Coffee is a major global commodity, with an estimated 164 million bags produced in 2021. However, the price of coffee is subject to a wide range of political risks that can have a significant impact on the supply and demand of this beloved beverage. As many of you are acutely aware, most exchange-traded commodities have been in flux over the past 36 months, going from events of March 2020 and the invasion of Ukraine in March of 2022.
One of the most significant political risks in the coffee industry is the risk of conflict and instability in producing countries. Coffee is primarily produced in developing countries, many of which are characterized by political instability, social unrest, and armed conflict. For example, coffee production in Colombia, one of the world's largest producers, was significantly impacted by the country's long-running civil war, which disrupted supply chains, caused price volatility, and led to a decline in production.
Another political risk that affects coffee prices is the risk of trade disputes and protectionism. Many developed countries, including the United States and the European Union, impose tariffs on coffee imports from developing countries, which can increase the cost of production and reduce the competitiveness of these products in global markets. In addition, trade disputes between major coffee-producing countries, such as Brazil and Vietnam, can create price volatility and uncertainty in the market.
Climate change is also a significant political risk in the coffee industry. The global coffee supply chain is highly vulnerable to the effects of climate change, which can lead to lower yields, reduced quality, and higher prices. Developing countries are particularly vulnerable to the impacts of climate change, and many coffee-producing regions are already experiencing changes in temperature, precipitation, and weather patterns that are affecting coffee production.
Political instability, trade disputes, and climate change are just a few of the political risks that can impact the price of coffee. Other risks include changes in government policies, such as taxes, subsidies, and regulations, as well as fluctuations in currency exchange rates, which can affect the cost of production and transportation..
To ensure a stable and sustainable coffee industry for generations to come, stakeholders in the sector must remain vigilant and proactive in managing the political risks that can significantly impact the price and availability of this beloved beverage. This requires investing in climate-smart agriculture, diversifying production and trade routes, and engaging in advocacy and diplomacy to reduce trade barriers and promote stability in producing countries. By taking these steps, the coffee industry can weather political risks and continue to thrive in an ever-changing global market.
-Tom "Tommy Hansa' Maegdlin