WEBVTT - illycaffe Chairman Talks Coffee Prices

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. Well, the cost of

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<v Speaker 1>a cup of coffee is on the rise as extreme

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<v Speaker 1>weather its global coffee supplies in Brazil and Vietnam. But

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<v Speaker 1>our next guest says that arrespite is on the way

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<v Speaker 1>for Java lovers. He expects prices actually fall this year.

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<v Speaker 1>And joining us now, I'm thrilled to say we have

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<v Speaker 1>Andrea Illy. He is Illy Cafe chairman. Illy Cafe, of

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<v Speaker 1>course is an Italian coffee company specializing in espresso. Great

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<v Speaker 1>to have you with me. So you said in late

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<v Speaker 1>March that you expect a decline in coffee prices coming

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<v Speaker 1>in the second half of twenty twenty four. In late May,

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<v Speaker 1>is that still your view?

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<v Speaker 2>I cannot say that the expects because the market is

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<v Speaker 2>becoming more and more in predictable. In the past the

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<v Speaker 2>trend was similar that in this season the prices were

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<v Speaker 2>coming down. But there are many reasons to sustain a

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<v Speaker 2>higher price because more and more financial markets rely upon

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<v Speaker 2>triggers for price search, and in this case, climate that

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<v Speaker 2>you mentioned is the main one, particularly excessive rains in

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<v Speaker 2>Brazil and route in Vietnam, which are the two most

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<v Speaker 2>important coffee producing countries.

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<v Speaker 1>It's interesting. I mean, when you think about sort of

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<v Speaker 1>volatility that we've seen, it's really been focused. My understanding

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<v Speaker 1>is on Robusta prices. I know that ELI uses Arabica beans,

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<v Speaker 1>but how is what we're seeing with Robusta translated over

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<v Speaker 1>into the type of beans that you actually use.

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<v Speaker 2>Usually there is a an arbitrash between Arabic and Robusta,

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<v Speaker 2>which makes the Arabica price at least twenty five percent

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<v Speaker 2>higher than robust which also reflects a higher quality in

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<v Speaker 2>the cup for some reason which are probably linked specifically

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<v Speaker 2>to the offer and demand. Robusta coffee is used for

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<v Speaker 2>a certain type of industry, like instant coffee and some

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<v Speaker 2>more let's say entry level coffee in the market, which

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<v Speaker 2>probably let's say, did not decide to replace a Robusta

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<v Speaker 2>coffee with Arabica, although there is a price advantage, have

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<v Speaker 2>we So yeah, it's quite unique as a dynamic in

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<v Speaker 2>the market. It didn't happen in the past.

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<v Speaker 1>Well you thought on what I've been wondering for those

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<v Speaker 1>who perhaps use the Robusta deans, I mean, how easy

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<v Speaker 1>is it to actually switch to using a different type

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<v Speaker 1>of less expensive dean, or is that sort of impossible

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<v Speaker 1>in this environment.

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<v Speaker 2>Well, what typically happens is the opposite. For dominant that

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<v Speaker 2>because Arabica coffee is the more premium. When the prices,

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<v Speaker 2>the market prices are lower, the percentage of Arabica coffee

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<v Speaker 2>using lenths increases so that you can, let's say, have

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<v Speaker 2>a better consumer let's say response, And when the cost

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<v Speaker 2>goes up, then you use more robust, which is cheaper

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<v Speaker 2>this time is not what is happening now, probably because

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<v Speaker 2>for certain kind of preparation, like I've already mentioned, instant coffee,

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<v Speaker 2>robust is more important.

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<v Speaker 1>And so I mean, looking into the future, like you said,

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<v Speaker 1>it's been difficult to predict with confidence belt whare prices

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<v Speaker 1>are going to actually go? But what does the actual

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<v Speaker 1>supply demand look like? It feels like a lot of

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<v Speaker 1>this is playing out on the supply side rather than

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<v Speaker 1>the demand side.

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<v Speaker 2>So to speak, Supply and demand is in balance, but

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<v Speaker 2>by means that one year might be a little deficit,

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<v Speaker 2>the year after is a little shupplus and if you

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<v Speaker 2>make the average you are more or less in balance.

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<v Speaker 2>Stocks levels as a consequence of these unstable dynamic are low,

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<v Speaker 2>and this is a significant let's say driver for a

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<v Speaker 2>price increases. But in the background there is climate change,

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<v Speaker 2>because there is the expectation not only for coffee, that yes,

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<v Speaker 2>climate change definitely impacts coffee agriculture and that there is

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<v Speaker 2>less reliability in the supply. And this, let's say commands

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<v Speaker 2>probably is a higher baseline. We will be able to

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<v Speaker 2>understand if the baseline, which used to be maybe one

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<v Speaker 2>dollar until fifteen years ago, then it moved up to

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<v Speaker 2>one twenty, then one fifteen. Now probably the baseline is

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<v Speaker 2>more around one eighty. But we will need the statistics

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<v Speaker 2>maybe a few months or years down the road to

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<v Speaker 2>really understand that if as a consequence of climate change expectation,

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<v Speaker 2>the baseline increases, which would completely revert the multi deflationary

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<v Speaker 2>trend of all agricultural commodities.

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<v Speaker 1>And of course, I mean it's not just coffee that

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<v Speaker 1>we're seeing this coffee beans, You're also seeing the effects

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<v Speaker 1>of climate change and just extreme weather in the likes

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<v Speaker 1>of cocoa, for example, has been a big, big story

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<v Speaker 1>this year. So that's sort of be the macro lock,

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<v Speaker 1>the broad roast strokes industry lock. I want to talk

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<v Speaker 1>a little bit about your business because you think about

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<v Speaker 1>your first ready to drink cold brew you introduced that

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<v Speaker 1>back in twenty twenty. You expanded that line in twenty

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<v Speaker 1>twenty two with more products. Really curious to hear how

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<v Speaker 1>that line is doing relative to hot coffee.

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<v Speaker 2>Well, really good. So cold brew is very fashionable. There

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<v Speaker 2>is a strong response, particularly from younger generations. Is also

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<v Speaker 2>a good way to drink more coffee summertime. Our effort

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<v Speaker 2>is extremely discipline because it is famous for the early blend,

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<v Speaker 2>because the best possible quality can be only only one.

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<v Speaker 2>So this is why Early offers only one blend, the

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<v Speaker 2>only roaster in the world with that strategy, and the

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<v Speaker 2>cold brew is based on the exact illly blended that

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<v Speaker 2>you can enjoy freshly brewed espresso or cappuccino in a

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<v Speaker 2>in a wherever, in a in the market, and matching

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<v Speaker 2>also the taste profile. This has been the bigger, the

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<v Speaker 2>bigger effort, and we are happy with the quality that we,

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<v Speaker 2>let's say reached in terms of taste consistency, and now

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<v Speaker 2>we expect for this market to grow. All Right.

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<v Speaker 1>I have to say, I drink a lot of coffee

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<v Speaker 1>and almost ninety percent of it is cold brew, So

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<v Speaker 1>there's some ANNEC data there. Andrea, I really enjoyed this conversation,

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<v Speaker 1>are sate you joining us, that, of course, is Andrea

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<v Speaker 1>Illy of Illy Cafe.