While the 23/24 Brazil crop is unlikely to be a record, it will likely be 10-25 percent higher than this current crop and return the global supply to a meaningful surplus.

Bear in mind, however, that this surplus follows two years of deficit so it won’t necessarily crush prices, but it could lower them below USD 200c and keep them there.

Precipitation in Brazil

For now, I would say the odds of a solid 68 – 72 million bag 23/24 crop are higher than a poor crop in 23/24 (60 million or less). This is based on several things: discussions with agronomists and farmers/traders on the ground, the biannual nature of coffee in Brazil, and a positive rain forecast for the wet season starting in October.

Despite this forecast, there is the distinct possibility that the size of the 2023 crop will disappoint. There are several main factors that would favour this possibility:

• extensive damage from frost/drought requiring replanting or skeletal pruning,
• a drier than usual dry season this year,
• damage to the plants from cold (not frost).

We will see our next indications of how the 2023 crop will perform with the blooming during the wet season in October. For now, my assessment favours a solid 2023 crop, but that is subject to change in the next month or two.

Macro economics

Irrespective of the fundamentals, the currency market has been a key influence on coffee prices in the past, and it will continue to have a significant influence going forward.

The US dollar and the Brazilian real both have a large impact on coffee. The BRL has an impact because it induces selling from coffee farmers in Brazil (as well as specs in New York and London who are wise to this dynamic). The BRL has devalued to historic lows which has been a huge negative impact on the coffee market.

The ‘greenback’ also has a major impact on coffee as coffee futures are priced in US dollar terms. This means that when the dollar rallies, the price of coffee in dollar terms (futures for example) falls. When the dollar falls, coffee futures rally.

The US dollar has rallied dramatically as the FX (foreign exchange) market has anticipated rate increases from the United States Federal Reserve to combat inflation. So far, inflation has not been brought under control so we should expect these rate hikes and dollar strength to continue.

Going forward our best guess is that the dollar continues to rally as the economy is strong and inflation still has a long way to go before it is under 2 per cent. That said, the USD has already rallied quite a bit and there are some warning signs that the US and global economies are at risk of recession. A recession in the US could put the federal reserve’s monetary tightening policy at risk which may reverse dollar strength. However, a global recession may actually strengthen the dollar if capital flows start flowing towards safe-haven assets.

For the Brazilian Real (BRL), the Brazilian Central Bank recently announced that its rate hiking cycle has ended, so we are likely to see that currency come under pressure. Add to that bearishness of the Brazilian elections this October and the country’s fiscal woes, and the outlook does not look rosy.

Unlike the Fundamentals, which are forward looking, the coffee market tends to incorporate the macro view in the present because FX movements are hard to predict, and coffee professionals are not currency professionals. Therefore, I would expect that currency strength for the USD and weakness for the BRL is not fully priced into the coffee markets.

Certified inventory

The certified inventory is trickier because while we have enough coffee to last until the surplus in 2023, the supply of certified inventory could fall to very low levels before we see it replenished. These low inventory levels may persist well into 2023 and if certified inventory levels stay low, it is likely to keep calendar spreads high and will be supportive for the coffee market.

Over the last several weeks, we have seen a counter trend rise in the International Coffee Exchange (ICE) inventory, but this should not be taken for a trend shift. Since the lows in mid-August, inventories have risen from the lows of 550k bags, to 660k bags with another 130k still in the pipeline to be graded. However, the prevailing opinion is that these are not fresh coffees being delivered to the exchange, but rather previously certified coffees that are being resubmitted to the exchange to reset their aging penalty. Moreover, even with these stocks back on the exchange, inventories will still be at very low levels.

Supply problems in Colombia and Central America impacted washed coffees. Image: Thrive Coffee

If certified inventory stays low, then the spreads will need to continue rallying to ration inventory and encourage delivery of new stocks.

Generally speaking, new certified inventory only arrives in size when physical prices of coffee are cheaper than delivering to the exchange, and this requires cheap differentials.

Regardless of how differentials react to supply and demand in the future, for now, the market is still tight. We do not anticipate a major collapse in differentials until at least next year’s Brazil crop and thus we don’t see a large influx of coffee likely to the ICE until that point. This means that we may be in a situation where backwardation persists for a year even though terminal prices may come off before then. The next major supply of certs at this point seems to be the 2023 crop washed Brazils and the following 23/24 October crops.

Going forward

There is still a great deal of bullish sentiment in the market, as evidenced by the recent rally back up to USD 240c. The spec position is still largely cleaned out in Arabica (although it has started to pick up again), and the market recently adjusted its 22/23 Brazil crop lower. This, combined with the inversion, means that the present rally has potential to continue.

However, Brazilian coffee farmers have been holding back their sales explicitly waiting for a rally and I don’t see why they wouldn’t start to sell with the price heading back towards the highs. We also have October crops coming in a few months that will be sold as soon as they are harvested.

Finally, from a technical perspective, we often see a secondary rally after the initial sell off from the highs. This is where those who missed out before participating, and those who are long, add to positions. However, this is secondary rally is more of an emotional whipsaw rather than based on fundamentals and it fails unless there is new information.

There are several pieces of new information that can change this. Certified inventory may appear from an unexpected place and collapse the spreads, currency markets could go very weak or very strong, or the October crops could be much better or worse than expected.

However, the primary piece of new information that will change the outlook is the Brazil 23/24 crop. If we fail to get a good flowering or if there is an indication that this crop will not be good, then the bull market will likely resume or at the very least, prices will remain elevated.

There is a significant chance that the 23/24 crop is poor: maybe 25 percent (some of the reasons why are mentioned in the sections above). That is a one-in-four chance…not odds that you would want to bet the farm on.

That said, when predicting the future, we are not dealing in absolutes but in probabilities. My assessment of a decent to good crop in Brazil is 65 percent (with 10 percent chance of a great crop). If we get at least a decent crop, it will tip the scales into surplus for the first time in two years.

Putting this all together, we can see that the fundamentals and the shortage in certified stocks are strong bullish factors in the present. These can push coffee and calendar spreads up higher, and volatility elevated for longer than is comfortable. However, high prices will attract selling from Brazil and discourage consumption. We will see selling from the October crops hit the market in the next few months. If the 23/24 crop is not compromised, then there is a time limit approaching this bull market; and you will not want to be the one holding the long position when that happens.

• Ryan Delany is the founder of and chief analyst at Coffee Trading Academy (CTA) and has been managing price risk in the coffee industry for over 12 years. Prior to founding the CTA, Delany professionally advised clients around the globe in coffee price risk management, he is a Q Grader, a physical trader with a background in commercial, specialty and certified coffees and worked as the coffee and cocoa analyst/trader for a soft commodities hedge fund. Delany graduated from Harvard College and is a US Marine Corps veteran of Operations Enduring Freedom and Iraqi Freedom.

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