Artisan drinkers provide perk for coffee

Call it artisanal, speciality or premium coffee. The so-called "third-wave coffee boom" seen in cities around the world is supporting demand for the beverage at a time of price volatility and harvest uncertainty.

Fuelled by consumers seeking better tasting coffee and a "connection" with the origins of the beans - nowhere is the phenomenon more visible than in North America, where from Calgary to Chicago clusters of roasters and upscale coffee shops are attracting customers seeking high-end brews.

Thomas Copple, economist at the International Coffee Organization, says: "In North America, the move towards speciality coffee is helping growth," adding that premium coffee, previously a niche segment of the market, was "becoming mainstream".

Trade data show that US coffee imports rose 2 per cent in 2014 from a year before and 13 per cent from 2010, while Canadian overseas purchases increased 11 per cent last year, compared with 2013. The growth of the third-wave trend comes as the overall coffee market managed to register a 1.4 per cent rise in demand, according to the ICO.

This was despite expectations of weaker consumption in Brazil - which has been growing rapidly over the past few years thanks to the rise in middle-class incomes - and Europe, the leading consuming region for the beverage, hit by continuing economic pressures.

"The US has continued to perform very strongly and the third wave has been part of that," says Kona Haque, head of research at commodity traders ED&F Man, owner of the Swiss coffee trading house Volcafe.

The strong North American demand figures will come as a relief to coffee executives. Last year's jump in coffee prices, on the back of Brazil's unprecedented drought, raised fears that consumers would also be faced with higher prices, denting demand.

Prices of arabica, the high-quality coffee bean, jumped since the start of 2014, rising more than 100 per cent to a high for the year of $2.29 a pound. The market has since fallen on plentiful rains and Brazilian inventories, with arabica now trading at around $1.38 a pound.

Late last year JM Smucker, the maker of the top US packaged coffee brand Folgers, warned that its revenues and profits for the three months to October had been hit after it raised coffee prices by an average of 9 per cent in response to higher prices for arabica.

Coffee import volume numbers, however, seem to indicate that the price increases made a minimal dent in overall consumption.

Meanwhile, the firm demand has come as traders and analysts have been fretting about the negative impact of the booming "single-serve" coffee market on overall consumption volumes.

The growth of products such as Nestle's Nespresso and Keurig Green Mountain has been the focus of debate about the impact of single-serve coffee on overall demand.

Compared with when coffee was made in pots, single-cup capsules have almost eliminated wastage which may lead to a fall in consumption, say some coffee companies and analysts.

The industry had initially expected a boost to arabica prices from the single-cup revolution.

Nevertheless, "the lack of waste is because the portioned coffee system enables the use of the exact amount of coffee, water and energy required to extract a coffee", says Nespresso.

The single-portioned coffee using capsules and pods means that "the sink is not the biggest coffee drinker", says the coffee company.

Carlos Mera, analyst at Rabobank, however, questions whether there is a big downward effect of single-serve machines on coffee consumption. "If you buy a machine at home, you are not going to just stare at it," he says, pointing to the rising demand data, even in Europe.

He adds that the single-serve machines are about shifting consumption from coffee retailers to the consumers' homes. "The single-serve phenomenon is about bringing the premium trend into your home," he says.

On the other end of the quality scale, Asia continues its strong growth, albeit in instant coffee. The popularity in three-in-one coffees, the packets of instant coffee, sugar and powdered milk remain strong, as well as sugary canned coffee beverages, say analysts.

The steady growth in east and Southeast Asia has meant that demand for robusta, the lower-quality coffee mainly used in instant coffee, has grown over the past few years. Chinese coffee imports have more than doubled in the five years to 2014, although the overall amount remains small at 65,713 tonnes, or about 4 per cent of US imports.

Vietnam, which is a leading robusta producer, has also seen domestic consumption jump, rising 44 per cent in the last three years, according to Volcafe.

It may be a while until the region reaches the third wave, but in the meantime, these products are laying the ground and "promoting coffee consumption", says Mr Copple.

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