Demand for high quality coffees fell again in May as buyers sought lower-priced alternatives such as robusta coffee to reduce costs and maintain profit margins, the International Coffee Organization (ICO) said on Wednesday 5 July.
In its monthly report on the coffee market, the ICO said exports of Colombian Milds fell 7.2% in May while shipments of Brazilian Naturals fell 14%. The two are some of the most traded high-quality arabica beans in the market.
For the eight months of the current October-to-September coffee year, the Brazilian Natural exports are down 9.8%, the ICO said. For the Colombian Milds, it was the 11th straight month of lower exports.
Meanwhile, exports of robusta beans, a type widely used to make instant coffee or to be blended in low-end ground & roast brands, increased 6.8% in May.
ICO said interest rate hikes and high borrowing costs in Europe and the United States were partly to blame for the switch to cheaper coffees. Higher rates "limit how big purchasing budgets can be, with buyers focusing on more competitive origins and shying away from the more expensive growths," the organization said.
Robusta beans are the only ones showing higher traded volumes in the 2022/23 season so far when compared to the previous three seasons.
The situation has caused a surge on robusta prices and pressured prices for arabica beans. ICO said that the difference between prices for arabica and robusta beans is the smallest since October 2020.
"Arbitrage, as measured between the London LRCc2 and New York KCc2 futures markets, contracted by 22.6% to 50.31 cents/lb in June 2023 as the Robusta growth rate outstripped the New York Market," the ICO said.