Demand Flagging as Coffee Consumption Peaks

KOMPAS/YUNIADHI AGUNG

Anomali Coffee coffee shop in Kemang, South Jakarta, is deserted on Friday (20/3/2020), far different from weeks earlier. Visits to the café, known as a hangout spot, have fallen sharply due to the COVID-19 outbreak.

The COVID-19 pandemic has disrupted multiple sectors in the economy. Of these, the food, beverage and accommodation services are among the most affected.

Lockdowns and physical distancing policies have led to various cafés, restaurants and hotels being shuttered. Coffee demand declined, which eventually led to coffee price dropping globally.

Indonesian coffee farmers have felt this since March 2020, when demand for Arabica coffee from Aceh and Medan began to decrease. Demand for specialty coffee, often served in restaurants or cafés, have declined 60 percent since March. Meanwhile, this month, limited mobility further disrupted coffee trade.

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Global economic slowdown due to COVID-19 has also led to reduced demand for coffee. The International Coffee Organization (ICO) cited in its report that, for every 1 percent drop in global gross domestic product (GDP), coffee demand will drop by 0.95 percent or equal to 1.6 million 60-kilogram packs.

They were worried that if a lockdown was to be imposed, coffee supply would have been impeded, which would have led to limited stock.

Before, coffee demand had increased. Worries over lockdown plans had resulted in panic buying among importers and consumers. Coffee importers had been ordering and storing coffee since the month before. They were worried that if a lockdown was to be imposed, coffee supply would have been impeded, which would have led to limited stock.

Coffee exporter representatives in Colombia and Brazil said they had received orders from buyers to send coffee as soon as possible. High demand led to increased coffee price in the world’s two largest coffee exporting countries. However, profits were estimated not to last long due to the worsening pandemic.

Purchases of coffee pods and roasted coffee increased by 31.7 percent and 34.6 percent, respectively, in France. In Italy, demand for ground coffee products increased by 29.5 percent.

Other than obstacles in consumption, coffee production in plantations had also been impeded by regional restrictions. In countries that do not fully rely on production technologies in Central America and South America, these policies have led to coffee plantation workers being unable to work. This is because workers in these regions are commonly migrants from neighboring countries.

KOMPAS/ABDULLAH FIKRI ASHRI

Coffee enthusiasts in Cirebon donate 150 cups of coffee and 2 kilograms of ground coffee to team members of the COVID-19 task force in Cirebon municipality, West Java, on Monday (6/4/2020). Although they are affected by the COVID-19 outbreak, café owners and baristas have shown solidarity by donating free coffee to the task force members.

Consumption peak

This situation came as coffee consumption peaked. ICO data shows that global coffee consumption continued to rise in the past five years. Coffee consumption in 2019-2020 reached 169.34 million packs (measuring 60 kg). This was a 6.74 percent increase compared to 158.64 million packs in 2016-2017.

Public coffee consumption increase occurred not only in coffee-importing countries but also in coffee-exporting ones. Indonesia as a coffee exporter experienced its golden era in 2018-2019.

In this period, domestic coffee consumption reached 4.8 million packs, four times larger than the coffee consumption in 1990-1991. Latest data from ICO cited that as of January 2020, Indonesia’s coffee consumption had increased to 4.9 million packs.

This booming coffee consumption was triggered by contemporary coffee lifestyle euphoria, namely iced coffee drinks mixed with fresh milk, palm sugar, vanilla syrup and other condiments. Business players use this opportunity for expansion. Moving forward, domestic total coffee consumption is estimated to increase to 294,000 tons in 2020 and 370,000 tons in 2021.

Unsurprisingly, within only three years, the number of coffee outlets increased almost threefold. The number of coffee shops in Indonesia was 1,083 in 2016 and 2,937 as of August 2019.

KOMPAS/HENDRA A SETYAWAN

Yanto arranges plastic bags of aquarium fish on Thursday (2/4/2020) at an ornamental fish farm near Mount Sindur in Bogor regency, West Java. The Covid-19 outbreak in Indonesia has disrupted the activities of thousands of micro, small and medium enterprises (MSMEs), including the ornamental fish trade. Sales of ornamental fish have fallen more than 50 percent since the outbreak began in early March, primarily due to the closure of Jatinegara Market, the center of the ornamental fish trade in Jakarta. The “stay at home” policy has also contributed to the decline in sales, as students are key customers of ornamental fish traders.

Strategy to survive

However, unfortunately, the pandemic has affected more than 2,000 coffee shops. Business is sluggish due to physical distancing policies, despite many contemporary coffee shops’ grab-and-go service.

This service is an alternative for coffee shops that remain open amid the current era of physical distancing and large-scale social restrictions (PSBB). Coffee shops like Starbucks, which previously provided seating for customers, now only serve orders for takeaway.

Furthermore, the United States-based coffee company also have 29 drive-thru outlets and more recently, “pick-up at lobby” services, in which customers place order by phone and pick them up at the lobby of the malls with Starbucks outlets.

Another alternative to save the coffee shop business is through online services. The government, through the Industry Ministry and the Tourism and Creative Economy Ministry, is working together with online marketplace Tokopedia and over 1,200 local coffee businesses to initiate the campaign #SatuDalamKopi (United in Coffee).

Among the coffee shops that use this online platform is Dua Coffee. Today, over 80 percent of its sales are from orders through Tokopedia.

Online, Kopi Tuku’s products can be ordered from all over the country. Sales are increasing. In a week, tens of thousands of the 1 liter bottles are sold.

It is similar with Kopi Tuku. The coffee shop chain enlivens the online market by introducing new coffee drink variants, such as a 1 liter ready-to-drink coffee. Online, Kopi Tuku’s products can be ordered from all over the country. Sales are increasing. In a week, tens of thousands of the 1 liter bottles are sold.

This new coffee variant is a way for coffee shops to survive. Other than Kopi Tuku, Kopi Janji Jiwa, Dua Coffee, Sama Dengan Coffee and many other businesses are doing this. With the product, consumers can stock their coffee. This also supports the government’s physical distancing and PSBB policies as it enabled customers to stay at home while ordering their coffee.

Upstream

The upstream coffee industry is also affected by COVID-19 due to reduced downstream demand and competition from other countries’ coffee. Wildan Mustofa, who owns CV Frinsa and is a member of the Sustainable Coffee Platform Indonesia’s (SCOPI) management board, said Indonesian coffee is pricier than other countries’ coffee. This is due to low productivity and high production cost.

Indonesia’s coffee plantations are less productive than those in other large coffee-exporting countries. In 2019-2020, coffee plantation productivity was only 8.56 60 kg packs per hectare. Meanwhile, coffee plantations in Brazil are almost three times as productive, or at 24.81 packs per ha.

Plantation productivity in Vietnam is 48.10 packs per ha. In Colombia and Ethiopia, it is 18.33 packs per ha and 13.66 packs per ha, respectively.

Policies to strengthen the economy of coffee business chains are urgent as the coffee harvest period will arrive in May-September.

Therefore, the government carried out various initiatives to protect the economy of all business players in the coffee business chain. Other than cooperation with digital platforms, the government has also prepared alternative markets and credit relief policies for microcredit programs. Policies to strengthen the economy of coffee business chains are urgent as the coffee harvest period will arrive in May-September.

For business players, including farmers and coffee shop owners, online services have become an alternative to survive in the pandemic. Creativity, innovation, capital support and strengthening cooperation between business players, the government and other institutions are key to saving the coffee industry.

(KOMPAS R&D)