Why Fears of an Impending Coffee Shortage May Be Justified


A drought in Brazil could have a serious impact on the worldwide coffee industry. Pierre Andrieu/Getty images
A drought in Brazil could have a serious impact on the worldwide coffee industry. Pierre Andrieu/Getty images

Don't freak out just yet coffee fanatics, but if you think what you shell out now for a vanilla latte is ridiculous price, just wait. It might not be long before you are begging for prices that cheap if world coffee production continues on its current trajectory.

Why? Well, Brazil, which just happens to be the world's largest grower of coffee beans by a lot (it produces three times more coffee than Vietnam, the next largest grower) is in the middle of a massive drought. And no rain is not good for growing coffee beans.

And no surprise here: According to the December's Coffee: World Markets and Trade report by the USDA Foreign Agricultural Service, the drought's expected to lower Brazil's coffee yield for the current season by 5 million bags compared to last year, a drop of about 10 percent. What is a surprise from the report is that total world output is expected to actually be up (if just slightly) by 600,000 bags over last year, despite Brazil's shortfall, but only because of record output in Indonesia and Honduras. And Vietnam — the No. 2 producer — churned out 2 million more bags than it normally does.

So what gives? If world coffee production is up, why panic about a potential coffee shortage — and increasing prices? Well, Indonesia, Honduras and Vietnam all had record producing years, and it's unlikely for that to continue indefinitely. This year there may be no shortage, but can those three countries continue to sustain record-breaking years to counter Brazil's ongoing drought? Hardly seems feasible.

And there's more to the story. Worldwide coffee consumption is up, too, and not just in the West. Eastern countries like Taiwan, China and Thailand have seen significant increases in coffee drinkers over the last five years. 

In fact, at the Global Coffee Forum in Milan this past October, Andrea Illy of the famed Italian coffee family said global production would have to increase by 40 to 50 million bags over the next decade to keep up with demand. To be clear, that's more than Brazil produces annually, and right now the entire world produces about 145 million per bags per year.

To be clear, the world's not going to run out of coffee any time soon. But an increase in demand combined with supply-side struggles could mean larger than expected price increases. So what's a coffee lover to do? Well, there is this thing called tea ...