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The Decisive Episode 10: Spilling The Tea On The Coffee Trade

 

Kristen Hallam

Welcome to another episode of the Decisive Podcast. I'm your host, Kristen Hallam, Lead Content Strategist for Global Intelligence & Analytics at S&P Global Market Intelligence. I'm joined by Anna Rybicka, Senior Economist; and Agnieszka Maciejewska, Economic Associate Director, Trade Forecasting. And we are going to talk about 2 of the great pleasures of life, tea and coffee, in particular, the trade that makes enjoying these beverages possible. Anna, Agnieszka welcome back to podcast. We've renamed it since you were last here, but you're still stuck with me as your host, I'm afraid.

Agnieszka Maciejewska

Hello. Nice to be here again.

Kristen Hallam

So last time you were on the podcast, we talked about cocoa and sweets, and now we're talking about coffee and tea. What inspired you to look at the trade in these 2 popular drinks?

Anna Rybicka

Yes. So it is because being coffee in the morning and tea in the afternoon or the other way around is a daily routine for many of us. We cannot imagine our lives without our favorite hot or sometimes cold beverage. But do we ever wonder how our daily preferences influence the global trade in these commodities. Are coffee and tea allies or rivals? Are the main exporters of coffee similar to the main tea exporters? Is there an overlap in the top consumers and producers of these commodities? And finally, it was interesting for us to determine whether the World Cup in terms of trade volume belongs to tea or coffee.

Kristen Hallam

And what trade data did you use in your report, Anna?

Anna Rybicka

We used both the historical data and forecast data. And in the historical data, we have split the coffee products into raw materials, processed coffee products, substitutes and derivatives and finally, the final products. Final products are defined as ready-to-consume products. And the main, primary coffee products are coffee beans represented by the coffee not roasted, not decaffeinated cold, while the main final product is traditional caffeinated coffee represented by coffee roasted, not decaffeinated cold.

We analyzed the top exporters of these primary and final coffee products and compared them with trends in the trade for coffeemakers. In case of tea, we split the tea leaves, which are primary product in 2 types, black and green in their fermented and non-fermented versions. We also calculated the proportion of tea and coffee exports in the country's overall production to identify the countries with the highest domestic consumption. Finally, we checked the forecast for coffee, tea and chocolate to determine if the future trends differ.

Kristen Hallam

Now you gave your report on tea and coffee, a great title, which was who wins the World Cup. So let's not keep our listeners in suspense. Who wins?

Anna Rybicka

So according to history and forecast, the winner of the World Cup is coffee. This is in terms of tonnage. According to the forecast, in 2040, coffee global trade in tons is envisaged to be 5x larger than the tea trade. However, if we change the units from metric tons to cups, the competition gets tighter and the dominance of coffee is not observed in all periods. We need to consider the fact that 1 kilogram of roasted coffee beans can produce 111 cups of coffee, while 1 kilogram of tea leaves can produce up to 400 teacups. This changes the picture, making the dominance of coffee much smaller and periodical. We can see that the world exported similar amounts of coffee and tea cups in 2008 and in 2013.

Coffee started to dominate in 2014, followed by a slight drop of tea export volume. In 2023, the world traded the equivalent of almost 758 billion cups of tea and 986 billion cups of coffee. Within the coffee itself, coffee beans are the winner. Coffee raw materials, coffee beans, non-roasted takes the lead in terms of global trade volume. In 2023, raw coffee beans accounted for almost 72% of global trade, while roasted coffee made up 13% of the market. Robusta coffee has larger share than Arabica in the global trade and the black tea represents a larger proportion than green tea, 76% versus 23%.

Kristen Hallam

So some big percentages there, 72% for coffee beans, 76% for black tea. And what about the volume of decaffeinated coffee products?

Anna Rybicka

Decaffeinated coffee product, despite being more and more popular, still constitute a very small proportion of overall global trade. That was a surprise to me, too. It represented only 3% of global trade in tons in 2023.

Kristen Hallam

Wow, 3%, that's pretty tiny. I'm actually trying to drink more decaf, although I'm saying that while I have a cup of fully loaded caffeinated coffee next to me.

Anna Rybicka

Yes, me too.

Kristen Hallam

So who are the major players in the coffee trade globally?

Anna Rybicka

Brazil is the global leader in the export of coffee, not roasted, not decaffeinated. And it accounted for almost 1/3 of the global volume in metric tons in 2023. The top 10 countries as a whole constituted 80% of the global export. Latin American countries like Colombia, Honduras, Peru and Guatemala are also significant players in the coffee trade. They are all in top 10. Asia accounted for 25% of exports with Vietnam only representing 18%. Additionally, there are 2 African countries in the top 10. This is Uganda and Ethiopia, collectively responsible for 7% of the global export. So we can see some concentration here.

Kristen Hallam

Yes, yes. And there are some familiar names on that list. Colombia, certainly in the United States, where I'm sitting, is a well-known source of coffee, but Vietnam is a bit surprising. I didn't realize they were quite so big in coffee exports. So who would the biggest importers be?

Anna Rybicka

Yes, it is easy to guess that the main importers of coffee are different countries than exporters. The United States leads with an 18% share followed by Italy, Germany and Belgium. European countries in the top 10 account for 42% of global coffee raw materials import volume. In North America, the U.S. and Canada constitute 20% of the global import and Japan alone represent quite a significant demand for coffee beans accounting for 5%. Mainland China and South Korea ranked 11th and 12th, respectively, while Russia only placed 27th. And the top 10 importers accounted for 67% of the global import in 2023.

Kristen Hallam

That is the lion's share to be sure. I'm contributing to that 18% share that the United States has right now, as I mentioned.

Anna Rybicka

Exactly.

Kristen Hallam

So who is the world leader in exports of roasted coffee?

Anna Rybicka

Yes. The roasted coffee, the final product, Italy, who is often considered as the world's coffee capital is the global leader in coffee export in 2023, but it is closely followed by Germany. The top exporters of roasted coffee, including Italy, Germany, Switzerland, the Netherlands and Belgium are also the main importers of green coffee beans, so in raw materials. This indicates that these countries are the largest coffee roasters as well with their own recipes, with their own ingredients and blends.

Kristen Hallam

Yes, that doesn't surprise me too much. I think the best cup of coffee I ever had was in Italy. Which nations would be the world's biggest consumers of coffee then per capita?

Anna Rybicka

The top consumers of coffee per capita are European countries, especially the Netherlands, but also as a group, the Nordic countries, including Finland, Sweden and Norway. At the same time, country level consumption remains high for some of the top coffee beans cultivators such as Brazil, which consumed approximately 28% of its 2022 production. Similarly, Indonesia and Ethiopia consumed almost half of their 2022 production domestically. That's a little bit different from the situation that we had in chocolate and cocoa where the top cultivators have not consumed their cocoa almost at all.

Kristen Hallam

That's right. I do remember that from our previous discussion on cocoa. And it is interesting. It kind of makes you wonder if the consumers who are also exporting are -- maybe they're keeping the best stuff domestically, who knows? So we've been spending a lot of time talking about coffee, but what about tea? My friends in the U.K., for sure, would be curious about where tea stands right about now. How does it compare to the coffee trade?

Agnieszka Maciejewska

Yes. Well, coffee dominates in terms of trade volume, but tea is still a leading commodity in some countries. And looking at the differences about the production and internal consumption. Kenya, for example, is the main exporter of tea, and it is contributing to about 23% of total foreign exchange, and it is making almost 2% of Kenya's agricultural GDP. But it seems that tea is not a common drink in Kenya. Trade data shows that almost all of its production, which is around 500,000 metric tons is being exported, while there is almost none left for domestic consumption. Contrary, in the Mainland China, the most of the production is destined for the national consumption. Of course, Mainland China is the unmatched leader in tea production with 3.2 million metric tons produced in 2023, but large majority is consumed in China. Similar situation would be in India. So we have countries that are exporting like a whole lot of tea, not consuming it and the countries that are producing even more than can be traded, but they are producing it mainly for domestic purposes.

Kristen Hallam

Yes, gives new meaning to the phrase all the tea in China, I guess.

Agnieszka Maciejewska

Yes, exactly.

Kristen Hallam

But that's surprising about Kenya, is they just export all of their tea.

Agnieszka Maciejewska

It was totally unexpected, especially then when I was analyzing the data, I found out that for some years, the export was bigger actually than their production. It occurred that the stock was left from the prior year, and this could be possible, but the numbers really makes an impression.

Kristen Hallam

Yes. I'll say. So what is our forecast for the tea and coffee trade?

Anna Rybicka

Yes, the forecast says that the combined volume of tea and coffee has been lower in metric tons than cocoa trade alone throughout the history dating back to 2005 and into the future. And in 2040, cocoa global trade is envisaged to reach 18.04 million metric tons, while coffee and tea will amount to 10.73 million metric tons and 2.14 million metric tons, respectively. We also calculated the compound annual growth rate, CAGR for cocoa during 2023, 2040, and it is projected to be the highest for cocoa, 1.38%, followed by coffee 1.12% and tea 0.72%. So as we said before, the picture changes if we calculate tons into cups. So in 2023, the world traded the equivalent of 758 billion cups of tea and 986 billion cups of coffee. In 2040, the numbers will grow to more than 856 billion cups of tea and will extend 1 trillion cups of coffee. So the difference between coffee and tea in cups is smaller, but the numbers will grow significantly for both.

Kristen Hallam

Wow, those are some mind-blowing numbers. 1 trillion cups of coffee. Energized just thinking about it. So it is a tighter World Cup competition than one might think at first to go back to the World Cup analogy from earlier. And again, you've shown how trade data can be used to tell some really interesting stories and even reveal cultural preferences. But how could businesses use this data?

Agnieszka Maciejewska

Well, the trade data are important for multiple businesses. Traders know the sources for commodities like tea or coffee, but having the forecast for exports is also a great asset. Also, as an exporter, it's extremely important to know your competitors, how they are growing in strength or how their market share is declining. On the other hand, historical and forecast trade data give you a clear picture on the demand side. So there is an information which countries are importing larger or smaller volumes in recent months. And what is the outlook for the future?

Kristen Hallam

Right. Well, I could keep talking about this with you, [indiscernible], but my coffee is getting cold. Any final thoughts for our listeners, Anna and Agnieszka?

Anna Rybicka

Yes. So I believe we need to talk a little bit about coffee and tea prices. Global coffee prices have increased by about 50% in 2024, and that was described as meteoric surge. So this surge was primarily attributed to poor weather conditions in Vietnam, the main producer of Robusta coffee variety, additionally resulting in crops being hoarded by Vietnamese farmers on the expectation of higher prices. The same with tea prices, they also surged in 2024, rising by approximately 77% between March and May 2024. And again, the main producers located in Eastern Africa, India and Southeast Asia, including Vietnam, were affected by those adverse weather conditions. Chocolate prices, which we discussed during our previous podcast were also adversely influenced by dry weather on the Ivory Coast. Needless to say, all these 3 commodities are prone to weather-related disruptions and all 3 were severely affected in 2024, which was also reflected in prices.

Agnieszka Maciejewska

Yes, exactly. I agree with Anna about the weather conditions. And climate in general, it's extremely important. Let's not forget that for tea, we have one dominating tea exporter in the world. So if the climate would affect Kenyan tea production, the whole market would be disturbed. So let's keep that in mind that the concentration is leading to a spike in prices and threaten for our morning cup of tea or coffee.

Kristen Hallam

Good point there. Speaking of Kenya, we do have a post on our blog about the floods in Kenya earlier this year. So if anyone is curious as to how weather can impact Kenya, I suggest you give it a look. And all that's left for me to do is to thank you, Anna and Agnieszka, for once again taking the time to share your insights with us on the podcast. I'm not sure how you can top cocoa, tea and coffee, but I can't wait to see what you research next. Please do keep me posted. And that wraps up this episode of the Decisive Podcast, until next time.

Agnieszka Maciejewska

Thank you.

Anna Rybicka

Thank you. Bye.

Kristen Hallam

Thank you for listening to the decisive podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.