#3 | February 13, 2020

Welcome to Recap, a brief overview of recent coffee developments every two weeks from the Specialty Coffee Association.

Today, we’ll look at the human and economic costs of the recent novel coronavirus outbreak through the lens of coffee. The timing of the outbreak, just before the lunar New Year, has contributed to the virus’ wide-reaching impact, with cases reported across Asia, Europe, and North America. And, while the Hubei province of China is the most affected, the impacts of efforts to prevent the spread of the virus will likely stretch into the future.

Strict travel restrictions and quarantine protocols now employed in a number of countries around the world have led large industry trade shows to postpone their events. Two of the most significantly attended coffee shows in Asia, HOTELEX Shanghai and Singapore’s FHA HoReCa, were originally scheduled to take place next month but will now take place later this year. Smaller coffee community gatherings have been affected, too, with some SCA Competition Bodies choosing to postpone their national coffee championships in order to avoid bringing groups of people together unnecessarily.

Coffee companies in China are directly affected. The timing of the new year holiday has been a mitigating factor for Luckin coffee, which typically closes 70-80% of its stores over the break. The Financial Times reports that Starbucks also closed over half of its 4,300 shops in the country, which is its largest market outside the US and its most important global growth engine. Both companies have seen a significant drop in their share value over the month of January, and it’s expected that the continued presence of the virus will impact the re-opening of stores in the coming months.

Local roaster/retailers are not the only ones affected: there are also extensive factory closures across the country, as employers were ordered to remain closed after the annual holiday in an attempt to stem the spread of the virus. An important link in many global supply chains, factories in China build and provide parts for many coffee machine companies. Though millions of workers returned this week following the extended closure, the virus’ impact on production lines will certainly continue to cause significant disruption into the latter half of this year.

The ongoing impact of the virus, both on China’s economy and on global supply chains, has also reached the futures market. The Financial Times reports the Coronavirus outbreak is also responsible for a slump in Coffee futures. After a brief rally in December, the C price is once again falling, roughly at the same rate as concerns increased about the impact of the novel Coronavirus on Chinese industry. Throughout history, the threat of a global pandemic heavily impacts the price of agricultural commodities: wheat and soybeans were greatly impacted during the 2003 SARS outbreak. And while specialty coffee is predicated on the difference between specialty and commodity, some specialty contracts are still built upon the variable C price.

If you want to dive deeper into anything you heard today, check out the links in the description of this episode. Recap will be back in two weeks’ time. Thanks for listening.

Further Reading: 

Coronavirus: 

• “Coronavirus Updates: China Seeks to Restart Economy While Fighting Outbreak”
• “Covid-19: The new coronavirus disease finally has a name”
• “Coronavirus gets a new name, here’s why renaming it is important”
• Mapping the 2020 Coronavirus Outbreak (Bloomberg) 

Events Postponed: 

• China Specialty Coffee Expo
• HOTELEX Shanghai 
• FHA HoReCa in Singapore
• SCA Korea’s Korea Cup Tasters Championship

Roaster/Retailer Shop Closures: 

• Starbucks closes half their stores in China 
  • Wall Street Journal
  • Financial Times
• Luckin Coffee value drops over closures
  • Bloomberg
  • Reuters
  • CNBC

Manufacturing:

• “Coronavirus: The Economic cost is rising in China and beyond” (BBC)
• “Coronavirus and China Manufacturing: Restarting Production is Hard” (Forbes) 

Futures Market:

• “Why Coffee Has Been Caught Up in the Coronavirus Sell Off” 
• “Coffee Futures have been caught up in the Coronavirus sell off, says Financial Times”
• “Coronavirus: Indian industry may get to fill gap left by Chinese traders”