The economic toll of the Dec. 26 Indian Ocean tsunami is just beginning to become clear, but the disaster may have an effect on exports of coffee to the United States, the top consumer of the world's second-largest export, a product consumed by 52 percent of the U.S. population every day.
A survey of coffee retailers, trade specialists and analysts reveals reactions from the rosy to the cautiously optimistic. Some, though, expressed more dire concerns about the potential for higher coffee prices and decreased availability in the lucrative U.S. market.
Indonesia and Sri Lanka are two of the countries hardest hit by the disaster, which has so far taken more than 162,000 lives. Those countries are major suppliers of coffee (Indonesia is the world's fourth-largest coffee producer) and tea (Sri Lanka is the world's third-largest producer, behind India and China, according to United Nations statistics).
But with the scope of the disaster still playing itself out, and relief efforts still gathering steam, executives at some U.S. coffee and tea companies and trade organization representatives can't predict the impact on the caffeinated bottom lines — or what it all means for the prices that consumers pay at the cup.
Some U.S. companies have been comfortable about speculating on the disaster's economic impact; others less so. On Dec. 29, responding to an interview request, Starbucks released a statement expressing confidence in availability of the company's products from Sumatra, Indonesia, the center of the catastrophe.
“Regarding our supply chain, we do not believe that there will be an impact on Starbucks supply chain and are confident in the short- and long-term supply of Indonesian coffee,” said the statement — one the company reiterated without elaboration as recently as Jan. 11.
Starbucks, however, had no comment on whether prices for products from the affected regions would remain steady for U.S. consumers. The Seattle-based coffee giant had already raised its prices in October, including prices for its Sumatra brand, among its top-selling coffees.
Other companies have adopted a position reflecting anticipation of some change in south Asia's coffee production — changes they expect from the tsunami itself; from the displacement of millions of people; the effect on roads, bridges and other infrastructure; and the potential for air- and water-borne disease.
For Stacy Marshall, co-owner of Grounds for Change, a Washington-based coffee company, some impact on the industry is inevitable; the big uncertainty is when that impact would occur.
Dire price forecasts
“It makes sense given how organic the process is,” said Marshall, whose 2-year-old company specializes in fair trade coffee produced by small independent farmers. “We're not really going to see the full implications of this for months, or even years, to come.”
And higher tsunami-related prices may be the “two” of a one-two punch: Based on rising worldwide demand and smaller 2004 crops from two other major coffee producers, Brazil and Vietnam, prices were expected to go up even before the tsunami hit.
Some coffee producers didn't wait for disaster. On Dec. 9, Procter & Gamble Co. announced a 14 percent price increase for its Folgers roast and ground coffee, the biggest rise in a decade, because of sustained increases in the cost of raw coffee.
Peter Longo, owner of Porto Rico Importing, a New York-based coffee roaster and retailer, told Bloomberg News that Sumatran coffee was selling — to retailers — for $1.84 a pound before the tsunami. “I would think after this catastrophe ... we may see Sumatran coffee at $4 or $5 a pound,” Longo told Bloomberg. Sumatra accounts for about 70 percent of Indonesian coffee production.
The impact on the infrastructure is still largely unknown. “The condition of those roads has not been competently assessed,” said Wayne Forrest, executive director of the American-Indonesian Chamber of Commerce.
“The tsunami hit the coast, but there were earthquakes in other parts of Aceh,” said Forrest, referencing the aftershocks that have plagued the region since the Dec. 26 disaster. “They may not have caused the same loss of life, but the factories and the infrastructure were affected.”
“Right now, we're pretty sure there’ll be no impact on coffee itself,” said Mike Ferguson, chief communications officer for the Specialty Coffee Association of America (SCAA) a California-based trade association. “If there is an effect, it will be on the infrastructure — and getting coffee out of the country.”
While much of the damage done by the tsunami largely left farms and plantations in affected countries untouched — since many are located inland and at higher altitudes — the bigger problem may be one of worker power. Exporters face a critical manpower shortage brought on by the estimated 5 million people made homeless in the region by the tsunami, at the start of the four-month rainy season.
“If there aren’t people to pick the beans or pluck the tea leaves, you're gonna have a problem,” Longo of Porto Rico Importing told MSNBC.com.
Effect on U.S. workers, share prices
SCAA figures estimate that the coffee industry directly employs 150,000 people in the United States, with another 1.5 million people who rely more indirectly on the trade for their livelihoods. But it's now thought that the tsunami’s impact on workers in related jobs in the United States will be slight.
“If there's any effect at all on the American coffee industry, it will be minimal and likely confined to delays in shipments of Sumatran coffee,” Ferguson said. “Delays do not appear likely, but we're still waiting for good assessments.”
Whether the tsunami had an effect on coffee retailers’ share prices is an open question; some stock analysts dispute there is any connection. But market-share leader Starbucks, for example, saw its share value soar consistently throughout 2004, from $33 to $63.87, on Dec. 29.
Since that date, Starbucks shares dropped to $56.21 — a decline of about 12 percent in just under three weeks.
Diminishing the human impact
Beyond gauging the impact on the industry and their share prices, retailers are also looking at the effect on the people in the affected area. They've pitched in with donations, both as a natural human response and an expression of the personal relationship between growers and retailers.
Within days of the tsunami, Starbucks made a contribution of $100,000 to two relief organizations, CARE and Oxfam UK, and committed to donate $2 for every pound of Sumatra whole bean coffee sold in its stores in the United States, Canada, the United Kingdom, Australia and Germany. Other coffee roasters and sellers are engaged in similar donation programs.
“One differentiating characteristic of the specialty coffee industry [is] the relationship we maintain with people at coffee's origin,” said Ferguson of SCAA. “Needless to say, there are many roasters and importers concerned about the well-being of their friends.”
“The thing that's most important is the health and safety of the people,” said Marshall of Grounds for Change. “Something of this magnitude has disrupted families and communities. Many of the growers sent their children to Banda Aceh [in Indonesia] to go to school....
“All of that plays a part in what the outcome is going to be,” she said. “It's so unpredictable. I don't have an answer. I don't think a lot of people have an answer.”
Upsides to tragedy?
Forrest thinks the vast geographic sweep of Indonesia — an archipelago of about 13,500 islands, with 300 registered ports and 443 airports — may actually work to its advantage. “Indonesia is so big, and there were so many islands and so many ports that were not affected,” he said. “The place is so huge. From Aceh to the western islands, it's like you're going from L.A. to New York City,” he said.
Perhaps because the country is so spread out, Forrest said, there have so far been no casualties reported among coffee workers. “We don't have reports of deaths according to people I've talked to in the interior,” he said.
And for Judy Ganes of J. Ganes Consulting, a New York-based commodities analyst, a tragedy of biblical proportions may yet have an economic upside, by providing jobs for many of the 2 million people, half living in Indonesia, that the Asian Development Bank warned will be impoverished by the tsunami. The United Nations says 500,000 lost their livelihoods in one province of Sumatra alone.
“So many people are homeless and in need of work,” Ganes said. “People want to restart their lives. When it comes to cash crops and countries in desperate need of money, people will gravitate to where the jobs are. Certainly one area where there could be work is in picking coffee beans for harvest.
“When a country's in need, they’re going to turn to the industries they have,” she said. “People might well move from the coast to the mountains, and that's where the coffee is.”