World craves ever more coffee despite soaring price

(Reuters) – Global demand for coffee is set to keep climbing and even a doubling in the cost of the commodity over the last 12 months has failed to quench consumers’ thirst for the beverage.

Faster paced lifestyles in China and other Asian economies where economic growth has been strong have helped to keep consumption of coffee firmly on an upward path.

The International Coffee Organization estimates that global coffee consumption rose 2.4 percent to a record 134.0 million 60-kg bags in 2010 and it sees the upward trend continuing despite the rise in prices.

“There’s no impact (from high prices) in terms of a reduction in demand. Demand is still very dynamic,” ICO chief economist Denis Seudieu said.

“We base our estimates on what’s happened in the last 10 years and the average growth rate is 2.5 percent per annum. We think that trend will continue,” he added.

The growth in demand in China, where coffee is drunk chiefly in cafe chains or restaurants, is not expected to slow.

“Drinking coffee is a custom, and people who get used to ground coffee won’t change (that custom) just because of prices,” said Fu Jingya, secretary-general with the Coffee Branch of the China Fruit Marketing Association.

John Culver, president of Starbucks Coffee International (SBUX.O) said this month that the world’s largest coffee chain plans to more than triple its cafes in mainland China, from 450 currently to 1,500 by 2015. [ID:nN27175055]

FAST PACE

“I started drinking coffee two years ago when I graduated from university as I feel much more pressure and the fast pace of work and life,” a saleswoman, who gave her name as Mrs Yu, told Reuters outside a coffee shop at Chaoyangmen in Beijing.

A rise in prices has also failed to deter consumers in India although some blends have substituted cheaper robusta supplies for more expensive arabica coffee.

“We have not noticed any significant drop in demand. The only change would be greater use of robusta in the blends to offset the higher prices of mild arabica,” said Sahadev Balakrishna, chairman of the Karnataka Planters Association.

Nandkumar Palkar, a telecoms engineer based in Mumbai, said his coffee consumption had gone up in the last two years mainly at the expense of tea.

“For years I was taking tea. Actually I was taking excessive tea. So I have cut down tea intake, that’s why I started coffee,” he said.

Scandinavian countries are the world’s top coffee drinkers on a per capita basis, led by Finland, while the United States and Brazil are the top consumers in absolute terms.

Demand for coffee has also remained strong in mature markets such as Germany, where consumers have been largely shielded from price rises by fierce competition between retailers.

“Rising futures are largely being absorbed by roasters because retailers will not accept price rises,” one German coffee trader said.

“The roasters are simply having to take the pain.”

Elsewhere as well, only a small portion of the rise in the cost of the commodity has filtered through into retail prices.

Nestle’s (NESN.VX) Nespresso, for example, earlier this month announcing a rise of about 6 percent.

Germany’s largest coffee roaster Tchibo said last month that surging coffee futures are likely to cut its profits this year.

TIGHT SUPPLIES

Coffee production has struggled to keep pace with the steady growth of demand. Supplies of high quality arabica coffee have been particularly tight with key supplier Colombia suffering three consecutive below-par crops.

Production in some Central American countries has also been in long-term decline following a prolonged period of low prices between around 2000 and 2004.

Supply tightness helped to propel arabica coffee prices on ICE to the highest level in 34 years earlier this month with the benchmark second month peaking at $3.089 per lb.

The market has since fallen back slightly to around $2.68 per lb but remains at around double levels traded a year ago.

Coffee shop chain Gloria Jean’s coffees are pressing ahead with expansion plans in countries including Oman, Cambodia and Bangladesh while acknowledging that some specialty coffees are getting increasingly hard to obtain.

“It hasn’t been an easy year-and-a-half on coffee pricing, but more than just the movement in the price, it’s the high specialty of coffee that we buy that is getting less and less available, and more and more competitive,” said executive chairman Nabi Saleh.

Teddy Esteve, chief executive officer of ECOM COFFEE, a trading and processing house based in Mexico City, also did not expect high prices to stall the growth of coffee shop chain.

“I don’t think the prices of coffee have an impact on the growth of coffee shops. Those that plan on growing will not stop because of a momentary blip in coffee prices,” he said.

“These are long-term strategies. It’s not the coffee price of one year that will derail a long-term plan.”