Southeast Asia Coffee Markets Continue Unprecedented Surge

The rise of emerging markets across Southeast Asia for more than two decades has brought about a  stunning rise in coffee consumption to the region’s already fast-expanding economies. From the biggest players in the traditional markets like the Philippines and Japan, to new giants such as China, South Korea, Indonesia and Vietnam, this is a welcome development for the coffee market and analysts expect the Asia coffee boom to set new records for world growth in coming years.

By Maja Wallengren All photos courtesy of Maja Wallengren unless noted

Coffee consumption has been booming in Southeast Asia since the mid-1990s when emerging markets that became known as the ‘Asian Tigers’ started to consolidate their economic growth and industrialized development. Since the turn of the millennium, these emerging markets have achieved average annual growth of over 4 percent while overall coffee consumption in the region doubled to 19.5 million 60-kilogram bags in 2012 from 8.4 million bags in 1990, the London-based International Coffee Organization (ICO) said in a special report released in 2014 that analysed the consumption trends in 16 Asian countries.

This is more than double the pace of growth for global demand, which on average, has risen between 1.5 and 2 percent since 2000, stated the ICO. And even as this growth has been in place for over two decades, there is no sign of growth slowing down, analysts agree. As an increasing percentage of the people living in emerging markets across the world continue to advance into middle-class households with much higher spending power, the boom in coffee culture and consumption may just be about to start. Asian markets stand to reap the benefits more than any other region thanks to the dynamic growth of the ‘Tiger economies’ and the fact that Asia as a continent is home to 60 percent of the entire world population.

“Coffee consumption will rise sharply in the coming years and not just at 1 to 2 percent but much more as people are discovering the pleasure of drinking coffee every day,” said Jeffrey Sachs, American economist and one of the world’s leading experts on economic development and the global fight against poverty.

“The potential for a massive increase in coffee consumption is real and the real demand of coffee will be in Asia,” Sachs told participants at the World Coffee Producers Forum in Medellin, Colombia, in July, to roaring applause from the crowd dominated by delegates from coffee producing countries and hoping a boom in global demand will lead to higher bean prices.

Indonesia’s Consumption Surprises

With a total population of 4.3 billion people, the continent of Asia holds massive untapped potential for new coffee consumption with the world’s two most populated countries alone, China and India, together accounting for about 37 percent of the world’s population.

India has slowly been catching up to China in size of people, and with a total population of over 1.32 billion people today, is projected to surpass China as the world’s most populous country with 1.53 billion people by 2030. Per capita consumption is still low with overall volumes currently estimated at 1.8 million bags, but this represents a doubling of consumption in the last 15 years from 938,000 bags in 2000, according to the ICO. The ICO said consumption in India in the last decade has been growing at an average 4.1 percent a year, while private industry estimates say the growth rate since 2010 has reached an average six percent today.

In Southeast Asia’s biggest producer, Vietnam, focus in the local market has also increasingly shifted to consumption as rising household incomes coupled with higher levels of education have resulted in consumption expanding by 61 percent in the last five years to 2.9 million bags in the 2016-17 cycle, up from 1.8 million bags in 2012, the US Department of Agriculture said in its most recent forecast for the 2016-17 coffee year.

South Koreans’ thirst for coffee has taken their average annual consumption to over 2.4 kilogram per capita today from just 1 kg per person less than a decade ago, the Korean International Trade Association (KITA) said in its latest industry report. At the same time, overall imports have soared 39 percent in the five years to 2.5 million bags in the 2016-17 from 1.8 million bags in the 2012-13 crop year, the USDA said.

Another surprise to many in the market is the surge of consumption in Indonesia, the third largest coffee consumer in Southeast Asia, where modern coffee culture has been present since the early 1990s but in recent years has seen an explosion in local demand.

“The local coffee consumption in Indonesia is very healthy in terms of growth and our research shows domestic consumption is increasing by 14 per cent a year, especially driven by the expansion of the middle class, which is the reason for per capita consumption here to reach 1.54 kilograms per person in 2016,” Irfan Anwar, chairman of the Indonesian Coffee Exporters Association (AEKI), told Tea & Coffee Trade Journal. This compares with per capita in 2015 of 1.36 kilograms and just 0.80 kilogram in 2010. While this may not seem significant in volume, it must be calculated against Indonesia’s population of close to 260 million people, the fourth most populous country in the world.

In actual numbers, AEKI estimates that the coffee industry in Indonesia today requires at least 5.8 million bags to satisfy local consumption. This boom has been good for local producers who have increased their competitiveness when choosing whether to sell their coffee to exporters or buyers in the local market, said Anwar.

All these exciting coffee developments aside, there is no denying that when it comes to growth and potential for new business developments in the coffee industry, China is receiving the most excitement from investors both in the local Asian markets and globally.

China has been producing coffee since 1887 when European missionaries brought seeds from neighbouring Vietnam to support what was already becoming a request by the elite who had been introduced to coffee drinking when travelling abroad to French Indochina. Coffee drinking is known to exist in China since 1895, according to historical research.

The Chinese government has projected that coffee consumption will grow at an average 15 percent a year at least until 2020, to hit 5.5 million bags, which would place it among the top ten consuming countries in the world, China’s Jing Daily reported, citing official figures. Official figures are not easily available, but local industry officials say the boom is beyond question.

“The coffee market in China is experiencing a very powerful growth, and it’s not just in consumption but also in production with the coffee farms in southern Yunnan expanding very aggressively,” said Tommy Lee of Shanghai-based coffee and trading company, Mellower Enterprise Management Co Ltd.

Local government officials in Yunnan province said that Chinese coffee production is approaching a range of 1.4 to 1.6 million bags today, and an official from the Beijing Coffee Association said China’s locally grown coffee will approach between 1.8 and 2 million bags by 2020. Most of this is Arabica coffee, and is primarily sold in the local market, which has helped take overall consumption to about 3.1 million bags today, the USDA said.

Small Markets but Big Drinkers

Another fact unknown to many in the coffee industry is how the economic boom of the Asian economies in the mid-1990s was the direct cause for several traditional coffee exporting countries to become net importers. The background of the rise of consumption in the Philippines and Thailand provides a unique insight into a pattern that increasingly is expected to be repeated in other growing nations as economies mature and the expansion of the middle class coupled with higher education are resulting in rising coffee consumption.

The number two market in Southeast Asia, the Philippines, has long been one of the key markets to watch, analysts agree. Embarking on the adventure of coffee culture in 1993, and years before even Starbucks made it to the Philippines, local entrepreneur Pacita Juan founded the Figaro Coffee Company, which by 2006, had grown to 53 outlets. Since first launching Figaro Coffee Juan’s focus was on working with local farmers and source as much as possible of the coffee in stores from home grown beans.

“My main source of inspiration was to see how we were able to raise the prices our local farmers would receive simply by teaching them how to sort coffee. I always wanted to promote Philippine coffee in our local coffee culture and help farmers become sustainable by helping them add value to their crop,” Juan, who today, is chairwoman of the Philippine Coffee Board, told T&CTJ in an interview.

“The Philippines is a coffee producer but we are a net importer of coffee overall, with domestic consumption today ten times higher than our production which today is about 500,00 bags,” she said. Even with ambitious plans for reviving the local production it is unlikely the Philippines will be able to meet current demand with its own production again. The USDA has pegged consumption in the 2016-17 cycle in the Philippines to present a major year-on-year rise to 5.875 million bags, up from 3.59 million bags in the 2013-14 cycle.

In Thailand, which was quick to follow in the steps of the Philippines, local consumption stayed stable at between 230,000 and 280,000 bags until 1998, according to statistics from the ICO and German statistician FO Licht. That was until the arrival of Seattle-based Starbucks, which since opening its first shop in the Thai capital of Bangkok in 1998, has continued to lead the café expansion. This in part has contributed to a rise in domestic consumption in Thailand to about 1.25 million bags in 2015-16, according to the ICO.

Consumption Surges in Japan

In Japan, Asia’s biggest coffee market, which at the turn of the millennium took over as the world’s third-largest importing nation (after the US and Germany) from France, per capita consumption continues to grow. Even if overall growth slowed for a few years because of drop in the population in the last few years, this has been compensated by higher per capita demand – and Japanese consumers remain among the leading coffee drinkers in the world, and continue to buy the world’s finest and highest priced beans.

Annual imports in Japan have risen to 8.3 million bags in the current 2016-17 marketing year, according to the USDA, a figure that has jumped 26 percent from 6.6 million bags in 2000-01.

“The coffee market in Japan has been, and continues to be, very stable and even if we did see a small drop in demand in 2011, in part because of the economic crisis this was quite insignificant in the overall picture and we were able to recover and expand quite quickly after that,” said Toyohide Nishino, executive director of the industry-run All Japan Coffee Association (AJCA).

In Singapore, one of Southeast Asia’s smallest markets, what consumers lack in overall volume they make up for in value with the population of 5.6 million people and home to the third strongest income levels in the world with an impressive per capita GDP of USD $90,724 a year.

“With growing affluence and greater exposure to premium coffee, consumers tend to be more discerning of the type of products they consume, such as the quality and the ingredients,” said London-based global market intelligence firm Euromonitor International in a report released in January this year.

Euromonitor expects the annual growth of sales in Singapore of both fresh ground coffee pods and pod machines to grow well above average rates at a minimum 4 percent a year, while it said the value of retail sales expanded by 10 percent in 2016 and had ample room for further growth given the success of local coffee shops serving local Singapore food items in having attracted a wide range of consumer goods which benefits coffee growth.

“These coffee shops have managed to attract budget-conscious consumers and consumers of all profiles, such as working professionals, retirees, housewives and students,” it said.

As the Asian coffee market continues to grow in close parallel with the economic development of the continent, the coffee industry is embracing the long list of new opportunities. Local producers are working on expanding yields to increase the value-added income from the consumer growth to market players across both new and traditional coffee demographics that are pursuing the multiple possibilities from developing new brands, new products, new locations and new consumer groups. The future of the world’s coffee growth, analysts and economists like Jeffrey Sachs and the ICO agree, all lies in Southeast Asia.

“Since 1990, Asia has experienced the most dynamic growth in coffee consumption in the world, growing by an average rate of 4 percent per annum, increasing to 4.9 percent since the year 2000. Disposable income is generally growing and several multinational coffee companies are increasingly investing to expand their presence in the area,” said the ICO.

Maja Wallengren has been writing about coffee for more than 20 years and has specialized in coffee during her travels as a reporter to 45 coffee-producing countries across Southeast Asia, East and West Africa and Latin America. She may be reached at: [email protected].

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