OPINION: Leveraging off South Africa’s growing coffee culture
Caffeine makes the world go round…
It is estimated that the Global coffee market is worth over US$100-billion and is projected to grow at 4.7% per annum up to 2019. In 2016, major global coffee producers included Brazil (35.7%), Vietnam (16.6%), Colombia (9.4%), Indonesia (7.5%) and Ethiopia (4.3%) amongst others (see Figure 3 below).
Global coffee production comprises of Arabica and Robusta beans.. Global coffee production is dominated by Arabica, which accounted for 63% of total global coffee production in the 2016/17 season. Arabica coffee variants mainly include Colombian mild’s, Brazilian naturals and other milds.
Globally, coffee beans are the second most traded commodity after crude oil. Arabica coffee beans fetch a premium in the market compared to Robusta coffee beans (see Figure 2 below). The global price for Arabica beans was R43, 719/tonne in August 2017, up 0.9% from the previous month. During the same period, Robusta coffee beans were R30, 488/tonne, up 0.3% compare to the previous month.
From a pricing perspective, there has been an upward trend with both Arabica and Robusta bean prices. Global coffee prices had increased by more than 6% in January 2017, this further to a 30% increase in 2016.
Opportunity for South Africa?
The growing demand for coffee consumption domestically and internationally presents an opportunity for South Africa to increase its coffee production. Over the years, coffee farming in South Africa has been limited to relatively few producers in the conducive growing areas of Mpumalanga, Limpopo and KwaZulu-Natal.
Coffee production has the potential to give farmers a good return while at the same time providing much needed job opportunities for rural communities since production is labour intensive. Coffee trees simultaneously bear flowers, green beans and ripe beans and hand-picking of ripe fruit is widely used. Agricultural sector players can take advantage of this to create employment opportunities in sub-tropical areas such as Limpopo, Mpumalanga and KwaZulu-Natal, the country’s best suited growing regions.
Opportunities do not only exist in the primary sector of the value chain. On-farm value addition of the crop coupled with agri-tourism in growing regions has the potential to create further employment opportunities.
There is also some potential for exports of coffee from South Africa, which could benefit the industry. The growth in the consumption of coffee is not unique to South Africa. Consumption has been rising in developing countries such as India, China, Latin America and other African countries due to the rapid growth of the middle class and the high pace of urbanization. The International Coffee Organisation estimates that the global demand for coffee will increase by 10.5 million tonnes of coffee by 2020.
This projected trend in the global consumption of coffee provides a very lucrative opportunity for South Africa to increase the production of coffee beans to meet both domestic and export demand. It is worth noting that some coffee bean producers in South Africa such as Beaver Creek are already exporting to countries like Japan, the United Kingdom (UK), the United States, Denmark and Germany. However, the potential to extract more value throughout the coffee value chain should continue to be explored by the agricultural sector.
Gilberto Biacuana is an Economist currently serving as a Research Analyst for Commodities at the Land and Agricultural Development Bank of South Africa (“Land Bank”).
- BUSINESS REPORT ONLINE