© IOM Demand for coffee, cocoa and tea continues to grow, especially in emerging economies. New FAO report: extreme weather becomes major driver of rising prices for coffee, cocoa and tea Economic Development
Droughts, floods, plant diseases and other shocks in producing countries are increasingly causing sharp fluctuations in coffee, cocoa and tea prices around the world. The consequences of these phenomena are felt by farmers, processors, traders and millions of consumers around the world. This is stated in the new report of the Food and Agriculture Organization of the United Nations (FAO) “Price dynamics in global beverage markets: trends, drivers and consequences.”
The authors of the study note that the main reason for sharp price increases for these popular goods remains weather anomalies – droughts, frosts and heavy rains. They call for strengthening agricultural production, increasing market transparency and achieving fairer income distribution across the value chain. This will make markets more resilient and better protect the livelihoods of millions of farmers.
Supply and Demand
According to the report, more than 90 percent of short-term price fluctuations are explained by changes in supply and demand. At the same time, market participants’ expectations regarding the future situation also play an important role. Sometimes they are the ones that push prices up or down before real changes in production or consumption become apparent. “According to the report, these are primarily weather events, the spread of pests and diseases, logistics problems, and changes in energy prices,” he says. “For example, in the last couple of years, weather conditions have affected coffee production. Drought was observed in key growing regions, which led to a reduction in supply and, as a result, a sharp increase in world coffee prices.”
Production concentration
As noted in the study, price dynamics are determined not only by the weather, but also by the peculiarities of the organization of the markets themselves. Coffee, cocoa and tea production is concentrated in a relatively small number of low- and middle-income countries and is primarily carried out by smallholder farmers. At the same time, most of the crop is exported in unprocessed form to richer countries, where the products are processed and sold. Indonesia.
Cocoa production is even more concentrated: more than two-thirds of the world’s volume comes from Côte d’Ivoire and Ghana. More than half of the world’s tea is produced in China.
Because of this high concentration, even local problems in a few countries can cause noticeable fluctuations in world prices. If crops are compromised in one key region, the effects are quickly felt far beyond the region.
Dependency on transport costs
At the same time, demand for coffee, cocoa and tea is much more widely distributed and continues to grow, especially in emerging economies. Long distances between producers and consumers make markets more dependent on transport costs and logistics disruptions, exacerbating the effects of global shocks.
Price jumps
The study also found that the effects of price shocks are felt differently at different stages of the supply chain. Producers typically experience them directly, while price changes are often less noticeable to end consumers.
Because coffee, cocoa and tea provide income to millions of farming families, sharp price changes directly affect income levels, poverty, food security and government budgets, especially in countries where the export of these crops plays an important role in economy.
Understanding the causes of price fluctuations is essential to developing effective public policies that will make the industry more sustainable and preserve the livelihoods of millions of farmers, according to El-Mamoun Amrouk.
Understanding the causes of price fluctuations and their consequences is critical to developing policies that will improve efficiency sectors
“These price fluctuations have a significant impact on those who produce these goods, primarily small farmers. They account for more than 60 percent of global production of these crops, mainly coffee and tea, he notes. “Understanding the causes of price fluctuations and their consequences is therefore critical to developing policies that will improve the efficiency of the sector and thereby ensure sustainable livelihoods for millions of farmers.” shocks.
First and foremost, the authors recommend investing in more climate-resilient farming practices, improving pest and disease management, and developing risk management tools that will help stabilize production and farmer incomes. Equally important, improving market transparency. Better information on crop conditions, production volumes, product inventories and trade flows will help reduce uncertainty and make pricing more predictable.
This will help farmers make more informed decisions at the production planning stage, El-Mamun Amrouk said. “It is especially important to provide data on inventory levels,” the expert clarifies. “This is critical for small farmers and producers to ensure they can allocate their limited resources wisely.”
FAO also believes in achieving a more equitable distribution of income along the value chain. If producers can not only grow the raw material, but also process it, certify it and promote their own products, their income will increase and the industry will become more sustainable and inclusive.
The authors warn that without such changes, the world markets for coffee, cocoa and tea will remain vulnerable to new shocks. And this will continue to threaten the well-being of millions of farmers, food security and the economic stability of producing countries.