The new normal at Sustainable Harvest Coffee Importers is daunting, president Liam Brody says: “All the pieces in the coffee value chain have never been tested at the same time. We have dealt with political coups, tsunamis, labor strikes, low price crises, but we have never had to have all elements of the chain stressed at the same moment.”
Will the pandemic force Americans to rethink their morning coffee ritual? Coffee, which comes from some of the most economically challenged countries in Latin America, Africa and Asia, is being hit on all fronts, and hard.
In Central American countries where the harvest has all but wrapped up, the challenges are being felt post-harvest. Coffee is out of Honduran and Guatemalan fields, but being held up during critical processing steps, or at the port before export. All of these will impact coffee quality, and ultimately our ability to buy our favorite brew. According to Brody, “things are moving at least two to four weeks slower than usual.”
Banks have had to implement new practices – and fast – to pay farmers and traders, and get the coffee on boats to New York. Coffee is still a physical paper trail economy. “You think about couriers, like DHL… there have been days where no one is moving documents,” Brody shared. And this is with Central American coffee that has already been harvested.
In South America, where the coffee harvest is just beginning, governments have made coffee part of the ‘essential’ economy and farm owners are still able to access their fields. However Colombia, the world’s third largest producer of coffee, has concerns about its workforce. “Coffee is picked by a highly skilled migrant workforce that knows how to handle specialty beans. Colombians and Peruvians will need to train a local workforce – and quickly – if it has any chance of saving its beans,” Brody told me, “And I worry most for the health, safety, and well-being of coffee farmers and growers who have very little financial safety net.” The company is currently raising a relief fund for farming families impacted by COVID.
So what about coffee roasters? In recent years roasters have seen their channel sales mix shift away from retail cafes and hospitality and to grocery channels and e-commerce. Coffee has always been the leading category in food and beverage sales on Amazon, with players like Nestle and Keurig Green Mountain in the lead. Smaller, more boutique roasters have also been building their presence but most are not well established in home consumption channels. An estimated 46% of coffee is consumed away from home, according to the National Coffee Association.
Those companies who already had channel diversity, like Chicago-based roaster Intelligentsia Coffee, are weathering the storm. Michael Sheridan, who heads coffee buying for the company, says that, “COVID has affected everything, and our business has not been immune. It has reshaped our channel and product mix overnight. Fortunately, the investments we have made in recent years to diversify our channels are paying off, putting us in a strong position to withstand this first wave of COVID.”
Intelligentsia’s very best coffees – the micro-lots, have been selling particularly well given that consumers who can afford it are treating themselves at home. But there is less certainly with their single-origin coffees, which are mainly sold through the company’s network of 15 Coffeebars, most of which, for the time being, are closed.
Due to the channel shift and real potential for supply chain disruptions, Sheridan says that “It is a difficult environment for forecasting. We know that some companies are stockpiling to hedge the elevated risk in the supply chain. That strategy does not work for a company like ours that is focused on quality. To keep our coffees at the top of their game, we are constantly updating our menu with fresh, seasonal ingredients, so it is hard for a company like ours to stockpile.”
Both Brody and Sheridan believe that their direct trade approach will make the difference. “Supply chains are like a complicated game of telephone in which the people playing are separated by differences in language, distance and culture,” says Sheridan. “But we can pick up the phone and call the people who grow our coffee because we have built direct relationships with them. That goes a long way to making sure that we are getting the coffees that we need, and reassuring our partners that the impact we are seeing today is temporary, and not a reflection of where we are going as a business.”
According to the International Coffee Organization (ICO), the coffee market remained relatively steady during the 2008 financial crisis, although consumers shifted to in-home consumption and purchased more affordable coffee. In a recent report, the ICO warns that none of the previous financial crises compare in terms of depth and breadth of COVID19, and their analysis warns of an almost 1:1 relationship between global GDP and coffee consumption.
It seems we will be able to enjoy our preferred morning brew in the short term, but the impact of this perfect storm of issues hitting all coffee origins simultaneously remains to be seen. From the farmer’s ability to contract workers, to roads being open, to accessing financing, and ultimately shifts in demand will no doubt have impacts over the next few months as the coffee harvest shifts from Central to South America, and beyond.
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