Coffee Retailers are Refusing to Switch

 Coffee retailers are refusing to switch from higher- quality arabica beans

Coffee Retailers Refuse To Swith from Arabica Beans

By Caroline Henshaw, Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Coffee retailers are refusing to switch from higher- quality arabica beans to robusta despite a record price difference between the two, the head of commodities at Europe’s largest private-label roaster said Wednesday.

Wayne Hanscomb of United Coffee, which supplies enough coffee to make more than 12 billion cups a year to clients such as retailers Tesco PLC (TSCO.LN) and Waitrose and fast-food restaurant chain McDonald’s Corp (MCD), said brand quality remains the priority for retailers despite soaring prices.

“It’s virtually impossible to switch to robusta as we supply retail customers with high specifications; generally they’re just saying no to robusta,” he told Dow Jones Newswires.

Several consecutive disappointing harvests in Colombia, the key grower of mild arabicas, have led to tight world supplies and a record premium for the beans. Arabica prices have been hovering around 14-year highs near $3 a pound and some analysts predict they could hit record levels of $4 this year.

Last week, the arbitrage between arabica and London-based robusta markets widened to a record high of $1.78 as surging New York prices left the other market trailing in its wake, although a pullback this week has tightened the gap to the still historically wide $1.55 level.

Hanscomb said that despite the rise in prices, demand for coffee is continuing to increase in both Geneva-based United Coffee’s European markets, which include the U.K., Spain, the Netherlands and Switzerland, and on a global scale.

He predicts prices are likely to breach the key $3/pound level this year, although with a large portion of the market dominated by speculative investors the range could be as wide as $2.30/pound to $3.20/pound.

“We’re having the [pricing] conversation we would normally have [with customers] once or twice a year every month right now,” he said. “If retail prices extend dramatically, that will be the first sign of a slowdown, but we’ve not seen any slow down in growth in any of our markets.”

Research by Allegra Strategies found that the U.K.’s coffee shop market grew to a record turnover of GBP5 billion in 2010, at a time when many forecasters had predicted the industry would suffer as consumers tightened their belts.

Yet consumption growth has been the most marked in the developing world, with top producer Brazil now set to become the top consumer as early as next year. The International Coffee Organization estimates the country’s consumption jumped 4.1% last year to 18.9 million 60-kilogram bags, less than 3 million bags short of the world’s largest coffee drinker, the U.S.

And as Brazil goes into its bi-annual low season in 2011–production is set to fall 5 million bags to 43 million bags–and domestic consumption continues to rise, markets are likely to face increasing pressure in 2011-12.

“If we have got the biggest producer becoming the biggest consumer it will have a big impact on world export supplies,” said Hanscomb. “Brazil is the only country with the possibility of aggressive production growth. If [China or India also] develop a taste for coffee, we won’t have enough supplies.”

-By Caroline Henshaw, Dow Jones Newswires; 4420-7842-9478; caroline.henshaw@ dowjones.com

(END) Dow Jones Newswires
03-16-110930ET
Copyright (c) 2011 Dow Jones & Company, Inc.

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