Assessment of potential impact of Covid-19 Pandemic on the EAC Coffee Sector
The Covid-19 pandemic has had a profound impact on the global economy, in turn affecting every single country and sector. The coffee sector in the EAC Partner States being no exception – although it might not be the most affected EAC sector given its high export share and dependency on relatively few markets.
Demand fluctuations in key markets caused by the pandemic, as a result ofnegative impact on economic growth generally leads to lower aggregate demand in an economy than without the pandemic. Equally, composition of demand changes.Therefore, demand for many products and services such as industrial machinery and inputs, tourism and recreation services, many durable consumer goods sharply decreased whereas demand for other products and services in particular, essential ones such as food strongly increased. Demand for coffee being a function of various variables such as income of consumers, price of coffee, price of close substitutes- both different types of coffee and other hot beverages, and the size of a market changed. In this regard, the income reductions caused by Covid-19, led to shift in coffee demand to lower-priced varieties. As one observer notes, “Global consumers are still drinking coffee, but few are visiting cafes. Instead they are buying medium-quality supermarket beans to drink at home, foregoing high-end coffee shop offerings and spelling disaster for specialist suppliers.”
Effects on coffee production in the region caused for example by regulations affecting production capacity, or limited availability of inputs or staff. According to Sucafina’s Covid-19 updates for the coffee sector, production of coffee in EAC countries has so far not been affected more than in other countries and appears to be operating without many issues with the exception of delays in bringing coffee to the ports in Kenya, Rwanda and especially Uganda.Neither the spread of Covid-19 across the EAC nor measures taken by EAC governments have so far heavily affected coffee production and export. At the same time, the risk of this happening remains extraordinarily high: if the number of cases increases, if it affects neuralgic points in the coffee supply and logistics chain, and/or if governments take more stringent measures, the impact could easily be that production and export completely stops.
Barriers and frictions in taking coffee beans to the market include the availability and cost of transportation, and additional measures at border point. More broadly, export of coffee from landlocked Burundi, Rwanda and Uganda could be further affected by measures taken by several governments restricting the entry of trucks from Partner States
And finally, structural changes in the global economy brought about by the crisis, such as an expected lower openness to trade works against the sector. So far, there are no indications that the pandemic would lead to structural shifts in the global coffee sector. Nevertheless, a slow recovery from Covid-19 in developed country markets poses a particular risk for speciality coffee producers. Furthermore, the current situation creates headwinds for the attempts to increase value addition for coffee within the EAC partner States
International Trade Centre (ITC) experts on trade facilitation and policy also conducted an impact assessment through a business survey and result shows that issues on the demand side could arise for the EAC, due to the impact of COVID- 19 on the economies of its major export markets: the European Union and the United States. While most of the contracts for 2020 will be maintained, the coming years are expected to bring additional challenges, especially for specialty coffee producers and exporters. Recommendations to limit the consequences of demand-led issues were made ranging from diversification of the customer base, to government support for specialty coffee producers and exporters to marketing and distribution changes. A webinar for coffee advocacy committees to address the impact of the crisis on the coffee sector in the region took place on May 28.
The Impact Assessment is available for download here.