Coffee displays all the characteristics one associates with a true commodity: it is liquid, price transparent and fungible. However, U.S. consumers have developed a more discerning palate when it comes to higher value, specialty foods, and in keeping with this trend, upscale coffee has proliferated. As specialty coffee becomes a larger part of overall U.S. consumption, what impact will it have on the broader coffee industry?
U.S. Coffee Drinkers Perk Up Global Consumption
According to the International Coffee Organization, coffee consumption worldwide increased 1.4% in 2014. While this growth rate may appear insignificant on its face, it must be viewed in the context of a leveling off of consumption growth in developing markets that had been growing robustly over the past decade: the law of large numbers at work.
Since 1990, the compound annual growth rate in global coffee consumption has been roughly 2%, largely driven by increasing purchasing power and changing tastes in emerging middle-class economies.1 Against a backdrop of globalization, economic liberalization and the unfettered movement of international capital over the past 25 years, emerging market economies in Latin America, North Africa, Eastern Europe and non-Japan Asia have witnessed a burgeoning middle class. As millions in developing nations have emerged from poverty, they have begun to demand the previously unavailable trappings of a middle class lifestyle. Coffee has been one of these creature comforts.
In 2007, coffee demand from traditional consumer markets (primarily Europe and the U.S.) was roughly 5.1 million tons, vs. about 4.3 million tons from nontraditional consumer markets. By contrast, in 2011, demand from traditional markets was roughly 5.3 million tons, compared with approximately 5.0 million tons from nontraditional markets (coffee-producing countries, tea-drinking regions and so forth).2
While the emerging markets helped to foster a global recovery in the years immediately following the Great Recession, their more recent middling economic performance amid collapsing commodity prices and a strong U.S. dollar has taken its toll on demand for discretionary consumer food products – and coffee has been no exception. For example, in Brazil, the third-largest coffee consumer behind the EU and U.S., consumption fell 1.5% in 2013, the first year-over-year decrease since 2003 and only the second since 1990.3
Perhaps an even more worrisome trend exists in the EU, no stranger to recent economic woes, where coffee consumption dropped 2.2% year over year in 2013 and was relatively flat in 2014.
The recent malaise in the world’s No. 1 and No. 3 consumers puts the 2014 global demand increase in sharp relief and suggests that the bump in consumption owes to the ever-important U.S. consumer. U.S. coffee consumption increased 3.25% year over year in 2013 and another 2.1% in 2014.4 According to the National Coffee Association’s (NCA’s) 2015 “National Coffee Drinking Trends” study, 59% of U.S. adults drink coffee daily, which makes it the country’s favorite beverage, beating soda by 20 percentage points.