Brazil’s Upside Down Coffee Market Means a Tastier Daily Cupby and
Dry weather caused by El Nino sent robusta prices soaring
Roasters blending in more arabica, which has a smoother flavor
Brazil’s economy is turning sour, but the coffee is sweeter.
A drought across robusta plantations this year has raised prices for the bitter-tasting type of coffee that’s usually the cheapest. In some cases, the beans are now more expensive than arabica, the variety preferred for high-end drinks because of its smooth flavor, and roasters are changing their blends.
“This change could result in an improvement in coffee quality,” said Nathan Herszkowicz, executive director of the Brazilian Association of Coffee Industries, a processors’ group. “Arabica beans have a more complex taste, with more nuances of flavor and aroma.”
The top producer’s market has been turned upside down because dry weather from El Nino cut the robusta harvest by a quarter, while rains in arabica areas created ideal conditions and more supply than expected. The most common strain of robusta was 3.2 percent more expensive on average this year than a type of arabica. That compares with a discount of 12 percent in the previous six years.
Cambraia Cafes, which roasts green beans to give them flavor, is using less robusta. The variety makes up 20 percent of its traditional blend sold in Brazil, compared with 60 percent at the start of the year and 80 percent in January 2015, according to Henrique Cambraia, who owns the company located in the Minas Gerais state.
While it’s not rare for Brazilian roasters to change blends when prices get too high, the latest shift has been faster than usual because of the large drop in robusta supply.
At the same time, businesses are wrestling with the worst recession in decades. Brazil’s problems include a record budget deficit and rising debt, corruption scandals and the outbreak of the Zika virus that’s testing the nation’s health-care infrastructure.
For shoppers, the taste of daily caffeine is less important. In a consumer survey by research company Mintel in September, 45 percent said price was most important in buying coffee and only 13 percent cited flavor.
Because of the drought, Brazilian robusta from the Espirito Santo state has risen 28 percent in the past year and prices of the beans, known as conillons, are within 2 percent of February’s record, according to Cepea, a University of Sao Paulo research group.
The robusta is now 1.9 percent cheaper than a kind of arabica grown in southern Minas Gerias, compared with a 16 percent discount almost two years ago.
The robusta crop being harvested will fall 24 percent from last year to 12.6 million 60-kilogram (132-pound) bags, Rabobank International estimates. Arabica, which is usually collected about two months later, will be 1 million bags larger than previously forecast at 43.5 million bags, London-based brokerage Marex Spectron Group Ltd. said.
As robusta supply eases, roasters are buying less. Because of higher prices, they’ll switch more than a million bags of robusta usage to arabica in the two seasons through 2016-2017, said Carlos Mera, an analyst at Rabobank in London.
Getting hold of robusta, which accounts for about a quarter of Brazil’s coffee production, has become harder and in many cases not possible, said Herszkowicz of the Brazilian coffee association. Robusta now makes up 20 percent of coffee blends, about half as much as it did 1 1/2 years ago, he said.
In terms of total coffee demand, some dealers believe robusta’s share may fall to 30 percent this year from about 45 percent now due to higher prices and poor quality, said Ricardo Santos, a trader at Equatorial Traders in London.
Blend changes tend to happen in Brazil first because the government has banned most imports, so domestic roasters can only choose between home-grown varieties, Santos said. Companies outside Brazil have more options to buy from other producing nations.
International roasters are also reluctant to change blends because their customers may favor product over price. While Marex Spectron says a difference of 47 cents a pound between the types would spur a shift toward some arabica beans, the change would have to be gradual to keep drink tastes consistent. Arabica futures in New York are about 62 cents a pound higher than robusta prices in London.
Tres Coracoes Alimentos SA, a Brazilian roaster that exports coffee to 30 countries, is one company which would refrain from altering blends. When faced with large price increases, it would probably charge customers more for the finished product or look to cut costs.
"We don’t change the standard of our products,” Vicente Lima, a supply director at Tres Coracoes, said from Minas Gerais.