Covid lockdown in Vietnam could keep coffee prices 'relatively high' through 2022

Key Points
  • Coffee prices could stay "relatively high" through 2022 due to constrained supply from major producers Brazil, Vietnam and Colombia, said Fitch Solutions.   
  • Brazil waves of frost and drought that damaged many of its crops, while restrictions to fight Covid-19 in Vietnam caused coffee exports to fall.
  • Vietnam, the world's second-largest coffee exporter, is battling its worst Covid outbreak since the start of the pandemic.

In this article

Pots of coffee bean are seen at a coffee shop in Hanoi, Vietnam on August 15, 2012. Vietnam is one of the world's top coffee producers and exporters.
Hoang Dinh Nam | AFP | Getty Images

Vietnam's Covid-19 lockdown has constrained the global supply of coffee — and coffee prices could remain "relatively high" through 2022, said Fitch Solutions.   

The Southeast Asian country is the world's second-largest coffee exporter. The country is battling its worst Covid outbreak since the start of the pandemic, and a lockdown in its exporting hub Ho Chi Minh City has affected overseas shipments of coffee and other goods.

In August, Vietnamese coffee exports fell 8.7% from July to 111,697 tonnes, Reuters reported, citing customs data. Between January and August, Vietnam exported 1.1 million tonnes of coffee — 6.4% lower than a year ago, but coffee export revenue rose 2% to around $2 billion, said the news agency.

The fall in Vietnam's exports and production slumps in other top producers have boosted global coffee prices. Benchmark arabica coffee futures have jumped by around 45.8% this year, while robusta futures have surged 52.2%, according to Refinitiv data.

Brazil, the world's largest coffee producer, experienced waves of frost and drought that damaged its crops. Bad weather also affected Colombia's harvest, and the emergence of the "mu" coronavirus variant in the country could lead to prolonged restrictions and labor shortages that worsen production, Fitch Solutions said in a report last week.

"At the same time, we think that demand, at least in Europe and the US, will pick up in the coming months as the lifting of Covid-19 restrictions should enable coffee shops to re-open," it added.

The consultancy raised its 2021 forecast for the average price of arabica coffee from $1.35 per pound to $1.60 per pound. It also revised upward its projection for 2022 from $1.25 per pound to $1.50 per pound.

Covid in Vietnam

Vietnam — which shares a border with China — reported only 1,465 Covid cases and 35 deaths last year, according to data compiled by Johns Hopkins University. But the country's cumulative cases exploded to more than 635,000 as of Tuesday, with over 15,900 deaths, the data showed.

Like many of its Southeast Asian neighbors, Vietnam is struggling to contain the highly infectious Covid delta variant. Only 5.7% of Vietnam's population has been fully vaccinated, official statistics compiled by Our World in Data showed.

Authorities on Monday announced a two-week extension of restrictions in Ho Chi Minh City, Vietnam's business hub and Covid outbreak epicenter, Reuters reported.

Vietnam plays an important role in the global manufacturing supply chain. Movement curbs and factory closures to fight Covid have hit the country's manufacturing production and exports — affecting global supplies of goods from coffee to clothing and semiconductors.

Major sports apparel makers Nike, Under Armour and Lululemon; as well as chipmaker Samsung Electronics are among global companies that have faced disruptions in Vietnam.

Outlook for coffee

Covid restrictions could soon be progressively lifted, so disruptions to Vietnam's coffee exports are likely short-lived, said Fitch Solutions.   

Brazil's coffee production should also bounce back "fairly quickly," provided adverse weather doesn't return, added the consultancy.

Why coffee prices have been on a wild ride
Why coffee prices have been on a wild ride

That means global coffee supply could start to rebound in the 2022/2023 season, with average annual price for arabica declining to $1.20 per pound in 2023, projected Fitch Solutions.

"Ongoing government support schemes will support production in many key Latin American and Asian producers, including Colombia and Vietnam," said Fitch Solutions.

"At the same time, growth in consumption seems to be peaking in many of the major key consumers, such as the EU-27 and Japan."