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Instant coffee drinkers may soon be getting a more gourmet brew than they realize at no extra cost as roasters consider adding higher-quality arabica beans into their blends.
Soaring demand for instant coffee in emerging markets has caused demand growth for caffeine-rich robusta coffee, widely used in soluble coffee, to outpace that for arabica beans, which dominate the gourmet ground-coffee market. That has pushed the typically cheaper and lower-quality beans to almost par with some arabicas.
With the price of some arabicas near that of robusta, some instant coffee makers have already taken the rare step of adding the typically more expensive arabica to their highly secretive blends, coffee buyers said.
The move marks a possible a precursor that other coffee makers who currently use robusta in their blends may be reverting their blends to include more higher quality arabica beans, a change that could soften the current surge in robusta demand. This is coming less than two years after several shifted in the other direction.
"Since early this year, we are seeing roasters replacing robusta for low grade arabica in the lower quality soluble coffees," said Freddie Schol, trading manager for Nedcoffee in Amsterdam.
Soluble, or instant coffee, is usually made from robusta beans, known for acidic flavors and higher caffeine content.
The taste for instant coffee in Asia has surged, with consumers in China buying more than 40,000 metric tons (44,092 tons) of it in 2012, up 9 percent from 2011 and up 43 percent from 2008, Euromonitor International data showed.
That equates to roughly 59 million cups a day of instant brew, more than double the instant coffee purchases in the United States, where demand is relatively flat.
Robusta usage has also risen after the 2011 arabica rally forced many roasters to adjust or create new blends with higher robusta content.
Nedcoffee, a large coffee trading company headquartered in Amsterdam, buys 150,000 metric tons (2.5 million 60-kilogram bags) of coffee annually, with 99 percent of this being robusta, an amount that equates to roughly 10 percent of Vietnam's entire crop. It has procurement and processing plants in Ivory Coast, India, Indonesia and Vietnam.
Arabica gets cheaper
On the physical market, prices of some low grade arabica beans have fallen to below high-quality robusta, importers said.
Uganda drugar beans, an unwashed and low-quality arabica, stored in U.S. warehouses, recently fetched roughly $1.15 per lb while Uganda standard robusta was valued at about $1.18 per lb, U.S. importers said.
Instant coffee processors do not appear to be the only ones adding arabica beans their blends.
"(Roasters) are thinking about it now and some of them are already doing it, but it's going to be gradual," said Ernesto Alvarez, chief executive of COEX Coffee Group in Miami.
There is no data available to show this trend, but Alvarez said that he has already started selling some discounted mild arabica beans to a company that had previously increased its usage of robusta in its blends due to the rally in arabicas.
"As the arbitrage narrows, it makes natural sense that they would begin to shift at these levels back into arabica in the future," said one U.S. coffee buyer, who spoke on the condition of anonymity, referring to the difference in price between arabica and robusta beans.
Coffee has been volatile since arabica prices on ICE Futures U.S. more than doubled over 11 months to above $3 per lb in May 2011 as speculators piled into the market.
The rally pushed the arabica premium on the futures market over robusta to nearly $1.90 per lb in 2011, well above the premium that ranged between 35 and 85 cents in 2009 and 2010. In March it dropped to around 35 cents, the lowest level in four years, and a level many dealers consider historically normal.
While several coffee dealers expect the premium will drop further to 20 cents, others anticipate it will rise. On Tuesday, the premium sat around 45 cents.
So far the switch in beans is limited in scale. A blend change is easier for instant coffee makers or small roasters than the large roasters, several coffee buyers said.
Analysts said arabica's premium would need to be around 35 cents for months before larger roasters would adjust their blends, a process that involves extensive research to ensure the taste profile isn't significantly altered.
"I don't think we're at the point where we can definitely say there's massive shifting happening, but incrementally we have to believe that it's happening behind the scenes," the U.S. buyer said.
Americans drink more robusta
While U.S. instant coffee consumption has flatlined, Americans are drinking more brewed coffee made from robusta beans, adding to mounting pressure on global supplies.
Total consumption of robusta in brewed coffee climbed by 7 percent in the United States in 2012, up from 3.9 percent growth in 2011 and 3.6 percent in 2010, according to StudyLogic, a U.S. market research firm.
This compares with a small 1.9 percent climb in demand for brewed arabica in 2012, versus a year-over-year increase of 4.1 percent in 2011 and 5.4 percent rise in 2010.
Global robusta exports jumped a whopping 24 percent to 46.6 million 60-kilogram bags in the 2012 calendar year, versus 2011, while arabica exports dropped by 0.8 percent to 66.5 million bags, International Coffee Organization data showed.
Several U.S. importers have said they are concerned about securing robusta supplies later this year, with one wondering if he will have problems as early as August if demand continues to climb at its current pace.
"There's too much demand for coffee. At the rate we're going, I don't know how that's going to be met," said COEX's Alvarez.