Coffee in Australia

There is no doubt that coffee and coffee culture are becoming more ingrained in the social fabric of life in Perth and Australia. The lengthy queues of patrons waiting to get a takeaway coffee or the packed cafes on the weekends certainly show that there is anecdotal evidence for this. This is not driven from an under supply of available locations but from a demand side need for more establishments to handle this growing trend. However, there is more to coffee that just getting our daily fix in terms of its production, trade and current risks facing many of the producers. Some of these risks are climate change, global price fluctuations and oversupply of low quality beans.

With export values for 2015 estimated to be in the vicinity of $19 billion, coffee has become the second most valuable commodity for developing countries. From a consumption perspective, this equates to 2.25 billion cups of coffee being drunk every day. Brazil still dominates global production of the 70 countries that grow coffee. The two predominant types of coffee grown are Arabica, which is 70% of the world supply, and Robusta, used mainly in instant coffee. Global production is still strong with annual growth rates in the order of 5%. The biggest increase in coffee production and exports has come from Vietnam due to the State led push to improve yields and encourage farming practices through loan deferrals and other cost reductions to producers. This has resulted in Vietnam coffee exports growing by 29% from 1981 to 2001.

In Australia, coffee has passed tea as the preferred choice of hot beverage with 46% of the population now drinking it. This has resulted in the imports of coffee to Australia doubling since 2003. This has seen the number of cafes in Australia now approaching 6500 and revenue of $2.4 billion, with Western Australia representing 8.8% of the total. In Australia, the biggest coffee retailer is the Retail Food Group, they represent 16.5% of the available market through such brands as Gloria Jeans, Esquire Coffee and The Coffee Guy. The rest of the market is made up of small boutique coffee shops with some other chains only representing less than 1.5%. Although there are some beliefs that the Australian love affair with coffee is linked to the post World War 2 influx of immigrants from southern Europe, it has been more closely linked to American service men who were stationed in Australia during World War 2 having the greatest influence. It wasn’t until the 1960’s and 1970’s though that the espresso coffee market started to gain traction. Coffee sales increased by 54% in the two years immediately following the war, partly due to Nestle introducing instant coffee.

For producers of coffee in developing countries, there are numerous risks faced with the production of coffee besides drought, pests and disease. Exploitation of their crop prices by unscrupulous buyers meant that many of the 25 million coffee farmers struggled to break out of a subsistence lifestyle. To deal with this, Fair Trade was established in the Netherlands in 1988 as a way of enabling consumers to buy certified product from producers that were growing coffee in a sustainable manner. Fair Trade gave the Northern consumers an opportunity to make purchasing decisions that could have a direct impact on Southern producers and their welfare, despite a premium being charged for the. There has been evidence to show that consumers are willing to pay more for products that are proven to be produced ethically. For those producers that do participate in the Fair Trade programme, the benefit from securing a reasonable price for their coffee production has enabled them to diversify into other types of crop production that benefits them and their communities. Fair Trade has become a major force in the ethical consumerism field and has grown a strong following in the specialty coffee market of the global North. However, there have been some negative aspects associated with the certification that is required by farmers such as increased production costs to meet the required standards and that not all yields can be sold and they are therefore subject to lower global prices. Even with the strong growth in Fair Trade coffee, it still only represents approximately 1% of all global coffee exports.

Another risk facing producers of coffee is that of climate change. Although there is a direct cost attributable to farmers by way of a reduction in production and increased risk in farming activity due to uncertainty, there is also on cost that will flow through the supply chain to consumers. A direct impact of current climate change in some producing countries has seen the Coffee Berry Borer beetle account for in excess of $US500 million dollars in crop damage. Coffee companies recognise the impending risk to coffee production in the developing world and are assisting farmers in developing crops that are more resilient to climate change and programmes to lower carbon emissions.

Vietnam’s rise as a major coffee producing country has had an impact on the global market. The majority of product grown in Vietnam is the Robusta bean, which with the use of better processing techniques has seen quality improve. Their huge increase in annual production has seen their coffee bean exports cause an oversupply of product and has drawn criticism for their farming practices and lowering the overall standard of coffee beans. Their proximity to the growing Chinese market has resulted in Vietnam supplying 75% of Chinese coffee imports in 2013 and volume is set to increase as China is predicted to become one of the world’s largest markets for coffee by 2020.

The current popularity of coffee in Perth and Australia is set to continue on its current growth trend as more establishments open in an attempt to capture their share of the market. However, as highlighted above, the global coffee market is both complex and facing several long term challenges. There appears to be little concern given by consumers about what is required to bring them their coffee fix. There is certainly room for café owners to use some of the above research to offer their customers an insight in to how price comes about and the ramification this has on the producers in developing countries.