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ICO economic report: Life after COVID-19

From the June 2020 issue.

The International Coffee Organization on why coronavirus has shocked the supply chain, how to build market resilience, and the next steps to recovery.

During the COVID-19 pandemic, coffee prices have experienced multiple spikes and high volatility. A recently published report by the ICO and the International Food Policy Research Institute (IFPRI) has attributed the increased volatility to significant disruptions in the coffee supply chain, at least in the first months of the pandemic, as well as the impact on coffee consumption caused by the global spread of the virus.

These effects on demand and supply will continue to be felt at different points in time, further contributing to global market uncertainties, before the situation normalises. Triggered by the outbreak of the novel coronavirus and government actions to contain its spread, the current situation constitutes an enormous shock and challenge to coffee growers, farm workers, and downstream value chain actors.

Does the COVID-19 experience require a rethink of the resilience of the global coffee sector?

The notion that global value chains are fragile is not new. The Coffee Development Report 2019, ICO’s flagship publication, highlighted various supply-side risks. These include agricultural risks, such as the impact of adverse weather events and the spread of plant pathogens, but also infrastructure failure, political instability and conflict affecting any one or several major producing countries. A trend towards concentration of production in a small number of origins and the impact of climate change would increase the risk of major events shaking up markets.

The COVID-19 pandemic is a stark reminder that public health crises stemming from the outbreak and spread of infectious diseases represent an additional, perhaps so far underestimated, form of risk. The COVID-19 pandemic may be unprecedented in terms of the scale of its impact on lives and economies around the world, but it is by no means the first recent outbreak that came with significant toll. Previous SARS epidemics in Asia (2002 to 2004) and the Ebola epidemics in West Africa (2013 to 2016) had severe countrywide or regional economic impacts. The containment required significant long-term efforts and in many cases coordination with and support by the international community.

Learning from the current COVID-19 experience as well as from previous outbreaks, the ICO identifies two channels through which the availability of coffee is affected in the short-term: reduced labour supply, as well as supply chain disruptions and delays.

The spread of the virus reduces the amount of labour available along the value chain, either directly due to illness or indirectly due to social distancing and lockdown measures. This is especially true during harvesting, when migrant seasonal and foreign manpower is often required. Trucking, handling, storage, port operations and customs processes are slowed down by social distancing, curfews and other lockdown measures. Reduced availability of shipping containers is also reported to affect some shipments of coffee.

The resilience of coffee production and trade against COVID-19 and future outbreaks will depend – among other factors – on the capacity of individual countries to detect a virus, contain its spread and treat those who have fallen ill, in addition to the success of the scientific community in developing effective cures and vaccination.

The coffee sectors of those countries capable of mobilising an effective public health response and having a robust health system are likely to be affected less severely and for a shorter amount of time. Hence, the risk of supply chain disruption is lower.

How can we assess coffee producing countries’ ability to respond to pandemics?

Existing measures, while often not very granular, provide a good starting point. One comprehensive indicator is the newly developed Global Health Security (GHS) Index. It assesses countries’ health security and capabilities across various dimensions and provides estimates for 195 countries.  According to GHS, “in 2019, the average overall GHS Index score globally was 40.2 out of a possible 100. While high-income countries reported an average score of 51.9, the Index shows that collectively, international preparedness for epidemics and pandemics remains very weak”.

The GHS Index score for the 10 largest exporting countries ranges from 27.6 (Honduras) to 59.7 (Brazil). The analysis reveals that only two countries out of the top 10 – Brazil and Indonesia – report scores above the average of high-income countries. Two other top 10 countries – Guatemala and Honduras – score below the global average. Countries with economies with the greatest dependence on coffee exports and GHS scores below the global average are predominantly located in Africa and Central America and include Burundi, Central African Republic, Guatemala, Honduras and Rwanda.

The GHS Index Score is a measure of the general capabilities of a country's health infrastructure. Hence, the effectiveness of the response and, thereby, the resilience to shocks also depends on the political capacity to promptly mobilise existing institutions, structures and processes, as the differing performance of individual countries during the COVID-19 crisis shows.

The GHS Index is measured at country-level and is unlikely to capture differences between rural and urban areas in terms of public health infrastructure. Further refinement of risk measures is clearly desirable.

With these caveats in mind, the preliminary analysis still highlights some important variations among coffee-producing countries in terms of response capabilities before the COVID-19 pandemic, and the need for additional assistance from the international community to address the current crisis.

Looking ahead, the data shows where recovery strategies by governments and the international development community should explicitly take into account steps to increase the resilience of supply chain processes against the direct and indirect impacts of disease outbreaks and containment measures – in addition to measures to address market and climate risks. These include the development and deployment of health and safety protocols and required equipment in rural communities, as well as greater automatisation and digitalization from farmgate to port of shipment.

The ICO will take up these issues as part of its COVID-19 response, by carrying out surveys and additional analysis and insights to be integrated in the forthcoming 2020 ICO Coffee Development Report on global coffee value chains. It will also mobilise development partners and all public and private coffee stakeholders to provide adequate resources to mitigate the impact of covid-19.

About us
This article is written by Christoph Saenger, Senior Economist, International Coffee Organization.

The ICO is the main intergovernmental organisation for coffee, bringing together exporting and importing governments to tackle the challenges facing the world coffee sector through international cooperation. Its Member Governments represent 98 per cent of world coffee production and 67 per cent of world consumption.

For more information, visit www.ico.org

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