Wake up and smell the coffee!
Charlotte Dicker
Partner | Head of Client Relations & Responsible InvestmentCharlotte Dicker joined Oldfield Partners in 2022 as Responsible Investment Lead. Charlotte previously worked in Consultant Relations, with a focus on ESG and Defined Contribution solutions, at State Street Global Advisors and Wells Fargo Asset Management. Charlotte holds an International BA in History and an MSc in Management from the London School of Economics and Political Science (LSE).
Dating back to Ethiopia in the ninth century, the history and production of coffee is as long as it is complex. As one of the world’s first globalised commodities, today, coffee represents a $200 billion industry, supporting the livelihoods of over 120 million people – many of them smallholder farmers. Behind the fluctuating price of a coffee cup is a lengthy supply chain and an industry that is quietly evolving.
Two beans dominate your cup, arabica and robusta. Arabica, with its delicate flavour, makes up 60% of global consumption, and Brazil, the world’s largest producer of arabica, accounts for roughly a third of the world’s coffee production. Vietnam dominates the supply of robusta, a hardier crop, and often reserved for instant coffee.
Coffee is a commodity that is especially sensitive to water and sunlight. As a result, changing weather patterns in these principal countries have sparked fears of supply shortages. In 2024, Brazil’s frosty weather followed months of drought in Vietnam, pushing global supplies of coffee beans into their fourth consecutive year of shortage. Shortages have led to a more than tripling in coffee bean prices over recent years.
High prices of coffee beans have created uncertainty for international coffee distributors; will they be able to pass on higher prices to consumers? Retail prices are set to rise by over 10% this year, following a 30% price hike since 2020. In 2024 we conducted research into JDE Peet’s, the second largest coffee company globally, and conviction in the company assumes that consumers are willing to pay up for their daily cup.
Our due diligence explored JDE Peet’s response to supply shortages. The company is transparent about the impact of changing weather patterns, recognising the effect of shifting rainfall patterns and increased pest outbreaks on declining yields. Coffee beans are particularly susceptible to diseases such as coffee rust, a fungal infection expected to spread more readily in a warmer world.
Our research takes account of multiple stakeholders, and the evolution of policy is an important factor. The EU’s Deforestation Regulation (EUDR), although recently postponed, aims to tackle deforestation at the source. It increases scrutiny of agricultural imports and their environmental footprint, creating transparency all the way back to the farm level. To meet such requirements, creating a transparent and deforestation free supply chain, JDE Peet’s estimated initial spend was in the region of $200 million. From an investment perspective however, we believe JDE Peet’s is a beneficiary of tighter regulation, with smaller competitors more challenged to comply.
Meanwhile, and aligned with this, consumer preferences are shifting. A growing demographic wants to know not just how their coffee tastes, but where it came from, and how it was made. Through artisan coffee, provenance is becoming more mainstream.
With an evolving landscape, JDE Peet’s focus is on three responsible coffee sourcing principles: sustainability of land, equality of people, and prosperity of farmers. Their research and investment are important for securing a long-term, sustainable supply of quality coffee which includes the practices of small-holder farmers who account for around 70% of the supply. The company’s collaboration with groups such as World Coffee Research will help to determine the coffee we drink in the future, taking account of coffee yields, quality, climate resilience and farmer profitability. Underlying a shift in taste could be altering landscapes, with the potential for farms to move uphill into cooler conditions, as well as the exploration of different varieties of beans that are more tolerant to heat and rust.
As investors, we consider the risks and responsibilities embedded in the supply chains of such commodities. Our due diligence seeks to ensure that our investment decisions are informed and grounded in both current realities and future needs. Passing on the cost of such adaptation may be inevitable, but it can also be accompanied by transparency, traceability, and a tangible commitment to environmental and social responsibility.
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