Post-Harvest Origin Report - Costa Rica

Welcome to the first origin report from Ally Coffee. This is a new and developing format made to share both market information and insights from origin with our partners. This report looks at Costa Rica as it wraps up the exports from the 2019-2020 crop and looks forward to the new crop that has just kicked off at the lower altitudes. It marks more than 300 days since we air-freighted the first lots of the harvest year, and this month the last containers from the late harvest leave for their destinations. Now that our conversations at origin gravitate more toward the next crop, we can confidently say that the cycle has been completed once again.

The World Market

C-Market Analysis

C Market Candlestick Chart, June through August

Source: Tradingview

Above is the candlestick chart for the ‘C-market’ over the last two months, specifically for the September delivery month. We can see that the market has traded sideways at its current bottom just below the one dollar per pound mark. In mid-July the market started an unexpected rally in which it gained 25.03% in three weeks. After a small correction back to $1.12/lb, the rally continued to $1.26.35 on Friday 28th which is the highest close since March 25. Furthermore, a weak dollar, lower trading volume, and lower certified coffee stocks may have contributed to maintain the gains made in July.

Global Coffee Industry Statistics and Analysis

Below are the production, export, and consumption data as of July 2020 published monthly by the ICO. Moreover, the graph below shows the composite index of prices paid for coffee shipment including robusta coffee. This graph can be interpreted as the ‘real’ price paid for coffee globally.

Global coffee production in coffee year 2019/20 is estimated at 168.01 million bags, a decrease of 2.9% from 2018/19. Arabica output is estimated to fall by 5.4% to 95.37 million bags, due to a decline in production in seven of the ten largest Arabica producers, while Robusta production is estimated to increase by 0.5% to 72.63 million bags. Global coffee consumption is estimated to rise by 0.3% to 168.49 million bags, which is below the average annual growth rate of 2.2% over the last two decades. Strong growth at the start of the season is expected to be offset by a global economic slowdown. 
In June 2020, world coffee exports fell by 5.3% to 10.57 million bags compared to June 2019, due in part to lower production. Shipments of Arabica fell by 10% to 6.42 million bags, but Robusta exports increased by 3% to 4.15 million bags compared to June 2019. Global exports in the first nine months of the coffee year 2019/20 decreased by 5.1% to 95.36 million bags. Shipments of Other Milds shrank by 8.2% to 19.11 million bags in October 2019 to June 2020. Brazilian Naturals decreased by 7.8% to 28.84 million bags while Colombian Milds exports fell by 7.2% to 10.53 million bags in the first nine months of the coffee year. Robusta shipments reached 36.88 million bags, 0.4% lower than in October 2018 to July 2019

ICO Coffee Export Data, July 2018 through July 2020

Source: International Coffee Organization

At Origin

Costa Rica General Update

Costa Rica has been struggling economically for the last couple of years with a loss of purchasing power across the board. The pandemic has now shut down tourism which was a major source of income for Costa Rica. Consequently, the country now suffers a record-breaking unemployment rate of 25%. In these times of hardship we hope to see coffee be an economic driver as it is one of the main export products and sources of employment in the country. This importance of coffee was formally symbolized on July 28 when coffee was registered as the fifteenth official national symbol of Costa Rica, recognizing the coffee industry for its historical, social, and cultural importance to the country. Alongside this recognition, the famous law #2762 governing the coffee sector has been reformed to resolve industry concerns and doubt. This reformation aims to continue to maintain the highest standards of traceability and distribution of wealth in the chain on a national level.

Harvest in Numbers and Statistics

In the 2019-2020 harvest Costa Rica produced 1,275,492 bags of 69 kilograms, which is up 13.90% from the previous harvest, and down 3.05% compared to the 2017-2018 crop. The average price paid for green coffee to exporters was approximately $2.04/lb FOB, which is a significant increase from $1.93/lb last year. The ‘Los Santos’ region (Tarrazú) remains the most productive region accounting for 43.88% of all harvested coffee, followed by the West and Central valleys with 16.33% and 1612% respectively. Of all produced coffee 84% has been sold for export, leaving the rest for the local market. This is a decrease compared to the previous year in which 89% was exported. Finally, and perhaps most importantly for Costa Rica as a coffee producing country, 6% of coffee is still unsold amounting to 71,064 bags of 69 kilograms. This is more than double the unsold bags from last year, and quite an alarming number that can be attributed to the impact of the coronavirus. Source for the data is ICAFE.

A view from Aquiares Estate

Coronavirus Impact

Costa Rica registered its first case of coronavirus on March 6th and declared a state of emergency 10 days later; the state of emergency is still in effect now at the time of writing. The state of emergency closed all borders, schools, and non-essential businesses, but did not include agricultural activity and transport of goods, which helped limit the impact on the operational side of the coffee industry. The outbreak remained controlled until the first of June when the number of cases started to rise exponentially, continuing to this day. The slow start of the virus helped the exporters, dry-mills, and shipping lines to maintain operating ‘business as usual’ and get the coffee out in a timely manner. 

Nevertheless, the impact the virus has had in consuming countries will continue to have a lasting effect on the coffee industry. As mentioned above, Costa Rica still has a relatively large stock of coffee unsold whilst the new crop is starting harvest rather soon. A lot of reports have come from the fields from specialty coffee producers who have unsold coffee in their warehouses. Many of the unsold specialty coffees are honey, natural, or anaerobic processed lots that cannot be blended with conventional coffee. As time progresses, more and more buyers will have covered their positions for these coffees and consolidated shipments will become less frequent. Hence, these coffees are very unlikely to be sold, not even as conventional coffee as they cannot be blended. As a result, many producers have started to or doubling down on their roasted coffee brands, which could spark an interesting development in the local specialty coffee scene. However, the unsold coffees can cause significant trouble for producers and lead to losses this year, which can result in lower capital for investment in farm work and equipment for the next crop. One of the efforts made to help producers combat these problems has resulted in the Tarrazu ‘Seis Familias’ Honey blend headed to CTI NJ and DMCC Dubai. 

Honey Process Coffee Drying in Costa Rica

The effects of the current outbreak on the coffee industry is raising tremendous concern among coffee producers with regards to the upcoming harvest. Costa Rica is hugely dependent on migrant workers from Nicaragua and Panama who will not be able to travel this harvest due to the border closure. An estimated 75,000 additional workers are needed to collect the harvest between November and February. The Institute of Coffee is campaigning aggressively to inspire locals to sign up as coffee pickers to prevent the harvest from falling off the trees. Furthermore, producers have had to make huge investments in their facilities to make them ‘corona proof’, which puts pressure on funds to invest in other infrastructure.

2019-2020 for Ally Coffee in Costa Rica

This harvest marks the sixth year for Ally Coffee buying coffee in Costa Rica, and its second after establishing the Central American purchasing office. We are more than happy to have grown our relationships with the producers and exporter CECA S.A., and to be able to present their coffee in North America, Europe, Asia, and the Middle East. Furthermore, we were happy to welcome Remy Molina as the lab manager and inaugurate the new office and cupping lab in Barrio Escalante, San José. Through even closer cooperative relationships, endless cupping, and open conversations, we have seen the quality increase across the board. We could not be prouder to see these coffees land at the roasteries over these last couple of weeks.

Casa Hollanda - Ally Coffee Costa Rica Office

Next Harvest Outlook & Concluding Thoughts

This last harvest was unlike any other due to the shake-up caused by COVID-19. Fortunately the harvest, post-processing, and exports were not largely affected, but this will most definitely not be the case for this upcoming year. The lack of pickers, worrying economic situation, and ongoing spread of the virus will mark the 2020-2021 harvest one way or another. We are in constant contact with our producing and exporting partners to ensure the harvest is as smooth as possible next year. The challenges that lay ahead of us are unprecedented, but by making a collaborative effort across the value chain we can ensure a supply of great coffees, economic sustainability for the producers, and continue to pave the way forward.

Bram behind loaded truck with Ally Coffee Logo

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