As a result of Western sanctions hitting Russia’s economy, coffee traders worldwide are requesting advance payments for new deals of exporting coffee beans to the country.
The West has launched a coordinated and extensive political, economic and corporate response to the Russian invasion of Ukraine, which is the largest attack on a European state since World War II.
According to traders in Brazil, Russia’s biggest supplier as well as the world’s largest exporter, the country is now included in a list of sanctioned and risky destinations that require pre-payment, along with Lebanon, Syria and Iran. Coffee broker Thomas Raad, who owns a trading company that frequently ships to risky destinations, stated:
Too many uncertainties right now in terms of their ability to pay, so new deals only with 100% payment upfront.Coffee broker, Thomas Raad
The head of the Minasul coffee co-op Jose Marcos Magalhaes also stated that not only would they require advance payment for any new order for Russia, but also assurances with regards to shipping — container lines have restricted cargo shipments to and from Russia as a response to Western sanctions following its invasion of Ukraine.
Three Europe-based coffee traders at major commodities trade houses told Reuters, a news agency, that they are not taking on any new supply orders from Russian roasters due to the plunge in the Russian rouble, which has dropped in value by over 30% recently as markets feared the state would be unable to support the currency after the U.S. froze Russia’s foreign reserves.
Under the sanctions, the international financial messaging system SWIFT has seen several Russian banks removed from the system. The changes to SWIFT will make paying for transactions much more difficult, according to Brazil exporters association Cecafe. In 2021, Russia bought 1.2 million bags of Brazilian coffee at $177 million.
Raad stated that cryptocurrency could be an option for a mode of payment — Russian importers would have to use a crypto broker that is able to complete both legs of payment. However, Raad also said that many exporters wouldn’t consider crypto due to their lack of familiarity with it. Bitcoin rallied, however, as more tech-savvy Russians flocked to get money out of the country.
Russia is the sixth-largest coffee importer in the world — the sanctions in place and the ongoing situation might have a larger effect on global coffee exports.