The International Coffee Organization (ICO) has published the first issue of their new economic publication called the ICO: Coffee Break Series No 1. The report analyses the impact of COVID-19 on the demand side of the coffee sector.
“The COVID-19 pandemic is most likely going to have a profound effect on the global coffee sector, including production, consumption, and international trade,” according to the publication.
According to ICO, in a short-term period, out-of-home consumption is decreasing significantly because many countries are adopting a full or partial lockdown. However, retail- and supermarket-level data suggest that panic buying and stockpiling has led to increased consumer demand in some countries. However, the report said that this is unlikely to have a sustained effect on consumption.
A more intense effect on global coffee demand, the ICO stated, can be expected as the result of a worldwide recession triggered by the direct and indirect impact of the COVID-19 pandemic.
Reduced household incomes could lead to lower demand for coffee in volume terms. Also, price-sensitive consumers may substitute higher-value coffee by lower-value blends or brands. However, according to ICO, the income elasticity of coffee demand is expected to be low, mostly in high-income countries and traditional markets with high per-capita consumption rates.
The ICO carried out a quantitative analysis to recognize the relationship between GDP growth and coffee consumption, given that an estimate of the demand-side shock resulting from the COVID-19 pandemic. The report, based on a sample of the top-20 coffee-consuming countries, which represent 71 percent of global demand, covering the period 1990-2018.
The results showed that a one percentage point drop in GDP growth is connected with a cutback in the growth of global demand for coffee of 0.95 percent, or 1.6 million 60-kilogram bags.
The model predicted that a more significant drop in GDP growth or a global recession would have a proportionally higher effect. As a result, coffee consumption levels could become stagnate – or even decrease – compared to pre-crisis years that were characterized by gradually increasing demand for coffee, at a rate of 2 to 3 percent annually.
Additional demand-side effects relate to the influence of social distancing measures on out-of-home consumption because large parts of the hospitality industry are under lockdown, and workplaces are closed.
The ICO said, further analysis, in particular of the supply-side effect of the COVID-19 pandemic, is necessary to understand the final impact on the global coffee sector and all actors along the global value chain. These effects assessed in future issues in the ICO Coffee Break series.
