Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Well, the cost of
Speaker 1: a cup of coffee is on the rise as extreme
Speaker 1: weather its global coffee supplies in Brazil and Vietnam. But
Speaker 1: our next guest says that arrespite is on the way
Speaker 1: for Java lovers. He expects prices actually fall this year.
Speaker 1: And joining us now, I'm thrilled to say we have
Speaker 1: Andrea Illy. He is Illy Cafe chairman. Illy Cafe, of
Speaker 1: course is an Italian coffee company specializing in espresso. Great
Speaker 1: to have you with me. So you said in late
Speaker 1: March that you expect a decline in coffee prices coming
Speaker 1: in the second half of twenty twenty four. In late May,
Speaker 1: is that still your view?
Speaker 2: I cannot say that the expects because the market is
Speaker 2: becoming more and more in predictable. In the past the
Speaker 2: trend was similar that in this season the prices were
Speaker 2: coming down. But there are many reasons to sustain a
Speaker 2: higher price because more and more financial markets rely upon
Speaker 2: triggers for price search, and in this case, climate that
Speaker 2: you mentioned is the main one, particularly excessive rains in
Speaker 2: Brazil and route in Vietnam, which are the two most
Speaker 2: important coffee producing countries.
Speaker 1: It's interesting. I mean, when you think about sort of
Speaker 1: volatility that we've seen, it's really been focused. My understanding
Speaker 1: is on Robusta prices. I know that ELI uses Arabica beans,
Speaker 1: but how is what we're seeing with Robusta translated over
Speaker 1: into the type of beans that you actually use.
Speaker 2: Usually there is a an arbitrash between Arabic and Robusta,
Speaker 2: which makes the Arabica price at least twenty five percent
Speaker 2: higher than robust which also reflects a higher quality in
Speaker 2: the cup for some reason which are probably linked specifically
Speaker 2: to the offer and demand. Robusta coffee is used for
Speaker 2: a certain type of industry, like instant coffee and some
Speaker 2: more let's say entry level coffee in the market, which
Speaker 2: probably let's say, did not decide to replace a Robusta
Speaker 2: coffee with Arabica, although there is a price advantage, have
Speaker 2: we So yeah, it's quite unique as a dynamic in
Speaker 2: the market. It didn't happen in the past.
Speaker 1: Well you thought on what I've been wondering for those
Speaker 1: who perhaps use the Robusta deans, I mean, how easy
Speaker 1: is it to actually switch to using a different type
Speaker 1: of less expensive dean, or is that sort of impossible
Speaker 1: in this environment.
Speaker 2: Well, what typically happens is the opposite. For dominant that
Speaker 2: because Arabica coffee is the more premium. When the prices,
Speaker 2: the market prices are lower, the percentage of Arabica coffee
Speaker 2: using lenths increases so that you can, let's say, have
Speaker 2: a better consumer let's say response, And when the cost
Speaker 2: goes up, then you use more robust, which is cheaper
Speaker 2: this time is not what is happening now, probably because
Speaker 2: for certain kind of preparation, like I've already mentioned, instant coffee,
Speaker 2: robust is more important.
Speaker 1: And so I mean, looking into the future, like you said,
Speaker 1: it's been difficult to predict with confidence belt whare prices
Speaker 1: are going to actually go? But what does the actual
Speaker 1: supply demand look like? It feels like a lot of
Speaker 1: this is playing out on the supply side rather than
Speaker 1: the demand side.
Speaker 2: So to speak, Supply and demand is in balance, but
Speaker 2: by means that one year might be a little deficit,
Speaker 2: the year after is a little shupplus and if you
Speaker 2: make the average you are more or less in balance.
Speaker 2: Stocks levels as a consequence of these unstable dynamic are low,
Speaker 2: and this is a significant let's say driver for a
Speaker 2: price increases. But in the background there is climate change,
Speaker 2: because there is the expectation not only for coffee, that yes,
Speaker 2: climate change definitely impacts coffee agriculture and that there is
Speaker 2: less reliability in the supply. And this, let's say commands
Speaker 2: probably is a higher baseline. We will be able to
Speaker 2: understand if the baseline, which used to be maybe one
Speaker 2: dollar until fifteen years ago, then it moved up to
Speaker 2: one twenty, then one fifteen. Now probably the baseline is
Speaker 2: more around one eighty. But we will need the statistics
Speaker 2: maybe a few months or years down the road to
Speaker 2: really understand that if as a consequence of climate change expectation,
Speaker 2: the baseline increases, which would completely revert the multi deflationary
Speaker 2: trend of all agricultural commodities.
Speaker 1: And of course, I mean it's not just coffee that
Speaker 1: we're seeing this coffee beans, You're also seeing the effects
Speaker 1: of climate change and just extreme weather in the likes
Speaker 1: of cocoa, for example, has been a big, big story
Speaker 1: this year. So that's sort of be the macro lock,
Speaker 1: the broad roast strokes industry lock. I want to talk
Speaker 1: a little bit about your business because you think about
Speaker 1: your first ready to drink cold brew you introduced that
Speaker 1: back in twenty twenty. You expanded that line in twenty
Speaker 1: twenty two with more products. Really curious to hear how
Speaker 1: that line is doing relative to hot coffee.
Speaker 2: Well, really good. So cold brew is very fashionable. There
Speaker 2: is a strong response, particularly from younger generations. Is also
Speaker 2: a good way to drink more coffee summertime. Our effort
Speaker 2: is extremely discipline because it is famous for the early blend,
Speaker 2: because the best possible quality can be only only one.
Speaker 2: So this is why Early offers only one blend, the
Speaker 2: only roaster in the world with that strategy, and the
Speaker 2: cold brew is based on the exact illly blended that
Speaker 2: you can enjoy freshly brewed espresso or cappuccino in a
Speaker 2: in a wherever, in a in the market, and matching
Speaker 2: also the taste profile. This has been the bigger, the
Speaker 2: bigger effort, and we are happy with the quality that we,
Speaker 2: let's say reached in terms of taste consistency, and now
Speaker 2: we expect for this market to grow. All Right.
Speaker 1: I have to say, I drink a lot of coffee
Speaker 1: and almost ninety percent of it is cold brew, So
Speaker 1: there's some ANNEC data there. Andrea, I really enjoyed this conversation,
Speaker 1: are sate you joining us, that, of course, is Andrea
Speaker 1: Illy of Illy Cafe.