The Wall Street Journal recently interviewed Andrea Illy, the chairman of Illy Caffe. Illy Caffe has a global presence, selling its products in 140 countries in cafes, restaurants, and high-end retail markets. Illy focuses on premium, high-quality espresso coffee, emphasizing sustainability, ethical sourcing, and a consistent, rich flavor profile.
The interview focused on the impact of climate change in provoking unstable weather patterns and increased temperatures in coffee-growing regions. Illy discussed the actions needed to mitigate the adverse effects of this phenomenon. His primary message was that coffee producers must adapt to climate change for global prices to stabilize. He noted that coffee prices reached record highs this year, with Arabic futures rising 70% and robusta prices up 100%, primarily due to poor weather conditions in Vietnam and Brazil. Here are the main points from the interview:
- EU Deforestation Prevention—Efforts to curb climate change include the European Union’s Deforestation Regulation—or EUDR—which aims to guarantee that consumer products don’t contribute to deforestation. The regulation was supposed to come into force by the end of the year, but the EU Commission proposed a one-year delay amid pressure from industries and governments.
- Climate Change & Coffee – Coffee’s relatively narrow climatic band, both in terms of temperature and moisture, requires a circular, regular pattern. Climate change is causing the exact opposite of regular climate conditions, alternating El Nino and La Nina. Under El Nino, there are heat waves with increasing temperatures and extreme drought, while La Nina causes excessive rain and cold weather.
- Latin America—Most Impacted Region—In Minas Gerais, Brazil, the most crucial coffee-growing area, global warming is double the global average due to the deforestation of the Atlantic Forest. Extreme weather in Brazil and extreme drought in Vietnam triggered higher prices, which, with expected weather extremes, can lower output in the coming years, creating a perfect trigger for market speculation.
- Long Run Must Focus on Adaptation – The vast majority of 12 and a half million growers farming 12 million hectares of coffee globally are too small (less than 1 hectare) to invest in adaptation – especially since they are receiving less than 5% of the value of [a cup of] coffee? There is insufficient cash flow and margins to reinvest part of your income in adaptation. Price volatility makes it even more difficult.
- Coffee-consuming countries need to work with small-scale coffee producers, most of whom have less than 5 hectares of production, to help them adapt to climate change and earn a "living wage." The International Coffee Organization launched a study to determine current wages earned by small-scale coffee producers and projected how much of an increase must be achieved. A "living wage" is typically defined as the income needed for a worker to cover their basic living costs (food, housing, education, health care, transportation, etc.). Note: The Global Living Wage Coalition estimates that the living wage for a small-scale coffee worker in Latin American countries is between $5,000 and $8,000 annually. Reaching these income levels will require innovative approaches to how coffee is marketed.
- Actions Required Include – (1) Renewal of coffee plantations; (2) Direct sourcing of coffee; (3) Improved traceability to sustainable, equitable coffee production; (4) Promotion of public-private partnerships in coffee-consuming countries for support small-scale coffee producers.
