Here's why your morning Joe may be cheaper in 2016

Wednesday, December 30, 2015, 1:23 PM - If you're the kind of person who needs a shot of caffeine to get going in the morning, 2016 may hold good news for you.

That's what futures markets seem to think anyway, according to a report from Bloomberg. The financial news service says prices have fallen for six straight months, buoyed by plentiful rains in Brazil, along with weaker currencies in producing countries prompting an increase in exports.

In some markets, the price of the arabica variety, the world's most common, has fallen by as much as 28 per cent, with retailers such as Starbucks and Smuckers, the latter of which produces the Folgers brand, likely to lower prices. Bloomberg reports the average retail price per pound fell 4.3 per cent in November.

"Supplies will continue to come at a healthy clip,” Sameer Samana, a strategist Wells Fargo Investment Institute, told Bloomberg. "There’s nothing to suggest starting a new leg up for coffee. Brazilian producers will do anything they can to sell future crops."

But while it looks like the markets are bullish in the short-term, climate change is making the bean's long-term future look grim.

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Aside from the effects of increasingly severe weather (Brazil's rains came after an extended drought), coffee is actually very sensitive to changes in temperature, a major problem in a world expected to warm by 2^oC or more. 

A study published earlier in 2015 suggested that every one-degree rise in global average temperatures would translate to a loss of 137 kg per hectare of crop, enough to cause serious hardship in countries where arabica is cultivated. Brazil, Vietnam, Indonesia and Colombia together produce 65 per cent of the world's arabica, but the bean is grown in dozens of countries.

"If you look at Burundi or Uganda or Nicaragua, they depend very heavily on coffee, so they’d miss all that income for the development of their countries,” one of the report's co-authors, Peter Läderach said. "Environmentally, because it’s an agro-forestry system, it brings a lot of benefits like biodiversity and soil and water conservation, and erosion control."

Producers can cope by moving their production to higher ground with cooler average temperatures, but in general, less acreage will be available in those cases. More mountainous countries in Central America will see a sharp drop in suitable land, while other countries' decline will be somewhat less, depending on how much of their territory consists of cultivable plateaux.

"In Brazil, they produce coffee on the plains and don’t have any mountains so they can’t move up,” one of the report's co-authors, Peter Läderach, told the Guardian.

Läderach and his colleagues say producers need to develop hardier strains of coffee and change the way crops are cultivated, but there's no quick fix.

"It takes three to five years before you can even harvest coffee for the first time. It’s a long lead time, which is why we’re pointing out that it’s very crucial to start developing strategies now," he told the Guardian.

SOURCES: Bloomberg | Fortune | The Guardian

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