South America’s biggest economy, and the world’s prime coffee producer, Brazil, is facing the worst drought in decades and above-average temperatures.
Local farmers are warning about what the next harvest could bring for one of the world’s most traded commodities: “Given the conditions here, the 2025 crop is already affected […] I won’t say it is doomed because with God anything is possible. But based on the situation, it is already compromised.”
Second to Brazil in coffee exports is Vietnam, which is also facing shortages due to heightened drought and heat. This has caused many farmers to replace struggling coffee crops with a notoriously smelly fruit called durian. The fruit has proved popular in China, leading farmers to try to cash in on this emerging market.
What happened in Brazil?
In August, farmers reported some frost affecting their crops. This caused the price of coffee on the international exchange to jump 6%. Severe drought has also contributed to an increase in wildfires in the Amazon.
While many were optimistic that leftist President Luis Ignacio Lula could reverse some of the destruction of the Amazon, the sentiment has been waning as concrete and oil projects have continued to be approved.
Brazil experienced a devastating frost in 2021 that wiped out coffee crops. Prices rose 13% in response to the extreme weather event, which saw temperatures drop to freezing levels within minutes.
Still, production has ramped up in the past year. Reuters reported the country was set to post its third annual increase in coffee production this year.
The lack of predictability in the weather has caused farmers to shift production from arabica beans, preferred by pricier cafes, to robusta beans, which are used to make instant coffee.
Marcio Ferreira, chair of export group Cecafe, expressed confidence at the developments: “The growth is a reality… No doubt next year’s crop will be larger as well, taking this sequence of increases to four years.”
The robusta bean is more resilient than arabica, resulting from less variation and more favourable weather where the farms are located.
Nestlé bets on Brazil
Swiss-headquartered Nestlé announced it would invest $196m (SFr166.25m) in Brazil by 2026 to match surging demand with its Nescafe brand.
Executives are betting on a younger consumer base that is ready to pay a premium for a wider range of products. Valeria Pardal, the head of Nestlé brand Cafe Nestlé, said: “We are at a time of expanding consumption of premium coffee, and that is making coffee consumption more sophisticated in Brazil.”
As climate change continues to affect the supply chain, the target markets of big coffee makers may continue to shift to save on costs.
“Drought affecting Brazil’s coffee crops may push prices higher” was originally created and published by Investment Monitor, a GlobalData owned brand.
The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
