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The old empires of cocoa, coffee and tea are fragile

by SuperiorInvest

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I went to Sainsbury's this week to buy tea bags. It took some time out of my work day, but I had read about a possible shortage and my family hates running out of tea. It turned out to be a false alarm: the supermarket shelves were full of boxes of the product, from PG Tips to Twinings and Tetley Tea.

Tetley admitted last week that his tea stocks were “much tighter than we would like them to be” because ships sailing through the Red Sea are being attacked by Houthi rebels protesting the war between Israel and Hamas in Gaza. There are few production problems in India or Kenya, but tea is taking longer to arrive as container ships divert from the Suez Canal and around the Cape of Good Hope.

My trip backfired, as supermarkets tend to run out of stock more when shoppers panic than because of endemic shortages. But the pandemic and the supply chain inflation that followed have made us nervous. I used to be confident that tea, coffee, rice and cereal would be there without fail, but now it takes discipline to stay calm.

Cocoa could be next. The price of cocoa powder and hot chocolate in UK shops rose by 25 per cent in the year to January (more than that of sweets). Cocoa futures are at record highs because West Africa, where most cocoa comes from, has been hit by extreme weather and crop diseases. Many of the 6 million small farmers who care for cocoa trees around the world are facing difficulties.

The cost of food and drink has risen sharply overall, but the disruption of cocoa, coffee and tea is especially instructive. These drinks were the first products of the empire and the trade routes established by the British East India Company and other adventurous traders. They were first enjoyed as exotic luxuries in the 17th century and then gradually became part of everyday life at home and at work.

The tensions are emblematic of the fragility of globalization and the fluid production and transportation of consumer products from the global south to Europe and the United States. Arabica coffee is back in surplus after a price rise in 2021 due to drought and frost in Brazil, but lower quality robusta beans from Vietnam are in short supply, not helped by problems in the Red Sea.

It is an irony that tea is transported a long way around Africa, rather than through the Suez Canal. It was the opening of the canal in 1869 that ended the “tea races” of clipper sailing ships like the Cutty Sark to carry tea supplies from China westward as quickly as possible. As soon as steamships could shave thousands of miles off the journey, sailing became redundant.

The Victorians used to celebrate the arrival of the new tea from Shanghai to London and prices fell as the clipper ships docked. There's less enthusiasm for soft drinks now: a tea bag is a tea bag and it's easy to forget how far processed leaves have come in branded packets. What was an adventure has become a logistical routine.

But it's time to wake up and smell the coffee. The Suez Canal will likely be able to resume normal operations in time, but a vital trade route will remain a tempting target for attackers. The Panama Canal has also had to limit passages, in its case due to the drought. It is increasingly difficult to guarantee easy and safe navigation for ships that have been loaded with products for our consumption.

It's also harder to fill those containers without fail. Agricultural products have always been volatile, with good growing seasons one year and failures the next. But climate change increases risks and makes it harder for farmers and farmworkers to earn a consistent living. They have less capital to invest in trees and shrubs, and fewer reasons to keep trying.

Cocoa is suffering the effects. It was originally consumed as a drink in England until it switched to solid chocolate in the 19th century. Higher cocoa prices portend the same impact on confectionery later this year. Growing conditions have been so problematic in countries like Ghana and Nigeria that farmers cannot harvest enough cocoa pods from their trees to process them into butter for chocolate makers.

Hedge funds haven't helped by speculating on even higher cocoa prices, but the underlying crisis is real. Even well-intentioned measures can have unintended effects: a new EU law aimed at discouraging deforestation could lead to the destruction of coffee and cocoa stored in European warehouses. The intention is laudable, but the consequences can be perverse for vulnerable African producers.

Few brands selling these products now ignore these things: every box of tea bags at Sainsbury's carried a logo from an organization such as Fairtrade or the Rainforest Alliance. They go to greater lengths than ever before to ensure that life is sustainable for the farmers and plantation workers on whose efforts they and we, the buyers, depend.

But old empires of coffee, cocoa and tea are becoming fragile amid climate change and the disruption of global trade routes. The price of its weakness is already becoming obvious and supermarket shelves may not always be full.


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