Bloomberg Audio Studios, Podcasts, radio news. Well, the cost of a cup of coffee is on the rise as extreme weather its global coffee supplies in Brazil and Vietnam. But our next guest says that arrespite is on the way for Java lovers. He expects prices actually fall this year. And joining us now, I'm thrilled to say we have Andrea Illy. He is Illy Cafe chairman. Illy Cafe, of course is an Italian coffee company specializing in espresso. Great
to have you with me. So you said in late March that you expect a decline in coffee prices coming in the second half of twenty twenty four. In late May, is that still your view?
I cannot say that the expects because the market is becoming more and more in predictable. In the past the trend was similar that in this season the prices were coming down. But there are many reasons to sustain a higher price because more and more financial markets rely upon triggers for price search, and in this case, climate that you mentioned is the main one, particularly excessive rains in Brazil and route in Vietnam, which are the two most important coffee producing countries.
It's interesting. I mean, when you think about sort of volatility that we've seen, it's really been focused. My understanding is on Robusta prices. I know that ELI uses Arabica beans, but how is what we're seeing with Robusta translated over into the type of beans that you actually use.
Usually there is a an arbitrash between Arabic and Robusta, which makes the Arabica price at least twenty five percent higher than robust which also reflects a higher quality in the cup for some reason which are probably linked specifically
to the offer and demand. Robusta coffee is used for a certain type of industry, like instant coffee and some more let's say entry level coffee in the market, which probably let's say, did not decide to replace a Robusta coffee with Arabica, although there is a price advantage, have we So yeah, it's quite unique as a dynamic in the market. It didn't happen in the past.
Well you thought on what I've been wondering for those who perhaps use the Robusta deans, I mean, how easy is it to actually switch to using a different type of less expensive dean, or is that sort of impossible in this environment.
Well, what typically happens is the opposite. For dominant that
because Arabica coffee is the more premium. When the prices, the market prices are lower, the percentage of Arabica coffee using lenths increases so that you can, let's say, have a better consumer let's say response, And when the cost goes up, then you use more robust, which is cheaper this time is not what is happening now, probably because for certain kind of preparation, like I've already mentioned, instant coffee, robust is more important.
And so I mean, looking into the future, like you said, it's been difficult to predict with confidence belt whare prices are going to actually go? But what does the actual supply demand look like? It feels like a lot of this is playing out on the supply side rather than the demand side.
So to speak, Supply and demand is in balance, but by means that one year might be a little deficit, the year after is a little shupplus and if you make the average you are more or less in balance. Stocks levels as a consequence of these unstable dynamic are low, and this is a significant let's say driver for a
price increases. But in the background there is climate change, because there is the expectation not only for coffee, that yes, climate change definitely impacts coffee agriculture and that there is less reliability in the supply. And this, let's say commands probably is a higher baseline. We will be able to understand if the baseline, which used to be maybe one dollar until fifteen years ago, then it moved up to one twenty, then one fifteen. Now probably the baseline is
more around one eighty. But we will need the statistics maybe a few months or years down the road to really understand that if as a consequence of climate change expectation, the baseline increases, which would completely revert the multi deflationary trend of all agricultural commodities.
And of course, I mean it's not just coffee that we're seeing this coffee beans, You're also seeing the effects of climate change and just extreme weather in the likes of cocoa, for example, has been a big, big story this year. So that's sort of be the macro lock, the broad roast strokes industry lock. I want to talk a little bit about your business because you think about your first ready to drink cold brew you introduced that back in twenty twenty. You expanded that line in twenty
twenty two with more products. Really curious to hear how that line is doing relative to hot coffee.
Well, really good. So cold brew is very fashionable. There is a strong response, particularly from younger generations. Is also a good way to drink more coffee summertime. Our effort is extremely discipline because it is famous for the early blend, because the best possible quality can be only only one.
So this is why Early offers only one blend, the only roaster in the world with that strategy, and the cold brew is based on the exact illly blended that you can enjoy freshly brewed espresso or cappuccino in a in a wherever, in a in the market, and matching also the taste profile. This has been the bigger, the bigger effort, and we are happy with the quality that we, let's say reached in terms of taste consistency, and now we expect for this market to grow. All Right.
I have to say, I drink a lot of coffee and almost ninety percent of it is cold brew, So there's some ANNEC data there. Andrea, I really enjoyed this conversation, are sate you joining us, that, of course, is Andrea Illy of Illy Cafe.