Drought hits Brazil's coffee industry

Diogo de Oliveira Marcio Farmer Diogo de Oliveira Marcio says many of his coffee cherries are shrivelled and dry

Related Stories

Brazil's coffee fields are busy at this time of year - from now until September, thousands of coffee pickers will spend their days in the fields stripping the bushes and bagging up the beans.

But the bushes are not as fruitful as they have been in recent years. January and February, which normally host the rainy season, were the driest in decades and that has hit the country's coffee growing region hard.

Katy Watson shows the effect the drought in Brazil has had on coffee plants.

Coffee farmer Diogo de Oliveira Marcio shows me the impact on his crop - an entire field of coffee bushes with drooping leaves, desperate for water.

He points out that the younger bushes have faced the biggest problems. Their root systems are not as established so they have not been able to get the water that they need.

Coffee facts

coffee cup
  • In 2013, some 146 million coffee bags were produced globally; Brazil produced 49 million
  • About 40% of the coffee Brazil produces is for domestic consumption
  • The US is the biggest retail coffee market at $12bn; Brazil is number two
  • Finland is the most caffeinated country in the world - 8.4kg consumed per person each year

Sources: Euromonitor/ICO/ABIC

"The fruit has been lost and there's no way back," he tells me, cracking open some cherries which contain the beans. "They are all shrivelled and dry - there's nothing inside."

One expert told me that on average, 100kg of coffee cherries picked from a tree normally yields about 50kg of green (unroasted) coffee beans.

The lack of water, though, means that from younger trees farmers are only getting about 30kg of green coffee this year. It is slightly higher for older trees - between 35 and 40kg.

Brazil is the world's biggest coffee producer, accounting for about a third of global production. It produces more than half of the world's arabica coffee - the most popular bean used in espressos and cappuccinos globally.

So the drought has had an impact on prices. And it has coincided with a leaf rust that has damaged crops in Central America, further hiking up prices.

Coffee farm landscape Coffee farms in Brazil have felt the harsh effects of the drought...
coffee on shelf ...which will eventually lead to higher prices for coffee on shop shelves

In November, arabica futures for July delivery stood at $1.09 a lb on the ICE Futures US exchange. The price all but doubled to more than $2 in April and is now hovering around the $1.70 mark.

Although coffee farmers are getting more for their bags, it cannot compensate for a poor harvest.

"Coffee has risen in price but it still costs us a lot," says Diogo. "We're spending lots of money on people to harvest the beans which are of a lower quality so it's really difficult."

Katy Watson explains the rise in the price of coffee.

A short drive away from Diogo's coffee farm is Espirito Santo do Pinhal - the centre of the area's coffee economy.

Farmers at the local co-operative, COOPINHAL, are bringing their harvested beans to store in the warehouse.

feeding machine The beans are sorted according to size and quality in the warehouse
Certified coffee beans They are then bagged up and either stockpiled or sold

Talking to farmers here, the concern is not just about this year's crop, but next year's too.

"Farmers are worried about the effect the drought's had," says Alexandre Husemann da Silva, the president of the co-operative.

"The lack of water meant that the plants grew less than normal - so they only produced beans in the part that grew. Because of that, losses will be higher next year than this year."

But despite prices rising on concern over the crop size, this year so far has not seen a supply problem in the global coffee market.

Alexandre Husemann da Silva Alexandre Husemann da Silva says farmers are worried about next year's crop

Producers have been selling their stocks from previous years which has kept supply up in the market. And on the demand side, many big coffee buyers have locked in lower prices.

Arabica v robusta

Arabica beans
  • Arabica (pictured) and robusta are the two main types of coffee bean used commercially
  • Arabica accounts for about 75% of world production but you'll find both are used in coffee shops around the world
  • Roasters vary the quantity of each depending on how they want their blend to taste
  • The arabica bean is sweeter; robusta harsher with more caffeine

"Roasters buy in the futures market sometimes years in advance," says Mauricio Galindo of the International Coffee Organization. "This provides protection in case coffee prices start soaring."

Joao Staut, a director at exporter Qualicafex in Espirito Santo do Pinhal, says it is too early to speculate on whether next year's crop will be worse than this year's, but one thing is certain - the price of coffee for the consumer will eventually go up.

"Several roasters bought their needs some time ago but now they are covering the future and the future is not the same," he says. "It's unavoidable that you are going to pay more for your coffee in the coming months."

Back at the co-operative though, as the machines loudly sort the good beans from the bad, the focus is on selling the beans that have survived the drought.

In this noisy warehouse, the price of a cappuccino is not on producers' minds.

Pictures courtesy of Bob Phillipson.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    GSK FINED $492M Via Twitter Kamal Ahmed BBC Business editor

    Tweets: "GSK statement: "GSK sincerely apologises to the Chinese patients, doctors and hospitals. GSK deeply regrets the damage caused".

     
  2.  
    UK CREDIT RATING 11:03:

    The credit rating agency Fitch says that the prospect of Scotland winning more tax-raising powers, does not have an impact on its rating for UK debt. It argues that Scotland has a small share (10%) of the overall UK economy and there are also relatively "conservative" limits set on Scottish borrowing.

     
  3.  
    Via Twitter Victoria Fritz Business reporter, BBC News

    tweets: "Another feeding frenzy at #Alibaba launch? Grey market for shares indicates a 30% premium to the IPO price. @BizFleury there for the open"

     
  4.  
    DEVOLUTION QUESTIONS 10:44:

    The chief executive of Legal and General, Nigel Wilson, has made some punchy comments about the promised new powers for Scotland. He says it looks like a "great deal" but asks: "Why should the Scots get more public spending than the rest of us? If the Scots control almost all their own affairs, why shouldn't the other countries in the UK have the same powers?"

     
  5.  
    EUROPEAN REACTION 10:37: World Service

    Some in the financial markets are turning their attention to the possibility of a UK referendum on membership of the European Union. Michala Marcussen on Business Daily accepts "that may seem far away this morning". She also reminds us that Spain has still not resolved the Catalonia question: the region wants a vote, but Madrid is "clearly saying no".

     
  6.  
    GSK FINED $492M 10:27:

    Mark Reilly, the former China head of GSK has been give a three-year suspended sentence. He is likely to be deported from the country, according Reuters, which cites a source with direct knowledge of the matter.

     
  7.  
    GSK FINED $492M 10:18:

    GSK says the activities of its Chinese unit were a "clear breach" of GSK's governance and compliance procedures. "Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this." GSK chief executive Sir Andrew Witty, says in the statement.

     
  8.  
    POUND RETREATS 10:13:
    Pound dollar

    The pound has been in retreat since about 09:00. Overnight it was trading well above $1.65 but it's now a little below $1.64. "Some devolution uncertainty will remain, distracting investors' attention from superior UK growth relative to Europe," says Adam Myers, currency strategist at Credit Agricole.

     
  9.  
    Ravi Mattu, Financial Times @ravmattu

    Ravi Mattu, Financial Times, tweets: Separatists are patient, so they will wait and try again. You get a leader who can rouse a population and the game is back on #indyref.

     
  10.  
    'NEVERENDUM' 09:58:

    The British Chambers of Commerce has reacted to the Scottish referendum result. John Longworth its director general says: "The companies I speak to are clear that this cannot simply be the first in a series of referenda, until one side or the other gets the result that it wants. Business and investment prospects across the UK would be deeply hurt by a Quebec-style 'neverendum' - a lesson that politicians must heed."

     
  11.  
    MARKET UPDATE 09:53:

    Royal Bank of Scotland continues to lead London's FTSE 100 share index higher. Shares are up 3%.

     
  12.  
    BUSINESS REACTION 09:44: World Service

    Even with the "No" vote business may still decide to move jobs south, says Scottish entrepreneur, Patrick MacDonald on Business Daily. He says London is the "natural" place to be headquartered in the UK. He reminds us that in Quebec nearly a quarter of big businesses left the region in between independence votes - including the Bank of Montreal.

     
  13.  
    GSK FINED $492M 09:33:

    Mark Reilly, the former head of GSK in China, and other so far un-named GSK executives are also expected to face prison sentences of between two to four years, according to the Chinese Xinhua press agency. GSK has yet to release a statement. We'll bring it to you as soon as the company does.

     
  14.  
    GSK FINED $492M 09:30: Breaking News
    A flag bearing the logo of GlaxoSmithKline flutters next to a Chinese national flag outside a GSK office in  Shanghai

    Pharmaceutical giant GlaxoSmithKline (GSK) has been fined $492m (£297m) by Chinese authorities in relation to bribery allegations brought against the company earlier this year. Changsha Intermediate People's Court in Hunan Province, found GSK executives guilty of "offering money or property in order to obtain improper commercial gains" and has found the company guilty of bribing non-government personnel.

     
  15.  
    BUSINESS REACTION 09:15: World Service

    Patrick MacDonald a Scottish entrepreneur, says that small and large businesses "quietly confessed" to him that they have not been sleeping at night. On Business Daily he claims that some were even prepared to make redundancies this morning, in the event on a "Yes" vote.

     
  16.  
    Via Twitter Douglas Fraser Business and economy editor, Scotland

    tweets: "Scotch Whisky Assoc welcomes stability: "debate has shown need for govt + business to collaborate to address long-term economic challenges""

     
  17.  
    BUSINESS REACTION 09:04: World Service

    Lord Haskins, former chairman of Northern Foods, thinks there could be "consequences" for the supermarkets that took positions supporting a "No" vote. Speaking on Business Daily, he says there is a danger they could be shunned by shoppers.

     
  18.  
    BUSINESS REACTION 08:53: World Service

    Business Daily on BBC World Service, is coming live from Edinburgh and speaks to Sir Brian Souter, founder of the Stagecoach Group of bus and rail operators and a supporter to the "Yes" campaign. He says it's "unfortunate" that business became so involved in the debate. He thinks that some business leaders who spoke out "would not dream of" telling their US customers how to vote.

     
  19.  
    CITY REACTION 08:47: BBC Radio 4

    Sir Tom Hunter, the former owner of Sports Division and Scotland's first home grown billionaire, tells the Today programme that the high turnout for the vote was "fantastic for democracy". "I think Scotland has rocked the political establishment from its roots in Westminster," he adds.

     
  20.  
    MARKET REACTION 08:34:
    Alix Stewart

    The BBC's Simon Jack is at Schroders in London's financial district. On BBC World News he speaks to market strategist, Alix Stewart. "We can go back to concentrating on the economy," she says. "It's clear rate rises will be coming," she reminds us.

     
  21.  
    LLOYDS REACTION Via Twitter Kamal Ahmed BBC Business editor
    Kamal Ahmed tweet

    Tweets: "Lloyds Bank statement on Scotland more equivocal than RBS. Keeping options open on legal domicile"

     
  22.  
    DEVOLUTION 08:23: Radio 5 live

    On Radio 5 live Simon Walker, director general of the Institute of Directors says the promised devolution of power will result in "big challenges". It should by about "enterprise and boosting competitiveness" in all regions of the UK and not "adding layers of bureaucracy".

     
  23.  
    MARKET REACTION 08:14:

    London's FTSE 100 index has opened 0.6% higher. Royal Bank of Scotland has jumped 3.3%, Lloyds Banking Group is up 2% and energy firm SSE is up 3.4%.

     
  24.  
    INTEREST RATES 08:10: Radio 5 live

    "The odds of a February rate rise should be pretty high now," says Ewen Cameron Watt, chief investment strategist at BlackRock Investment Institute on Radio 5 live. He thinks interest rates could move higher as early as November. A rate rise would have been "off the cards" for most of next year, if there had been a "Yes" vote, he says.

     
  25.  
    LLOYDS REACTION 08:07:

    Lloyds Banking Group has made this rather nebulous statement: "Lloyds Banking Group has maintained a neutral stance in this debate as we believe the decision was to be solely a matter for the people of Scotland. The group is proud of its strong Scottish heritage and remains committed to having a significant presence in Scotland. We remain fully focused on supporting households and businesses in Scotland as well as right across the rest of the UK."

     
  26.  
    STANDARD LIFE REACTION 07:55:

    We had to call Standard Life to find out what they actually meant. The insurer told us it has "shelved plans" to move operations to London "for now". "We've no plans to move any of our operations," it adds.

     
  27.  
    STANDARD LIFE REACTION 07:54:

    Standard Life, one of the companies that threatened to partially decamp from Scotland in the event of a Yes vote, now says: "We will consider the implications of any changes for our customers and other stakeholders in our business to ensure their interests are represented and protected." It adds it is "now important that we all move forward with respect and work together constructively in the best interests of Scotland and the UK". So that's clear then.

     
  28.  
    SCOTLAND POWERS 07:42:
    Prime Minister Cameron

    Prime Minister David Cameron has promised to come up with plans for new Scottish powers on tax, spending and welfare. The government is aiming to get an agreement by November. The BBC's personal finance reporter Brian Milligan is having a closer look at what that could mean.

     
  29.  
    MARKET REACTION 07:33: BBC Radio 4

    Anne Richards, chief investment officer at Aberdeen Asset Management tells Today: "A very close vote would have been a difficult one for markets." She adds: "I think we have had a reconnection between the political establishment, business and the electorate. And it would be good to see that momentum maintained going into the general election."

     
  30.  
    HEADLINES
     
  31.  
    ALIBABA SHARE SALE 07:29:
    Alibaba

    Away from Scotland's vote, shares in Alibaba start trading in New York later today. It has raised $21.8bn (£13.2bn) in one of the biggest ever stock market debuts. It is likely to use the money to expand in the US where it has a very low profile. A survey by Reuters showed that 88% of Americans had never heard of China's biggest internet firm.

     
  32.  
    RBS STATEMENT 07:21: Kamal Ahmed BBC Business editor

    Royal Bank of Scotland has given a statement to the BBC's business editor, Kamal Ahmed, it says: "The announcement we made about moving our registered head office to England was part of a contingency plan to ensure certainty and stability for our customers, staff and shareholders should there be a 'Yes' vote. That contingency plan is no longer required. Following the result it is business as usual for all our customers across the UK and RBS."

     
  33.  
    REFERENDUM REACTION 07:14: BBC Radio 4

    Patrick MacDonald former boss of John Menzies, tells the Today programme the debate over Scottish independence has changed the country forever. "Things will never be the same again," he says. There is now "a need to reform our 300 year old constitution" and the country also needs to work at reconciliation to "make sure businesses stay in Scotland".

     
  34.  
    RBS 07:08: BBC Radio 4

    A little more from Mike Amey on the referendum result. He tells Today: " I suspect there's a very large sigh of relief at RBS [over the result] They don't have to worry about where they were going to be based and how they were going to conduct their future business."

     
  35.  
    MARKET REACTION 07:07: BBC Radio 4

    Mike Amey, managing director and portfolio manage at bond trader PIMCO tells Today he expects the markets to open higher as a result of the Scottish referendum result. "It will be back to the data for our traders and what the Bank of England will do [on interest rates]."

     
  36.  
    MARKET REACTION 06:49: Radio 5 live

    Adam Parsons is in the City at the offices of stockbrokers IG with their chief market strategist, Brenda Kelly. She says the opening of the FTSE 100 might be quite as dramatic as some expect. That's because markets have been predicting this outcome over the last few days. However, she says, it could "break through 6930" which would be a record high.

     
  37.  
    06:42: Via Email Linda Yueh Chief business correspondent

    There are other uncertainties now for Scotland after this vote. But, for markets at least, the big uncertainty that could have lingered for a year and half over the currency and the economy is lessened and sentiment is positive as a result.

     
  38.  
    06:33: Louise Cooper, CooperCity market blog

    "So it's up up and away this morning, the question is how far does it [the pound] go before reality sets back in and other political fears begin to dominate: The rows in Westminster over devolution max which has been promised. The General Election and the UK referendum on EU membership. Party conferences season resumes next week so there will be plenty of headlines to be written about the next set of political risks."

     
  39.  
    CITY REACTION 06:27:

    The Lord Mayor of the City of London, Fiona Woolf has welcomed the outcome of the Scottish referendum. "The proposed enhanced devolution that Scotland will experience while remaining in the UK will enable its national spirit to thrive while our entwined economies and business communities prosper together," the Lord Mayor said.

     
  40.  
    YES CAMPAIGN CONCEDES 06:23: BBC Radio 4
    Scottish first minister Alex Slamond

    Scotland's first minister Alex Salmond has hailed 1.6 million votes for independence. He concedes that "we now know there is going to be a majority for the "No" campaign". Scotland has, by majority at this stage, voted not to become an independent country," he adds. He expects devolution promises to be honoured with "rapid force".

     
  41.  
    ROYAL BANK OF SCOTLAND Via Email Kamal Ahmed BBC Business editor

    With No confirmed as the winner in the referendum, we can expect the Royal Bank of Scotland to say there is now no need to move domicile to London. The bank had prepared for a "Yes" vote by saying last week that it would move its headquarters from Edinburgh. I wouldn't be surprised if Ross McEwan, the chief executive, re-iterated the bank's commitment to Scotland. I am sure RBS's executives are relieved that the upheaval of independence will now not happen.

     
  42.  
    POUND STRENGTHENS 06:12:

    A decisive win for the No campaign could lead to big spike in the Pound. Jeremy Cook, economist at World First says. The obvious risk to the currency markets was a Yes, and that would have caused a big sell off. Now the markets will go back to concentrating on the fundamentals of the UK economy," he adds.

     
  43.  
    SCOTLAND INVESTMENT 06:01:

    Simon Walker, director general of business group the Institute of Directors has given an interview to the BBC. He says he thinks the government will now give the green light to investment projects that had been previously held up because of the uncertainty caused by the independence referendum. He adds the ending of that uncertainty will be positive for business.

     
  44.  
    POUND STRENGTHENS 05:54:
    pound versus dollar

    This chart shows the pound against the dollar over the last month. You can see it dipped to a low of $1.6071 on 10 September. That was after a poll in the Sunday Times showed a lead for the "No" campaign. It is now trading at $1.65. That's a move of 5 cents which is pretty big over two weeks.

     
  45.  
    MARKET UPDATE 05:47: BBC Radio 4

    Asian markets are up nearly 2% overnight BBC business correspondent Linda Yueh, tells Today. The market indications are that the FTSE 100 will open 0.7% higher. That's not exactly a surge but it is a positive reaction.

     
  46.  
    BANK OF ENGLAND 05:42: BBC Radio 4

    Justin Rowlatt is down at the Bank of England for BBC Radio 4's Today programme: He says the lights are on and staff are busy working inside. Although perhaps not quite as frantically as if Scotland was looking on course to vote Yes in the referendum. Bank governor Mark Carney cut short a meeting to fly home overnight. "He may have had a wasted trip," Justin says.

     
  47.  
    POUND STRENGTHENS 05:36:
    Pound dollar

    This chart shows how the pound has faired against the dollar since the polls closed in Scotland on Thursday evening. As you can see it's strengthened from a low of $1.63 to above $1.65, that's its highest point since the start of the month. In currency market terms it's also a huge move in a short space of time.

     
  48.  
    05:30: Ben Morris Business Reporter

    The pound has bounded higher overnight in reaction to the Scotland vote. More reaction through the morning. Stay with us.

     
  49.  
    05:30: Matthew West Business Reporter

    Morning folks. It looks like - with 26 of 32 local authorities now having declared the result of their ballots- that the No campaign is on course to win the Scottish independence referendum. We'll bring you all the reaction from the financial markets and the business community as it comes in. As always if you want to get in touch you can email us at bizlivepage@bbc.co.uk or tweet us @bbcbusiness.

     

Features

From BBC Capital

Programmes

  • A screenshot from Goat SimulatorClick Watch

    The goat simulator which started as a joke but became a surprising hit, plus other technology news

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.