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Growing demand in South America may drive up global coffee prices

Growing demand in South America may drive up global coffee prices

Posted by Juan Gavasa on August 08, 2014

If your next cappuccino costs more than usual, don’t blame the coffee rust. It’s probably because of the Brazilians instead.

While global coffee prices have been increasing in the last few years because of rising temperatures and diseases like coffee rust, the latest price increase has nothing to do with the environment. Instead, people in the countries that have traditionally produced coffee are developing their own taste for quality java, and they’re no longer content to let the rest of the world take their best coffee away from them.

According to the Wall Street Journal, analysts are seeing a major increase in domestic demand for coffee in Brazil, Colombia and Vietnam, which collectively produce about 60 percent of the world’s beans.

Though producer countries like Brazil and Colombia have long had a taste for café, the conventional wisdom has always been that the best beans are exported to the U.S. and European markets, leaving local consumers to drink the lower-quality product left behind. This has meant that increasing demand in these countries has not traditionally had a strong impact on global markets or prices, since domestic consumers are not competing with international buyers for the top-tier beans.

But that’s all changing now.

Recent years have seen domestic demand for high-quality coffee increase as more residents of these countries – particularly the growing middle class – have been exposed to international coffee shops and coffee culture and developed a more discerning taste.

Isabela Raposeiras, the owner of São Paulo café Coffee Lab, told the Wall Street Journal that her sales have almost tripled in the last year as people have begun to seek out quality coffee.

In the last decade, coffee production in Brazil has increased by a staggering 61 percent. Exports, however, have only risen by 34 percent, with the remainder of the beans staying in the domestic market. More local cafes and businesses are competing with international exporters for the beans that have historically been reserved for global roasters.

Market research organization Euromonitor International estimates that sales of packaged coffee in Brazil will reach more than 1.03 million tons by the end of the year. This would make Brazil the world’s largest consumer of coffee, surpassing the United States for the first time since 1999.

In Colombia, which prides itself on producing some of the world’s best coffee, Juan Valdez Café, owned by the Colombian coffee farmers’ federation, has been the go-to stop for discerning drinkers since it first opened in 2002. This local chain has stepped up its international game as well, opening shops in Miami, New York and Washington D.C. and unveiling a shiny new Origins café in one of Bogotá’s most upscale foodie neighborhoods.

The arrival of the country’s first Starbucks, which opened less than a month ago to great fanfare and debate, has kicked the coffee wars up another notch, with locals lining up to sample frappuccinos made exclusively with Colombian beans. The U.S. company hopes to capitalize on new demand within the country’s middle class with a plan to open 50 stores across the country in the next five years.

The International Coffee Organization, a London-based trade organization representing the coffee sector, has estimated that coffee consumption in exporting countries may double in coming years. According to Euromonitor, Colombians will buy a record 72,500 tons of coffee this year.

This growing demand comes at the same time as a global drop in production, primarily because of the coffee rust epidemic that has decimated plants throughout Central America, while Brazil is suffering one of its worst droughts in decades. Coffee growers have said they will have difficulty meeting the level of demand this year, which has caused coffee futures to rise by more than 50 percent in the last year.

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