It will come as no shock to you that coffee is one of the most popular hot beverages among consumers. The result—coffee is expected to garner record high global consumption at 150.8 million bags (each weighing 60 kg) in the 12 months starting October 1, a +1.2% increase from the preceding period, as indicated by the U.S. Department of Agriculture (USDA) estimates. However, production levels may be finding it hard to keep up. The global deficit could widen to 2.2 million of 60-kg bags for the 2016-17 season, from 800,000, as suggested by Rabobank International.
Surging global demand is expected to shoot coffee prices up, with inventories predicted to hit a 4-year low in 2016-17 amid heavy rains in Colombia, dry spells in Vietnam and Indonesia, and coffee rust in Central American/Mexico plantations predicted to dampen production (according to USDA reports).
U.S., the biggest consumer of java after the whole of the European Union, is estimated to increase its consumption by +1.5% in 2016-17, to record highs. Also predicted to reach their peaks are demand from China and India at expected +5.3% and +3.7% growth rates respectively (USDA forecasts).
Data source: U.S. Department of Agriculture (June 2016 estimates)
A Brief History of Joe
With the current explosion of java chains serving gourmet/exotic preparations and cold brews, coffee drinking has come a long way. Although apocryphal, legend has it that the stimulant powers of coffee beans were first discovered in Ethiopia by a goat herder who noticed his goats becoming more energized after eating the coffee beans. It’s said to have spread to other parts of the world including Arabia by the 15th century, and to Persia, Egypt, Syria and Turkey by the 16th century. The beverage made its way into Europe by the 17th century. In Europe, coffee quickly began to replace the common breakfast drinks of the time (beer and wine) as those who drank it found themselves more alert and their work greatly improved.
Reaching America around mid-1600s, a major turning point for coffee’s proliferation in the U.S. mainstream was the Boston Tea Party (1773). Colonists decried an exorbitant tea tax, following which people’s growing preference for java even led to taverns increasingly being used as makeshift coffee houses.
Further, as U.S. soldiers took to drinking the stimulating beverage, thanks to military rations during the Civil War and WWI, their habit sustained even after, spurring a +450% influx of coffee houses during 1920-1930s.
One of the earliest shops offering specialty coffee was Peet’s Coffee & Tea founded in Berkeley, California in 1966. In fact, two regulars at the café were Gordon Bowker and Jerry Baldwin, who would later go on to found the coffee retailer which practically revolutionized the way America has its coffee—Starbucks Coffee.
Bowker and Baldwin, along with Zev Siegl, opened the first Starbucks in 1971 in Seattle, Washington. Initially it sold only coffee beans and coffee-making equipment. Starbucks expanded into a full-fledged coffee house chain brewing specialty java, mainly under the initiative of Howard Schultz (who was previously the Director of retail at Starbucks) who bought the company in 1987. Its novel delicacies of Frappuccino and Latte, with emphasis on personalized servings, rapidly got imbibed into the urban population’s daily fare. The chain now has over 23,000 stores across the globe.
Trendsetting coffee house chains with origins in other parts of the world include India’s Café Coffee Day and China’s Momi café.
Bottom Line for Investors
Coffee houses’ evolving roasting/brewing methods have had a big role in whetting people’s appetite for caffeine across the globe. The beverage’s energizing properties coupled with café’s exotic/innovative preparations have made the drink an indispensable staple in our daily lives. Also, the laid-back cozy ambience of coffee shops has added to their popularity among the socializing youth.
The burgeoning demand for coffee is already being reflected in prices/price expectations: Arabica coffee futures traded in New York soared +20% in June, the biggest monthly increase since February 2014. Robusta, used in instant coffee, experienced around +4.2% rise last month in London. As coffee’s popularity continues to expand, this is a market to keep an eye on.
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