Buzz Kill: Europeans Cut Back on Coffee

MADRID—Deepening economic troubles have reached the soul of Southern Europe: the local café.

Across Southern Europe, consumers are forsaking daily visits to the local café as unemployment, wage cuts and higher taxes slash household budgets. Dow Jones's Neena Rai reports. Photo: Getty.

Across the region, consumers are forsaking daily visits to local coffee bars—considered by many to be the cornerstone of social life—as unemployment, wage cuts and higher taxes slash household budgets.

While Europe's per-capita coffee consumption remains the highest in the world, demand for less expensive options is growing. This trend has upended coffee markets, where coveted arabica coffee had traded at a hefty premium to its bitter counterpart, robusta, for more than two years.

Prices for arabica beans have dropped 30% so far this year while the cost of robusta has climbed 18%, moves that traders attribute largely to shifting demand in Europe. Meanwhile, the gap between the prices of the two coffees recently had shrunk to its smallest since July 2009, when the continent's debt problems were developing.

On Wednesday, arabica coffee for delivery in September finished 1.1%, or 1.7 cents, lower at $1.5895 a pound on the ICE Futures U.S. exchange. Robusta on London's NYSE Liffe fell 1.3%, or $28, to $2,081 a metric ton.

Robusta coffee, the less-expensive, easier-to-grow cousin of arabica, is often used in instant coffee and blended into ground coffee to lower the cost. Arabica beans are used in the gourmet blends usually served in coffeehouses.

It is unlikely that European consumers will switch back to more expensive coffee blends any time soon, said James Hearn, head of agriculture at brokerage Marex Spectron.

Prices for the cheaper robusta coffee beans, above, are up 18% this year.

"The blends with higher robusta incorporation are cheaper, and the consumer appears happy with the flavor," Mr. Hearn said.

Nelson Sánchez, a 43-year-old father of three, was laid off from a construction company 18 months ago and considers himself lucky to have found work as a porter in an apartment building in central Madrid. But when his monthly pay fell from €1,500 to €910, his daily visits to the café had to end, he said.

"Before I would go every day. Now I go two days, maximum," said Mr. Sánchez as he carried a replacement light bulb from a local hardware store. "You have to think about the future. You have to think long and hard about how you spend every euro."

Predictably, some coffee drinkers are reluctant to give up their caffeine buzz. Ángel López Castillo, a 67-year-old travel agent, says he still can spare a few euros for his daily ritual.

"We can drink coffee," Mr. López said of his fellow Spaniards. "We just can't buy cars."

Tea, typically a cheaper albeit less potent alternative, isn't expected to gain ground due to Europe's economic woes, said Joe Simrany, president of the Tea Association of the USA, a trade group. Apart from countries like Ireland and the U.K., "tea is not a big player" in Europe, Mr. Simrany said.

While coffee imports across the European Union as a whole were flat in the six months ended April 2012 compared to the year-earlier period, the latest data available from the International Coffee Organization, the figures from the most troubled economies tell another story.

Coffee imports by Spain fell by 6.6% and Italy imported 2.9% less. In more economically stable Germany and France, coffee imports rose 0.4% and 1.3%, respectively, according to the ICO.

Europe imports more than half of the world's coffee produced each year, the ICO says.

Spain has the highest unemployment rate in the European Union, with nearly one-quarter of the labor force out of work. But more austere coffee-drinking habits also are evident in other economically troubled nations like Italy.

"Since the beginning of the year most of our regulars cut their coffees from around four to two a day," said Luigi Cinquini, owner of a café in the center of Milan. "Sometimes, instead of getting a cappuccino or other types of more expensive coffees, they just have an espresso. This is the effect of the crisis."

Traders at major commodity trade houses said they have seen an uptick in demand for robusta coffee. It is a shift from a year ago, when arabica coffee prices rose to a 14-year high and roasters added more robusta to combat the higher costs.

By the end of July, stockpiles of exchange-certified arabica coffee were at their highest level since October 2010, an indication of waning demand. Robusta inventories were at their lowest point since May 2009.

In a report this month, consumer research consultancy Euromonitor International said, "The overwhelming mood of frugality which now dictates the spending habits of many Spanish consumers" will mean Spaniards will look for less expensive alternatives to coffee this year, such as store-name brands.

At El Escudo, a modest café in central Madrid, business is down by 50% over the past year, said owner Juanma Domínguez.

"If business doesn't get better," said Mr. Domínguez, "we'll be forced to close."

From: wsj.com