Specialty Producers Are Preparing To Shake The Market More
Coffee, like homebrew and sourdough bread, proved to be an essential commodity—in fact, an essential luxury—in 2020. As consumers jettisoned their morning Starbucks (NYSE: SBUX) in favor of pour-over and french press brews, the coffee industry, complex and multi-layered, altered its course.
While industries around the world faltered, the coffee market adapted. And growing consumer trends toward gourmet and specialty varieties, amplified by a sharp increase in at-home consumption, bore themselves out in palpable and measurable impacts on the coffee market, globally.
Though there is no single sector or ETF for the coffee industry, coffee-related stocks make up proportions of the consumer discretionary and consumer staples sectors. Reflecting changes in coffee consumption and preference, the two sectors performed very differently in 2020.
The Consumer Staples Select Sector SPDR ETF (NYSE: XLP), home to large coffee producers and commodity purveyors, underperformed the broader market, posting a 10.5% total return. Yet, the Consumer Discretionary Select Sector SPDR ETF (NYSE: XLY), of which retailers, coffee shops, and gourmet and specialty coffee companies are a part, outperformed, yielding a total return of 31.2%. At the same time, the U.S. Chamber of Commerce noted record growth and demand for coffee subscription and home delivery services.
As it turns out, when coffee drinkers have the time and choice to consider the coffee they consume, they don’t reach for Folgers. Consumers look for experience—for sustainable brands, specialty mixes made by producers in exclusive regions, and luxury coffees that reflect the small farmers who steward them.
These shifts in consumer demand, coupled with new models for sustainable, equitable and commercial production in sought after coffee regions, could change the coffee market permanently.
What’s happening in Jamaica is a perfect case study.
Jamaican Blue Mountain coffee has long been among the luxury industry’s most prized cups of coffee. Protected by the World Trade Organization’s Geographic Indication (GI), certified Blue Mountain coffee routinely sells for $100-$120 per pound at market. Rare and sought after, Blue Mountain cultivation makes up less than 0.01% of Arabica production around the world, yet its beans earn the highest unit value for their export than any other coffee.
Decades ago, Blue Mountain coffee’s exclusivity would have been disqualifying for worldwide retail growth and direct trade with luxury coffee companies. And the Jamaican market evolved as such. Unaccountable to a demanding sector of global consumers, controlling island coffee processors held small farmers hostage and concentrated their market in Asia, where coffee importers held strong relationships with Jamaican industry administrators.
But if new market trends suggest anything, those days are over. In Jamaica, responsible commercial producers like Blue Mountain Best, who’ve entered the industry backed by global investors and Jamaican officials desiring commercial change, are opening the industry to the profits of international specialty coffee consumption.
Blue Mountain Best, for example, manages a coffee estate in the Blue Mountains expected to size over 500 acres. They’ve gathered a network of 500 small family farms in the region, and they’ve committed to paying small farmers double the farmgate price offered by traditional coffee processors. With the capital to champion modern and sustainable agricultural techniques, as well as the funding to provide sufficient extension services to local farms, an estate like Blue Mountain Best could more than double the yields on these farms.
Blue Mountain Best is one case study in a changing industry, but their efforts and ability to provide direct trade and access to cultivation opens the Jamaican market to hordes of traders, importers and roasters who’ve longed for a piece of Blue Mountain coffee cultivation for decades.
This is how farmer equity, worldwide retail growth and broad consumer access to sought after luxury coffees—even gourmet coffees costing $120 per pound— is realized. And it’s not without context.
The commercial success of luxury producers like Blue Mountain Best rides the tide of market change in the coffee industry, setting precedent for the future of coffee consumption at large.
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