INSIGHT SPECIAL: ROBUSTA DEMAND

COFFEE DIVISION OF ED&F MAN

October 2013

1 INSIGHT SPECIAL: ROBUSTA DEMAND

There was strong, price-driven, robusta demand growth in European, North and Latin American coffee markets in and around 2012, as the spread between arabica and robusta prices remained at historical highs for a long period of time. This robusta demand growth in these markets should either flat-line or reverse in coming seasons. But, there is continued robusta popularity in the soluble-focused non-traditional coffee markets in Asia and East Europe. Let’s take a look at our expectations for robusta demand worldwide, and what defines this distinctive coffee.

Henk van Geurp Robusta Trader, Volcafe Winterthur

RobusTa aT a Glance • Comparedtothetasteofarabica,roastrobustahasstrongerbody,bitterflavour, andlowacidity.

• Robustatendstobeasmaller,moreroundedbean,withalighterweight.Arabica generallyhastoberoastedmoredarklythanrobusta.

• Inablendofroastedarabicaandroastedrobusta,somefactoriesroastthe beansseparatelythenblendtheroastedcoffee,whileothersroastallthebeans atsametime.

• Whenconvertinggreenbeantosolublecoffee,theyieldisbetterforrobustathan forarabica.

• RobustaisusedmorethanarabicaintheBraziliandomesticblend.Infact,Brazil isbyfarthelargestsingleconsumerofrobusta,usingmorethantriplethevolume ofthenextbiggestsinglerobustaconsumingcountry.However,thebiggestrobusta growthmarketsareinAsia.

• Therehasbeenastrongtrendinrecentyearstoupgradecommercialrobusta qualities,bytheseparationofblacks,andbythewet-polishingprocess.Indiais thebiggestproduceroffully-washed(parchment)robustas,andthisprocesshas startedtogrowinpopularityelsewhere.

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20

10

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4.4 5.6 5.2

18%SHARE OF REGIONAL BLEND:

21% 18%

The North American market is a much smaller robusta market than its European counterpart, but it also saw a switch to robusta (and corresponding fall in arabica demand) through 2012. Unlike Europe, the North American coffee market is growing in volume overall. Due to consumer trends and to a lesser extent price trends, we expect robusta demand to fall markedly in coming seasons.

NORTH AMERICA

Although Mexico is a sizeable robusta consumer, the main robusta market in this region is Brazil. There was a large swing (>10%) towards domestic Brazilian robusta usage recently, and we expect some of this swing to reverse, due to price. The domestic blend in Brazil is in our opinion the most price-sensitive (basis arabica /robusta spread) in the world.

LATIN AMERICA

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11.1

14.9 13.6

41%SHARE OF REGIONAL BLEND:

51% 43%

Around half a million bags (green bean equivalent) of soluble are consumed within Africa, and the balance is roast coffee. We believe the percentage of robusta in the overall blend is pretty stable.

AFRICA

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4.7 5.3 6.2

60%SHARE OF REGIONAL BLEND:

60% 60%

Western Europe has always been fond of robusta, especially the Mediterranean countries where blends contain up to 60% robusta. Regionally however, the average blend was always around one- third robusta. In 2012, many arabica consumer products rose in price due to the costs of the raw beans. Roasters across the whole of Europe then started to offer cheaper products with heavier robusta content.

Price-conscious consumers did not buy less coffee, they just bought more robusta-heavy products. Thus the robusta percentage in the national blend rose to 40%, and arabica demand fell, for the first time in fifteen years. With current price expectations, we believe the level of robusta in the blend will decrease again in coming seasons, but only by a little, and not back to the original one-third level.

WEST EUROPE

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13.415.1 14.8

35%SHARE OF REGIONAL BLEND:

40% 39%

Asia has been the biggest regional consumer of robusta coffee for at least three years, and it promises to outpace every other region in the near future. Soluble coffee is the preferred segment in these markets, and for this method, robusta is king (as long as the supply is there). There are some heavy arabica users in Asia/Middle East (Japan, Korea, Australia, Turkey, Saudi Arabia etc) but the major growth markets are robusta markets, and thus the robusta percentage in the regional blend continues to increase.

ASIA/MIDDLE EAST

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15.5

20.1

25.0

61%SHARE OF REGIONAL BLEND:

65% 68%

Eastern Europe is a similar story to Western Europe, but with higher levels of robusta in the blend in the first place.

EAST EUROPE

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4.6 5.5 5.5

41%SHARE OF REGIONAL BLEND:

48% 46%

ROBUSTA DEMAND(mio 60 kg bags)

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Disclaimer: Any comments or opinions in this report are not intended to be an offer to buy or sell commodities or futures and options thereon as they merely state our views and carry no guarantee as to their accuracy. ©2013 VOLCAFE LTD.

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Ifyouhavenotreceivedthisreportdirectly,andyouwouldliketobeaddedtothedistributionlist,pleaseemailKirstyMacGregoratkmacgregor@volcafe.ch

comment: For the whole of 2011, spot robusta was at least 120 cents/lb cheaper than spot arabica.

comment: Global robusta demand continues to grow, even assuming a switch back to arabica in the Americas and parts of Europe, due to the strength of Asian demand.

Global demand by Type of coffee

pRice diffeRence beTWeen RobusTa and bRazilian sun-dRied aRabica(ICO INDICATORS)