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Froth Goes Off Italian Cappuccino Demand

Emiko Terazono, Financial Times
Tuesday, 25 Sep 2012 | 2:17 AM ET

If life in the euro zone’s economically embattled periphery was not bad enough, now the coffee culture emblematic of southern Europe is under siege. Italians are having to cut back on their cappuccinos and espressos and Spaniards are dropping their cortados, contributing to a sharp drop in wholesale coffee prices.

Yuri Arcurs | Getty Images

The coffee industry has long seen demand for the drink as inelastic and protected from economic fluctuations. But now coffee consumption per capita is down in Italy and Spain to levels last seen five to six years ago, largely because of the impact of the sovereign debt crisis.

The cost of the high-quality arabica coffee in New York, the global benchmark, is down 43 per cent from a 34-year high set last year to $1.75 per pound. Arabica coffee prices last year surged to $3.089 per pound after Colombia, the largest producer of high quality beans had a poor harvest due to bad weather.

In Italy, Europe’s second-biggest importer of coffee by volume, demand fell last year to 5.68 kilograms per person, the lowest in six years, according to the London-based International Coffee Organisation, the group that represents the major producing and consuming countries.

“The four-year economic downturn is hitting the amount of coffee Italians drink,” said Alessandro Polojac, president of Italy’s industry association Comitato Italiano Caffé and chief executive of the Trieste-based coffee trader Imperator.

The story is striking different in less distressed parts of the euro zone. In Germany and France, the first and third-largest coffee importers in Europe respectively, consumption is on the other hand rising strongly. Spain, the fourth-largest European importer and another country that has been hard hit by the crisis, has seen per capita consumption back to the level of five years ago.

The impact of the economic downturn in southern Europe is compounding the negative effect of new brewing technologies, including the single-portion coffees like Nespresso, which cuts coffee wastage.

Mediterranean people are drinking more coffee at home, said Max Fabian, chief executive of Demus, an Italian decaffeinated coffee producer.

“A lot of consumption was out-of-home, which was expensive, but people have switched,” he said. The shift to brewing coffee at home has also prompted consumers to opt for cheaper blends, with a lower content of premium arabica beans. In turn, demand for lower-quality robusta beans, which have a bitter taste, have increased.

The realisation that coffee demand is not insulated from economic woes is to be one of the key topics at this week’s meeting of the International Coffee Organisation, the annual gathering of the industry in London.

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