December 3, 2014 / 9:09 PM / 3 years ago

Cheaper beans set to dominate as Asians thirst for instant coffee

A vendor sells drinks using packets of instant coffee from a stall on a street in central Jakarta November 27, 2014. pensive Arabica by the end of the decade. Picture taken November 27.Darren Whiteside

MUMBAI/SEOUL (Reuters) - Mumbai civil servant Sachin Kenjale regularly ends his day with a steaming cup of instant coffee after trying the drink for the first time with friends around two years ago.

Typical of the growing thirst for quick and cheap coffee sweeping parts of Asia traditionally considered bastions of tea drinking, industry officials say that kind of demand will push the market share of the robusta beans used to make instant powder above more expensive arabica by the end of the decade.

Reaching that milestone would underscore a major market shift, with robusta's popularity soaring as increasing wealth prompts more people in emerging nations to start drinking coffee, a boon for key growers of the bean such as Vietnam and Indonesia.

But arabica farmers in Latin America and East Africa fear the ascent of the cheaper robusta bean could take the edge off growth in demand for their crops, which are more difficult to cultivate but typically yield a less-harsh and more aromatic brew often favoured in Europe and North America.

"Robusta coffee production has grown every year, and it will continue to grow. But I think it would be a less wonderful world if we didn't have arabica coffee still with us," said Ric Rhinehart, executive director at trade body the Specialty Coffee Association of America.

Global coffee demand will climb to 175 million 60 kg bags by 2020 from almost 150 million now and under 120 million in 2005, according to forecasts from trade body the International Coffee Organization (ICO). That would be worth over $50 billion at current prices.

Data from the ICO and International Trade Centre, a World Trade Organization subsidiary, shows increasing appetite for robusta is the main driver for that growth.

And industry consensus is emerging that robusta's market share will rise from its current 40 percent to overtake arabica soon, with a major coffee company and traders telling Reuters that could happen by 2020.

"Robusta's share of global coffee demand will reach 50 percent towards the end of this decade," said a buyer of both robusta and arabica at that global coffee firm.

None of those making predictions wanted to be identified due to the sensitivity of the matter for some suppliers.

"The robusta coffee trend is growing right now because of instant coffee, and low quality coffee," said Samuel Demisse, general manager of U.S.-based arabica dealer Keffa Coffee.

The retail cost of 100 grams of branded instant coffee stands at around $5, while the same amount of arabica can cost $10.

SOCIAL STATUS

Industry officials said the increase in demand for instant is largely coming from Asia's emerging markets, in particular China and India where some consumers are shifting from tea.

Buyers can be influenced by television commercials showing apparently successful and happy people enjoying instant coffee, tacitly equating the drink with social status as food companies look to tap rising consumer incomes.

Growth potential in India and China is huge as current personal consumption is still as low as five cups a year, compared with over 1,000 cups in some European countries.

Kenjale, 35, in Mumbai said he still prefers tea in the morning and that he is currently the only coffee drinker in his family.

Appetite is also increasing in Southeast Asia where Indonesia has seen its exports fall because of rising domestic demand.

While Brazil, the world's biggest exporter, grows both arabica and robusta, other big producers in South and Central America such as Colombia and Mexico are worried about the spread of robusta as they have solely focused on churning out its more expensive rival.

"It is a challenge. We can't compete in price with robusta," said Carlos Ignacio Rojas, head of Colombia's National Coffee Exporters' Association.

Additional reporting by Ho Binh Minh in HANOI, Michael Taylor in JAKARTA, Brian Kim in SEOUL, Elias Biryabarema in KAMPALA and Peter Murphy in BOGOTA; Writing by Henning Gloystein; Editing by Joseph Radford

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