Coffee drinkers across the world are in for a hard time. Prices of the bittersweet commodity, an essential for many, have surged to record highs this year owing to supply disruptions.

Last month, robusta futures rose to a 47-year high. While the prices have seen some correction since, they are likely to remain elevated. Earlier this week, arabica futures too hit their highest in 13 years. Arabica and robusta are two types of coffee plants. Arabica has a milder and more refined taste. The plant is also very delicate and sensitive to weather changes, which makes it expensive to maintain and is hence priced much higher. Robusta, as the name suggests, is a more robust and sturdy coffee variety. It also has a bitter, stronger taste and is cheaper in comparison.

Most coffee that you drink is either one of the two or—more often now—a blend. Most instant coffees, blends and caffeinated beverages contain the cheaper robusta. Owing to its bitter, harsher flavour, robusta lends itself better to milk-based coffees compared to the milder, smoother arabica, which is often consumed black.

But as futures prices indicate, robusta seems to be changing the power equation between the two coffee varieties.

So, what factors are causing this? And where do Indian coffee drinkers and producers stand in this scenario?

Coffee in crisis: Like all commodities, coffee prices in both physical and futures markets depend on principles of actual and perceived demand and supply.

This year alone, coffee futures are up nearly 40%. The price rally, which analysts say is unlikely to die down soon, is owing to persistent supply concerns from the biggest coffee-growing nations—Brazil and Vietnam. Coffee has relatively inelastic demand, which means even if prices rise, coffee drinkers will not stop consuming their fill—although they may switch to cheaper variants. Rising incomes, a steady growth of cafes selling specialty coffees and high interest from Asian consumers are further fuelling demand.

This year’s price volatility is largely owing to climate change-induced extreme weather events. An unusual frost snap in Brazil, which produces more than a third of the world’s coffee, in 2021, severely damaged crops. Now, you might wonder how it matters three years later, but coffee plants take years to regenerate after such damage. The first coffee harvest after a tree is planted can take up to four years and even then there’s no guarantee because coffee is very sensitive to extreme weather. Note that the majority of Brazil’s crop is arabica.

Since then, however, Brazil has managed to increase production by incorporating techniques so its crops are in better stead to deal with events like the 2021 frost. Interestingly, the rise is in its robusta varieties. So while yield from arabica-growing regions has fallen, robusta yields have risen in Brazil.

But that is not enough. Brazil’s strong robusta output has been countered by a shortfall in supplies from Vietnam, the world’s largest robusta producer. The country has been under the spell of a terrible drought—the worst in a decade. Many Vietnamese coffee growers are also switching from coffee to horticultural crops such as durian and avocado, which are far more lucrative.

Apart from the shortage, delay in shipments owing to tensions in the Middle East have also added to the worries around price hikes. That’s because shipments that earlier used the Red Sea for transit have to now take longer routes, which means added logistical costs and insurance premiums, plus delays.

In addition, the demand for robusta has surged on the back of low availability of arabica. More and more roasters are looking at this sturdier variety to replace the premium arabica in their coffee blends.

It certainly helps that growers are focusing on developing very high-quality refined robusta coffee, some of which is very popular as specialty coffee—this again is pushing up prices.

In several instances, robusta coffee has even been sold at prices higher than the choicest arabica beans.

For coffee consumers, this spells doom. Italian coffee maker Lavazza has already warned of further price hikes while Swiss FMCG major Nestle’s margins too suffered as shoppers looked for alternatives owing to high prices of its instant coffee, Nescafe.

But the spike in prices of coffee and the renewed interest and demand for robusta puts India in a unique position. While it produces and consumes both arabica and robusta, the scales are tipping in favour of the latter.

An advantage for India? While India consumes far less coffee—just 20 cups per person per annum—compared to the global average, which is about 200 cups, the interest in coffee is growing, according to the Coffee Board of India.

Coffee has largely been seen as a more premium offering because you pay a lot more for a cup of it than you would for tea, says Siju Nair of Trelish, which specializes in ready-to-use liquid coffee brews. India is witnessing a growing trend wherein people are developing preferences and are willing to spend money on them, he tells The Morning Context.

“There is a lot of scope for premiumization in the segment,” he explains, adding that specialty blends, single-estate coffees and blends of robusta from different regions and farms are gaining popularity based on their grades and unique flavour profiles.

But apart from the overall rise in coffee demand, what will certainly push India’s chances are the fact that it grows a lot more of the robusta variety, for which demand and prices are high.

“Robusta is generally bitter, but Indian robusta has the advantage of being slightly better tasting, owing to different growing processes,” says Delhi-based fractional chief marketing officer and business strategist Saurabh Parmar. That apart, according to a coffee planter who now trades in the commodity in the international market, the demand for Indian robusta has a lot to do with its competitive pricing.

Over the past 2-3 years, many Indian coffee planters have switched from arabica to robusta as it is easier to cultivate, according to Trelish’s Nair.

“We have the tropical weather suited to grow coffee and the government too is supporting it. Plus robusta is sturdier, so production is rising,” he says, adding that many coffee plantations are also coming up in the Andhra Pradesh belt. Coffee is mostly grown in the southern states of Karnataka, Kerala and Tamil Nadu.

Umesh Machaiah, a coffee planter in Karnataka’s coffee-producing Coorg region, told The Morning Context that the shift to robusta is also because arabica has become unsustainable as a crop.

Through the year, several publications reported that aside from the El Niño impact, Indian coffee growers were able to demand better prices for their coffee. Machaiah, who has been growing coffee for over 40 years, is careful to add that this price rise has largely benefited commodity speculators as well as traders and large plantation owners, who are able to keep a tight rein on supplies. “Small coffee growers, especially in Coorg, who already pledged their crops, would not have benefited from this global price rise,” he says, adding that smaller estate owners are also not in a position to dictate pricing or demand the dollar rates. Additionally, massive labour shortages and weather impacts (the latest being the Wayanad landslide) already weigh on their output and earnings.

Parmar concurs. He says that while global price hikes could mean better prices for coffee producers, whether or not they benefit all planters remains to be seen.

Besides robusta: The global rise in prices is unlikely to spare Indian consumers, but it could be a moment in the sun for the domestic coffee industry. India is the seventh-largest producer of coffee in the world, with 70% of its output exported. These exports have been rising steadily. In the 2023-24 fiscal, India’s coffee exports rose 12.5% year-on-year to $1.28 billion, largely owing to the global demand for robusta. The previous fiscal had also witnessed a 10% year-on-year increase.

But, to sustain the good run, growers would do well to look beyond the current spike in demand for robusta. Here’s where Indian specialty or high-grade, expensive coffees (generally arabica or arabica-based blends) could come into the picture. Specialty coffee, which remains a domestic market-focused business with a premium tag, needs to develop a more export-oriented focus. Currently, it is a low-volume product internationally.

Parmar says that the specialty coffee market is definitely poised for growth domestically, but to be recognized internationally, it needs better storytelling and marketing. “The big opportunity for India would be if it can start convincing people of the value of the specialty coffee produced in the country because we are primarily looked at as a tea-growing nation. And when it comes to coffee, we are looked at as robusta producers, which to connoisseurs is the cheaper variety.”

Cover image by Devyani M/ The Morning Context