The Dragon in the Room

November 14, 2015

Coffee in Asia-Per Capita Demand Growth in coffee consumption has been strong on solid economic expansion.

Per Capita Consumption

Per Capita Demand KG

Japan 3.80

Costa Rica 3.66

Hong Kong 2.46

South Korea 2.35

Singapore 2.16

Vietnam 1.97

Thailand 1.67

Malaysia 1.64

Laos 1.63

Philippines 1.53

Taiwan 1.34

Indonesia 1.14

Burma 1.00

India 0.10

Sri Lanka 0.08

China 0.06

Pakistan 0.01

Nepal 0.01

Afghanistan 0.00

Bangladesh 0.00

Coffee in Asia – Demand Share The region now accounts for nearly a fourth of global coffee consumption.

EU-28 27%

Other Europe 6% Total North America

18%

Asia 23%

Africa 7%

Latin America 19%

Share of Coffee Consumption - Four Year Average

Coffee in Asia - Demand However relative to the population, the consumption is still very low.

Europe 10%

Americas 13%

Asia 61%

Africa 16%

Share of Global Population

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

KG/Y

Per Capita Use by Region, 2015

Europe

Americas

Africa

Asia

Global Demand

0%

1%

1%

2%

2%

3%

3%

4%

80

90

100

110

120

130

140

150

160

98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15

Mio Bags

Total Consumption

Growth Rate (RHS)

The global rate of demand growth has averaged 2.3% since 98/99.

Next Decade Mio Bags

With 2% growth 29.0

High 2.5% 37.9

Low 1.5% 21.9

Growth in Demand Incremental global demand growth on an annual basis. Asian share of growth has increased from 6% 15 years ago to nearly 60% in 15/16.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

Mio Bags Latin America

Africa

Asia

Total North America

Other Europe

EU-28

Asian Coffee - Production The production of coffee has also increased rapidly in Asia.

0

20

40

60

80

100

120

140

160

180

60/61 70/71 80/81 90/91 00/01 10/11

Mio Bags

Production by Region

C. America S. America

Africa Asia

Coffee Producers

Asian Coffee Balance A consistent surplus (based in Robusta), and one that is trending higher despite the growing demand.

-

5

10

15

20

10

15

20

25

30

35

40

45

50

55

99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16

Mio Bags Balance (RHS)

Demand

Production

Asian Economic Growth Asia will remain the growth engine for the global economy

0

1

2

3

4

5

6

7

8

DevelopingEurope

East Asia Latin Americaand the

Caribbean

Middle Eastand N. Africa

South Asia Sub-SaharanAfrica

High-incomeeconomies

Real GDP % Growth (IMF)

2013

2014e

2015f

2016f

2017f

China The world’s largest country and second largest economy is 15th in coffee production, and in absolute terms is 21th in consumption.

Map; ICO

China - Trade In the past five years mainland trade is up, 125% for imports and 85% for exports. .

-1,500

-1,000

-500

0

500

1,000

1,500

Dec-04 Jan-06 Feb-07 Mar-08 Apr-09 May-10 Jun-11 Jul-12 Aug-13 Sep-14

'000 Bags

Green Bean Roasted

Soluble Roasted Imports

Soluble Imports Green Bean Imports

Net Trade

China - Trade

Vietnam 67%

Indonesia 18%

United States

4% Brazil

3%

Colombia 1%

Italy 1%

Others 6%

Imports

Germany 40%

Malaysia 12%

Belgium 9%

France 5%

Vietnam 3%

United States

8%

Others 23%

Exports

Import partners suggest Robusta makes up the majority.

China - Demand The market is dominated by soluble mixes, but with a small and growing fresh coffee business.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

09/10 10/11 11/12 12/13 13/14 14/15

Mio Bags

Soluble Fresh

Per Capita Coffee Demand On a per capita basis China barely registers.

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

01/02 03/04 05/06 07/08 09/10 11/12 13/14

Costa Rica

Japan

Hong Kong

South Korea

Vietnam

Thailand

Malaysia

Philippines

Taiwan

Indonesia

India

China

Per Capita Consumption The per capita consumption of the urban population gives a better picture of demand.

-

0.05

0.10

0.15

0.20

0.25

0.30

01/02 05/06 09/10 13/14

China (Urban) China

Per Capita GDP

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14

GDP Per Capita Current Prices (IMF)

China

Hong Kong

Japan

South Korea

Taiwan

China also below major coffee consumers in GDP

Per Capita GDP and Coffee Demand

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0

2000

4000

6000

8000

10000

12000

14000

1999 2001 2003 2005 2007 2009 2011 2013

Mio Bags

GDP per capita, PPP(current international $)Coffee Demand

The relationship between economic growth and coffee consumption is clear.

R² = 0.97

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0 500 1,000 1,500

Population and Coffee Demand The growth in the urban population and the growth in coffee consumption also has had a strong relationship in the past 15 years.

R² = 0.97

0

200

400

600

800

1,000

1,200

1,400

1,600

150 200 250 300 350

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

150

200

250

300

99/00 03/04 07/08 11/12

Mio Bags

Demand Outlook Demand at 3 mio bags in 2025 represents an increase of 126% from current levels. This would be 11th in consumption today (the size of the UK).

0%

5%

10%

15%

20%

25%

30%

35%

96/97 99/00 02/03 05/06 08/09 11/12 14/15 17/18 20/21 23/24

China GDP % Growth (OECD)

0%

5%

10%

15%

20%

25%

00/01 05/06 10/11 15/16 20/21

Urban Population Growth

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

99/00 03/04 07/08 11/12 15/16 19/20 23/24

Mio Bags

China Demand

Demand (GDP)

Demand (Pop)

Production

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0

10

20

30

40

50

60

1996 2000 2004 2008 2012

Tho

usa

nd

s

Thousand HA

Area harvested

Production (RHS)

Output has increased 300% in the past ten years as area has grown 200%. Further production growth in the short term is likely as new area comes into production. However, the cost of production is relatively high, and further area expansion will have to be at the expense of other crops (tea). For further growth government support will likely be necessary. Quality improvements may result in more of the local crop being used for fresh coffee consumption.

Keith Flury Head of Coffee Research

ED&F Man Holdings Limited

Cottons Centre, Hays Lane, London, SE1 2QE Direct: +44 (0)20 7089 8357 Mobile: +44 (0)7912 083547 Keith.Flury@edfman.com | Skype: keith.flury | www.edfman.com

Thank you

Disclaimer

• The opinions, views and forecasts expressed herein reflect the personal views of the author and do not necessarily reflect the views of Volcafe/ED&F Man.

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