Asia’s Taste for Robusta Coffee Transforms Market

Asia’s Taste for Robusta Coffee Transforms Market
Sarah McFarlane & Lewa Pardomuan | March 04, 2013

London/Singapore. Asia’s thirst for coffee is changing the shape of the market as demand for cheaper robusta beans dramatically outpaces that of arabica, tightening the price difference between the two varieties. Arabica coffee beans, which dominate gourmet blends, have long traded at substantial premiums to the hardier, more caffeine-rich robusta varieties, which are widely used in soluble or instant coffee. But surging coffee demand from Asia, the region where most of the world’s robusta is grown, is narrowing this premium. Most arabica coffee is grown in South America.

“In traditional markets consumption is flat, but in emerging markets and exporting countries it’s growing fast,” said Roberio Silva, executive director of the International Coffee Organization (ICO). “These trends suggest that future demand will generally be stronger for robusta coffee as emerging markets and exporting countries tend to prefer soluble coffee.”Top robusta producer Vietnam is also one of the world leaders in growth of coffee consumption, which was up 22 percent in 2011 to 1.58 million bags, ICO data showed.

Other Asian countries that also showed strong rates of growth in 2011 included the Philippines, up 9 percent at 2.15 million bags; South Korea up 8 percent to 1.8 million bags; and India up 6 percent to 1.83 million bags.

Traders say robusta demand received an additional boost in 2011/12, when a historically high premium on arabicas drove roasters to switch to using more robustas in their blends.

“Robusta demand growth was already higher than arabica, because a lot of it is coming from places like South East Asia and other developing countries that are mostly robusta consumers, but over the last 18 months this was accelerated, with some extra demand coming into robusta from arabica as a result of the wide price difference between the two markets,” a trader at an international roaster said.

While the trend for roasters to switch into robusta has run its course, the trader said demand growth for robusta would continue to outstrip that for arabica due to rising coffee consumption in Southeast Asia, where he estimated rates of growth were in high single figures.

“Coffee consumption growth is related to economic growth, and as long as the economies of these countries continue to grow, then we don’t necessarily see a slowdown in this demand,” the trader said.

“It’s basically soluble products — either single-serve sticks of instant coffee or sachets with combinations of coffee and milk, or coffee, milk and sugar, which are mostly robusta-based.”

Acquiring a taste

Asian consumption trends have already had a dramatic impact on other commodity markets. In the cocoa market, the most valuable bean product has switched from butter to powder in recent years due to Asian demand for powder-based products.

Dealers estimated that coffee demand would grow by around 1 percent in mature markets including Europe and North America in 2012/13, versus 5 to 10 percent in Asia.

“The demand for robusta at the moment remains strong because of higher consumption in several countries in Asia such as China, South Korea, Indonesia and India and some countries in the Middle East,” said Moelyono Soesilo, purchasing and marketing manager at Taman Delta Indonesia, a Java-based exporting firm.

People like their “kopi tubruk” and Kopiko, a dealer in Singapore said, referring to the Indonesian style of drinking coffee and popular coffee-flavored sweets.

Kopi tubruk literally means “collision coffee.” To make a cup, you add a few teaspoons of ground coffee and sugar, then pour in boiling water. You wait for the grounds to settle at the bottom of the cup before you drink it.

“It’s all robusta-based products,” said the dealer.

Coffee roasters, typically secretive about their blends, stepped up substitution of robustas for arabicas after ICE benchmark arabica coffee futures rose to a 34-year high in May 2011 and the arabica premium over robusta to around $1.90 a lb.

The premium has since narrowed to around 40 cents, its lowest level in four years. While dealers said it could tighten further yet, there may come a point at which some roaster demand switches back into arabicas.

“You tighten more from here and you should start to see switchback,” James Hearn, joint head of agriculture at Marex Spectron said.

The degree of switchback may be limited by Asian tastes, however.

“Asia is still a robusta consumption area. No matter how cheap arabica is, Asians still like robustas,” a Singapore-based dealer said.