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El Nino is around the corner, and the coffee industry could be at stake

June 7, 2023: Extreme weather situations brought on by an upcoming El Nino fuel crisis that robusta beans in main coffee producers, including Vietnam and Indonesia, could be hit, resulting in soaring prices.

“The widely-anticipated transition to El Nino conditions in Q323 has stoked fears of reduced work in Vietnam and Indonesia, both major coffee robusta producers,” Fitch Solutions’ analysis unit BMI said in a report dated May 24.

Robusta beans are understood for their bitter characteristics and higher acidity, containing more caffeine than their premium and pricier arabica counterpart.

The report expressed Brazil’s robusta crop has also been negatively impacted by drought.

That means the cost of instant coffee and espressos, often made with robusta beans, could reach under strain amid supply worries and a stronger-than-usual demand for robusta as consumers turn to cheaper substitutes for arabica.

El Nino is a climate phenomenon that typically brings hotter and drier than usual conditions to the central and eastern tropical Pacific Ocean. Climate scientists predict this year’s El Nino could fall in the second half of 2023.

“Across Southeast Asia, El Niño conditions are associated with below-average rainfall and higher temperatures, both of which depress coffee production,” the BMI report stated.

The Food and Agriculture Organization stated that Vietnam, Indonesia, and Brazil are the biggest producers of robusta.

“We draw attention to heavy rains in Indonesia through Q123, which have harmed coffee bean quality, with the USDA forecasting a decline of about one-fifth in coffee robusta production,” the analysts expressed.

Carlos Mera, head of Rabobank agri commodities demands, forecasts a 10% drop in production to 11.2 million packs of robusta in the coming crop harvest.

In 2016, El Nino-related water needed in both Vietnam and Indonesia led to a global show reduction of close to 10%, according to the research unit’s statistics.

Generally, in an El Nino year, it is “not uncommon” for Vietnam and Indonesia to “see a 20% reduction in display” in robusta beans, Shawn Hackett, president of the commodity brokerage firm Hackett Financial Advisors, said.

“That would mean a pretty extreme compaction of robusta,” he said.

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