Written by CIO – Oliver Hanke
A recent report by the Climate Institute puts half of the world’s area for coffee production at risk, which would dramatically impact the livelihoods of more than 120 million of the world’s poorest people who rely on the coffee economy. The world’s biggest coffee producers see climate change as a real and severe risk to the industry. Consumers will feel the impact on flavour, aroma and prices.
Increased temperatures will simply push areas suitable for production up and the higher temperatures and changing rainfall patterns see coffee pests spreading into new areas.
How climate change will impact coffee growers in coming decades varies drastically by region and requires targeted strategies. Nicaragua, for example, an economy where coffee represents around one-quarter of agriculture revenues, already feels the impacts and could loose up to half of its coffee-growing areas. A study in the region from the International Centre for Tropical Agriculture (CIAT) shows the high vulnerability of coffee to climate change due to its sensitivity to temperature changes and some very specific rainfall requirements.
With temperatures in Nicaragua expected to increase on average by 1.0°C by 2020 and by 2.3°C by 2050, and with rainfall expected to decrease 70-100 mm by 2020, and 100-130 mm by 2050, this will have a major impact on Nicaragua’s coffee exports and livelihoods in rural areas.
Jinotega and Matagalpa, the Nicaraguan districts where coffee has historically been the “currency” among farmers, now represent the most vulnerable areas to these changes in climate. In Jinotega coffee production is expected to drop by 20 per cent, with climate change being one of the main causes. Some local cooperatives already report that 60 per cent of the coffee plantation area is damaged because of rust diseases, in part caused by increased temperatures.
It is estimated that by 2050 coffee growing areas will move approximately 300 metres up the slopes and push farmers at lower altitudes out of coffee production, increase pressure on forests and natural resources in higher altitudes and jeopardise the actors along the coffee supply chain.
During my recent visit to the region I visited a number of coffee farms and spoke to small producers and cooperatives to better understand the impact and strategies for support farmers to adapt to these challenges. For many farmers in the lower lying production areas it has become obvious that they cannot depend only on one crop alone. Cocoa for example is more adaptive and robust in more variable climate patterns – it simply deals better with draught and heavier rainfalls. But cocoa is not the whole solution. Coffee farmers need support to shift towards resilient practices such as new shade-grown coffee varieties as well.
The main purpose of my visit was to see the work in the field of Naturebank’s new strategic partner TakingRoot who work since 10 years with Nicaraguan small producers in improving productivity and increasing household income by helping to achieve higher prices for their products and tapping into new revenue sources.
Introducing high-yielding rust resistant coffee agroforestry systems at higher elevations is seen as a key mitigation strategy and we will jointly work on expanding those activities and also to finance more cocoa production at lower elevations as a risk diversification instrument.
For investors seeking exposure to agriculture production and processing this poses threats but also offers interesting opportunities. With coffee consumption at an all-time high (two billion cups of coffee are drunk around the world every day and global coffee consumption is expected to grow 1.2 per cent over the next year) and long-term supply under severe threats, investment in sustainably-produced premium qualities can be an attractive investment and diversification strategy with little correlation to financial markets.
So for investors interested in exposure to sustainable commodities the conclusion must not be to shy away but to embrace climate-smart agriculture investments with higher resilience, prepared for the challenges ahead. If you want to learn more about this topic – please contact me or have a look at www.naturebank.com for more information.