The wholesale price of coffee dropped 30 percent in the first week of February compared to the last week of December. This information comes from the New York Intercontinental Exchange, where Arabica coffee beans fell from $1.30 to $0.97 a pound over the month of January. Although there are many reasons for this decline, the Wuhan coronavirus appears to be a significant factor. However, fear of the virus has more to do with the price plunge than the virus itself.
China’s Coffee Industry
China is becoming a major player in the global coffee economy. From just 117,000 bags of coffee consumed in 2003, China’s residents are now consuming well over 3 million 130-pound bags in the span of a year. This accounts for over six percent of worldwide consumption. There are approximately 100,000 cafes in China, 8,000 of which are Starbucks or Luckin chains, the latter being Starbucks’ Chinese competitor. The coronavirus, which emerged in Wuhan in December 2019 and infected over 74,000 people in mainland China, has emptied China’s cafes and caused closures of the major coffee chains, leaving Arabica farmers around the world with lots of supply but less demand. Coffee’s price plummeted as a result.
Starbucks Closures
Over half of Starbucks’ 4,000 Chinese locations closed after the coronavirus outbreak. Roughly the same percentage of Luckin stores did the same. Although these closures are meant to be temporary, the negative business effects will likely last longer than the virus. They haven’t yet appeared, however – at least not on Starbucks’ quarterly sales report. The company is riding the high of year-end profits that increased by 16 percent from the previous year. For this prosperity, Starbucks credits expansion, cold drink sales, membership growth, and the release of products like high-tech espresso machines, of which some are operated via artificial intelligence. Although stock prices did drop after China’s closures, they are back to normal. According to Starbucks executives, the full impact of the coronavirus on business operations may not be discoverable till March.
Other Markets Affected
Coffee is far from the only market affected by the coronavirus. It’s no secret that China has a stake in many international companies, so when the Chinese market takes a hit, the rest of the world feels the impact. When 60,000 Chinese movie theaters closed because of corona-panic, the Canadian theater company IMAX, which operates 600 locations in China, had to postpone the release of five movies. The company expects to see revenue losses in the hundreds of millions. Even tech giants like Apple are worried. The company took a three percent stock hit in late February. This shouldn’t come as much of a surprise; China is responsible for 17 percent of Apple’s revenue.
Many global markets have been impacted by the coronavirus, including coffee, whose wholesale price dropped 30 percent in January. Although it may right itself when the panic is over, the current price is affecting coffee producers all over the world. As for coffee buyers, get it while the price is good.
