Since the pandemic we have witnessed extreme volatility in the price of coffee; which has heavily impacted different sectors of the supply chain. From coffee production, inventories, weather changes and logistics.
As exporters, these are all topics that concern us in the middle and long term and so we are committed to understand the different variables so you as a roaster or importer can also connect with our reality at origin.
Understanding the Macroeconomic Environment
For us, it’s crucial to understand the economic scenario of our most important markets. According to Daniel Montenegro, Junior Manager at Dinamica Coffee, North America is our main buyer and recently, inflation and coffee shortage are just some of the aspects that bring out the biggest concern for our organization. However, we clearly understand there are other factors in the game, such as: crisis in logistics, interest rate hikes, strong dollar, Ukraine-Russia crisis; all which are making this year and next one perfect storms for volatile markets.
“It is not a secret that Guatemala is one of the most demanded origins that offers the greatest quality, which on the other hand offers higher prices, and right now, this makes us less competitive in terms of pricing. At such historical inflation at around 9.0%, the US and consumers are fearing a recession and, as a consequence, consumers will look for lower priced alternatives in the HORECA segment and thus roasters will eventually have a need to find lower priced raw material with more competitive pricing.
As we all might know, there was also a labor shortage in the US shortly post-covid; these caused a heavy effect on coffee producers in Guatemala, as it became very attractive for cherry pickers to leave the country for a better pay in North America. This left coffee farmers losing nearly 25% of their harvest because of a labor shortage!
Here is when we need to keep thinking global to act local, understanding what is the macroeconomic environment may help to create strategies that could bring solutions to the different scenarios. “We keep a close eye on the American economy, but we are constantly looking for ways to widen our customer portfolio in alternative markets like Asia and the Middle East for the upcoming year”.
For a company like ours that depends entirely on exports, facing different challenges with logistics, has caused drastic increase in costs due to the fuel price increase. Even though we already have signed contracts with our logistics provider, this cost increase had to be assumed by the company.
Regarding the international logistic scenario, we have been facing cancellations to our exports from different operators due to lack of containers available and our due delivery date changed to 1-2 months, explains Daniel.
We will know by the end of this year, the real logistic cost increase, but we know a lot of our clients had to face an 80% increase to the USA. We normally work under FOB price which means that our client is in charge of the rest from the Guatemala port to the USA port.
Higher Production Costs and Migration
According to USDA, on one hand, production costs in Guatemala rose by 32% due to fertilizer price doubling and the impact of migration as mentioned above, has reduced the availability of labor. On the other hand, the forecast production of our country for 2022/2023 will fall by 17% and the demand continues to rise from Guatemala’s top’s export market, the United States.
While this difficult scenario is not new for the country, the yields have been negatively impacted even more due to the fertilizer’s increase. And in order to solve this issue, producers who the majority are smallholder growers, are reducing the use of fertilizer shifting to natural and organic options but we are not certain about how this will affect quality.
These are just some statements that have been causing the price volatility worldwide, and while price stability in the entire coffee value chain will take some time, we need to adapt quite fast to these new economic changes.
Right now, there may be more issues than solutions, but speaking out about this, is already an action to be taken by the different producing countries. Our commitment is to keep raising awareness about what is really happening in our industry at origin and how we can contribute to future solutions that will allow us to provide the best Guatemalan coffee to the world in the long term!
From inflation, shipping issues, war, global consumption increase to production decrease. Being aware of this helps to cooperate and create alliances with importers, roasters and to suggest solutions to local governments that could keep us in the market.