This article was updated in March 2022 to reflect changing conditions, prices and trends
Popular with consumers around the world and supporting numerous developing nations as one of their key commodities, the coffee industry is growing in value, with prices in October 2021 reaching all new highs.
However with Covid-19 slowing both production and demand, and disrupting the global supply chain, the global coffee industry has experienced set backs – with global export volumes marginally down from 2021 vs 2020. It has also seen new trends take hold.
Here’s our summary of the key factors set to affect the coffee industry in 2022 and beyond.
Overview of the global coffee market – 2022 and beyond
Globally coffee is a multi-billion dollar industry that experts predict will grow despite slowdowns in other parts of the export market. Mordor Intelligence pegs the compound annual growth rate (CAGR) at 4.22% for 2020-2025, with Europe the largest market for consumers and South America the fastest-growing market.
But a global pandemic that has disrupted supply chains and eradicated past norms, coffee could not be expected to escape unscathed. The International Coffee Organisation’s (ICO) Coffee Market Report of September 2020 showed that global production was down 2.2% compared to 2019, with Arabica in particular dropping 5%. This is coupled with an expected decrease in consumer demand of 0.5%, which has led to below-average prices.
As of September 2021, the ICO has reported Robusta exports at 40.98 million bags in the preceding 12 months, compared to 42.62 million bags the year before. Arabica, however, has recovered somewhat with 75.32 million bags compared to 72.22 million bags last year.
2021 was a critical year for coffee producers and buyers alike.
The US coffee market
Market size: US$14 billion
Due to a weakening in downstream demand and delays in the supply chain (i.e. trade shipments), coffee revenue has largely flatlined in the US and isn’t expected to grow again until after the pandemic. Though to be fair to the US, this is happening across markets and isn’t isolated to the Americas. Revenue dropped 17.9% in 2020 against 2019, but is expected to resume growth at a CAGR of 8.7% through to 2025. The US coffee production market shrank 0.6% in 2020.
The UK coffee market
Market size: US$1.2 billion
Europe is the seat of coffee’s power across the world, although the UK itself only makes up a small portion of this market (compared to the likes of Finland, where consumers drink about four times as much coffee as the UK). Social distancing measures severely impacted the industry in 2020, particularly at the cafe and coffee shop level, leading to a 1.3% decline in the market’s size and 15.7% decline in revenue. Looking ahead to 2025, experts predict the UK coffee market will grow more strongly than the US with 10.5% CAGR over the next five years.
The Australian coffee market
Market size: $US7.8 billion*
Australia is a huge coffee-drinking nation despite its British tea-drinking origins. Its market size compared to population size is huge when compared to the likes of the US. Of course Covid-19 has had an impact here too. Revenue was down 18.9% in 2020 and the average revenue per person down a similar number. Growth is expected looking forwards to 2025, at a CAGR of 8.6%.
* This figure includes tea and some other food products, due to restrictions in the available data.
The New Zealand coffee market
New Zealand, like Australia, is another nation of coffee drinkers – indeed, average coffee consumption per capita in NZ is higher than both Australia and the UK. Revenue shrinkage has been slower here, too, likely thanks to the country’s lockdown measures enabling consumer-facing businesses and supply chain partners to get back to normal more quickly. Revenue shrank 15.8% in 2020, and the industry is expected to grow at a CAGR of 9.1% through to 2025.
*At time of writing, our data sources are unable to provide an accurate picture of the size of the NZ coffee market in a post-Covid-19 world.
The Chinese coffee market
Due to the sheer scale of the Chinese market in general, coffee here is able to draw in billions of US dollars despite coffee consumption per capita being relatively low (at just 0.06kg per person, compared to NZ’s 2.1kg or the US’s 3.5kg). Of course, like everywhere else, figures were down in 2020 compared to 2019 – revenue shrank 18.7%, although is expected to grow again at a CAGR of 11.6% by 2025.
*At time of writing, our data sources are unable to provide an accurate picture of the size of the Chinese coffee market in a post-Covid-19 world.
Sources used in our figures above: IBIS World, Statista, Mordor Intelligence
Impact of Covid-19 on coffee-exporting countries
So far we’ve focused mostly on import nations (although countries such as Australia do have a burgeoning coffee export market of their own), but what about the world’s largest coffee growers? Organisations at any point of the global coffee supply chain would do well to know what’s happening at their product’s point of origin to anticipate how the coming financial year – and beyond – may pan out.
The world’s top coffee exporters
Trends for coffee exporters
After a shock in both demand and supply, coffee prices have been volatile, according to ICO reports, and they dropped steadily from March to June 2020. This exacerbated the existing challenge of low global coffee prices that have impacted growers for a number of years.
However prices reported by the ICO in November 2021 were at record levels, fuelled by higher freight and labour costs, with the ICO composite price indicator hitting 195 US cents per pound.
Social distancing measures affected some coffee markets less severely than others.
Most growers (75%) told the ICO that they predict travel restrictions and social distancing measures (among other impacts of Covid-19) will affect their ability to employ workers and lead to a higher cost of production. This is more likely to impact countries such as Ethiopia where cultivation and harvesting is largely done by hand.
Looking down the supply chain, export nations also felt negatively about a number of downstream factors. For instance, 50% of respondents felt that logistics, container availability and port operations would all feel a negative impact of Covid-19. A further 45% felt their supply chain contracts may become challenged, or even cancelled.
One final point to note – there may be additional consequences to come as we look to the long term. In particular, a third of survey participants said they felt the prevalence of coffee leaf rust and other pests/diseases may increase, likely as a result of the increasing cost of mitigation measures such as pesticides, fertiliser and technical assistance.
The impact of climate change on the coffee industry
1. Conscious coffee consumers on the rise
We’ve seen this building for some time across markets and coffee is no exception: consumers are increasingly conscious about where their products come from and what form they take, and changing their purchase habits accordingly. This of course has ramifications up and down the supply chain.
In a 2019 paper from Poland titled “New Trends in Consumption on the Coffee Market”, researchers noted that coffee consumers are eschewing what they termed ‘greedy consumerism’ and moving towards simplicity, better quality and uniqueness. They are turning away from traditional coffee channels and seeking out authenticity.
Additionally, a report from the US National Coffee Association found that 53% of US coffee drinkers want to buy coffee that is good for the environment, the farmers who produced the beans and their communities.
2. Coffee yields down, pests up
Scientists are unanimous on what’s happening to global temperatures – they’re on the rise, affecting climates around the world. For coffee growers and their partners, this could spell trouble as yields drop and pests increase.
As the International Trade Center (ITC) notes, due to climate fluctuations (such as abnormally high temperatures or reduced rainfall) during sensitive growing periods, farmers may not be able to produce the same amount of coffee as normal, resulting in lower crop yields.
On top of that, higher temperatures create a breeding ground for pests and disease, which may be able to spread to regions where they can’t currently survive. This could increase the costs of coffee production even more as farmers work harder to fight issues such as leaf rust and coffee berry borer.
3. Communities displaced as temperatures change
Another impact of changing temperatures is that the ideal altitude for growing coffee may change with it. Looking at Arabica as an example, Fairtrade International says that warmer temperatures could push production of this bean type higher up mountains and forest reserves – displacing the communities (and wildlife) that already live there. Farmers who live in lower lying regions may have to adapt and move upwards, or risk losing their livelihoods.
Consumer trends in the coffee industry
1. Ready-to-drink coffee ready to grow
According to Hivos, ready-to-drink coffee is one of the fastest growing market segments in Europe (in 2018 it was the fastest), with the European Centre for the Promotion of Imports (CBI) and the Polish paper we mentioned earlier both showing signs that the trend continued into 2020.
RTD coffee is perceived to be a healthier alternative to sodas, and a corresponding growth in iced coffee as a popular beverage is helping fuel this market’s premium status.
RTD brews are being marketed as premium products.
2. Specialty coffees increasingly special
According to the CBI, while most consumers still buy mainstream coffee blends, there is rising demand (and a willingness to pay) for high-quality coffee with cupping scores over 80 points. Aligning with reports on socially conscious consumers looking for an authentic experience, CBI also noted that consumers will pay for coffee with a good story related to its environmental and social aspects.
However there is still no common definition for ‘specialty’ coffee. Coffee brewers and other related businesses looking to tap this market would do well to focus on brands based on high-scoring drinks with strong eco-conscious roots.
3. Growth in the single-cup coffee brewing equipment market
Home brewing is changing, and consumers are choosing new equipment in response. In the US, consumers are 24% less likely to choose traditional drip coffee machines than they were in 2015 (NCA USA findings). Correspondingly, single-cup brewers have risen 50% in the same period.
Coffee pods and capsules are a primary driver in this shift. The global market for these machines, according to Fior Markets, is expected to nearly double by 2025 – from US$15.23 billion (2017) to US$29.2 billion.
4. Increasing potential for agri-tourism in the coffee industry
Growing, selling and brewing coffee may not be the only future of the coffee market, as agri-tourism looks to be an increasingly viable market for those in the industry – current Covid impacts notwithstanding.
This type of coffee tourism could be seen as similar to the wine industry, where vineyard visits and tours are commonplace. This links once again with the idea that consumers want an authentic experience – with people willing to seek out coffee growers and related businesses for tours, tastings and learning experiences related to coffee.
For the most part, this trend impacts coffee growers. Growers in exporting countries may look to attract tourists, although viticulture has shown us that growers in almost any region will be able to attract tourism.
Pivoting to a subscription model allowed some coffee roasters to survive lockdowns.
5. Coffee as a subscription
One burgeoning industry is the coffee subscription model, where suppliers send consumers coffee straight to their door. While this concept has been around for a few years, Covid-19 lockdowns brought it to the fore as consumers looked to get their coffee fix despite being stuck at home.
Access to coffee software and easy integrations with e-Commerce platforms have allowed coffee roasters to provide subscription coffee services and direct-to-consumer sales at scale in 2020.
It remains to be seen how this trend will stack up as we move into a post-Covid-19 world and return to some semblance of normal. For most people, coffee was previously not considered a difficult commodity to access. However, if customers want authentic, high-quality blends then the model of hand-picking premium brews to be delivered to their door may continue to hold a premium status and, therefore, desirability.
While Covid-19 and climate change have led a number of coffee market experts to predict doom and gloom for the coming years, changing consumer habits and growing interest in the product present new opportunities for businesses up and down the supply chain. Those who are able to take advantage of new coffee technologies and form partnerships with key third parties will remain flexible enough to pivot around whatever comes next in the global coffee market – good or bad – and enjoy the coffee industry’s predicted continued growth.