COVID-19: Impacts on the Coffee Supply Chain

30 OCT 2020

Although coffee is a staple of many people’s daily routine, we rarely pause to think about how the seeds of a tree become the cups of liquid gold that wake us up in the morning. In fact, behind every cup of coffee we drink is a lengthy supply chain that employs 125 million people around the world.

Due to the complexity of the supply chain, there are many sources of uncertainty that can affect the global coffee supply. Unfortunately, no part of the supply chain has remained unaffected by the coronavirus outbreak, meaning the coffee industry is now presented with new challenges and opportunities. As the pandemic rolls on, we believe coronavirus will change the world, as well as how our industry will move forward in keeping the world caffeinated: in this article, we will take a look at the current situation in the industry’s eyes, and discuss how it has and will affect the way we farm, produce, roast and serve coffee.

Farmers and Producers

90% of the world’s coffee is grown and produced in developing countries. Despite the fact that coffee is the most valuable and widely traded tropical agricultural product in the world, many farms and producers still struggle to make ends meet because they are paid less than what it costs them to produce the coffee. Farmworkers are also vulnerable to various labour issues, such as forced labour, discrimination and wage violations.

The pandemic is making working conditions worse for these workers, as they are now facing even more health and safety risks under the developing and least-developed countries’ inadequate health care systems. Since the COVID-19 outbreak, countries have been imposing border restrictions and travel measures to minimise the spread of the virus. These measures are limiting the mobility and availability of experienced skilled workers, resulting in their loss of income.

For specialty farm owners, it is essential that the cherries are picked at peak ripeness, meaning there is a much smaller harvest window and increased risk in failure to achieve specialty quality. As skilled workers are unavailable, the stakes of having to compromise specialty bean quality are even higher, causing instabilities in supply and an increase in market price. To make matters worse, demands for specialty coffee are decreasing, as coffee shops are operating in limited capacities (if at all) during lockdowns. This all amounts to a series of threats to the flow of the entire supply chain, now and in the future.

Importers and Traders

As a result of lockdowns and social distancing, there have been restrictions in movements of goods across all key global transportation segments: ocean, land and air. While some from the commercial side of the industry are reacting to the subsequent slowdowns and predicted worsening in shipment delays with panic buying and stockpiling, experts found that specialty importers are responding to these disturbances quite differently.

At some point during the pandemic, most specialty coffee shops, especially the ones located in the USA and western Europe, have had to shift to takeaway only or to cease operations. A sharp, prevailing decrease in the number of customers means a contraction in retailers and roasters’ demand for roasted beans, leading to poor cash flow and possibly, importers’ inability to pay farmers and producers on time.

Let’s take Red Fox Coffee Merchants as an example: according to co-founder and president Aleco Chigounis, the company has seen a 50% decrease in the amount of coffee released to customers after COVID-19. Due to the contraction in demand for coffee, roasters have less cash in hand to pay for green beans, leaving them no choice but to get out of contracts with importers at the last minute. Although most importing companies are still able to cope at this point, Aleco and his fellow importers see the possibility of accounts receivable turning into bad debt and inventory pile ups as some of the biggest challenges currently faced by their segment.

Roasters, Baristas and Retailers

With movement restrictions in effect across different parts of the world, coffee shops have had to operate in limited capacity or to close down (temporarily and permanently). As shown in a survey conducted by Sprudge, while coffee drinkers are drinking the same amount coffee, they have shifted from picking up cups of joe from coffee shops to purchasing and brewing coffee beans from online shops or subscriptions.

While roasters and retailers are trying their best to cope by engaging more actively in e-commerce or delivery services, baristas are at the mercy of region- or even nationwide lockdown policies in many countries: Sprudge discovered from a survey, to which baristas from 250 countries have responded, that 59% of the respondents were laid off during the pandemic. Due to the nature of their work, baristas can only remain employed for as long as the coffee shops can open, meaning their livelihood can only be secure when it is safe for governments to loosen restrictions, and for people to gather again.

What the Future Holds for the Industry

We don’t know for sure what the future holds for COVID-19, but it is certain that it will continue to affect us in a myriad of ways: the World Bank predicts that the pandemic and its containment policies might plunge the global economy into one of the worst recessions in history. Although we are moving into unchartered waters as we seek to exit quarantines and reboot our economies, the future of the coffee industry will rely upon the consumers’ support – please buy coffee from your favourite local coffee shops and roasters, so we can buy more beans from farms and allow everyone in the supply chain to stay in the industry. But until the pandemic is over, let’s start by doing our own small part in preventing the spread of coronavirus by wearing masks and keeping clean personal hygiene.