Apr 4 / Laleska Moda

American tariffs: New challenges for the coffee market

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  • While agents await new developments on the supply side, with the 25/26 Brazilian coffee harvest approaching, the commodity market has been shaken by the new tariffs imposed by the US government this week.

  • On the coffee side, the list of affected countries includes major producers of the commodity, some of which will be subject to the basic 10% tariffs, such as Brazil and Colombia, while others are on the list of "worst offenders", such as Vietnam, which could face tariffs of up to 46% on its products.

  • In addition to producing countries, some countries or regions that export processed coffee, such as the European Union, could also be affected by Trump's tariffs, which could lead to changes in the commodity's trade flows.

  • The news comes at a time when US coffee imports are recovering. Given that the tariffs could lead to a further increase in coffee prices for Americans, the country's imports (and demand) could be at risk throughout 2025.

  • At the same time, the difference in tariffs between regions could lead to changes in coffee trade flows around the world, as the US is the largest consumer of the bean.

American tariffs: New challenges for the coffee market

This week, the market was impacted by US President Donald Trump's announcement of new tariffs on various economies around the world. For coffee, the news comes amid a delicate supply and demand scenario. On the one hand, stocks are low in both consuming and producing countries, and supply is constrained by expectations of a slump on the Arabica side in Brazil, with traders anxiously awaiting the start of the country's 25/26 harvest. On the other hand, the market remains alert to demand developments, with higher coffee prices potentially leading to a reduction in consumption in several countries.

The prospect of taxes on major coffee exporters in the world's largest coffee-consuming country has added further uncertainty to the market and could affect both demand and the commercialization of the product. Considering only the most important markets for coffee, the proposed tariffs could affect both coffee-producing countries and exporters.

US: New Tarrifs – Coffee Markets

Source: Refinitiv, Hedgepoint

On the producer side, it is interesting to note that base duties of 10% could be imposed on most Arabica coffee producers, as in the case of Brazil, Colombia, Peru, most Central American countries and East Africa. While this should lead to higher prices for coffee in general, a uniform tax across countries could mean little change in the competitiveness of these origins due to this specific factor.

Robusta, on the other hand, is expected to face high taxes in both Indonesia and Vietnam. In the case of Vietnam, a tax of 46 per cent could be levied on the country's production, while in Brazil, Conilon could be taxed at just 10 per cent. This factor is important when looking at the share of these origins in US imports of Robusta/Conilon coffee: despite Brazil's growing share of imports on 24/25 - a reflection of lower supply in Vietnam - the Asian markets generally contribute with most of the Robusta coffee imported into the US.

With Asian coffees potentially more expensive due to taxes, US demand for coffees from origins such as Brazil and Uganda - which would also have lower taxes- could increase. On the other hand, a potential reduction in US demand for Asian coffees could lead to greater availability of these beans for other destinations.

In addition to producing countries, European Union countries that export processed coffee are also in the tax net. As many of these countries also export coffee to the US, we could see a change in dynamics in the coming months. Again, it's interesting to note the difference between the EU's tariff levels and those of, for instance, the United Kingdom, which is also an exporter of processed coffee.

USA: Share of Imports by Origin (%)

Source: U.S. International Trade Commission, Hedgepoint

USA: Share of Imports by Origin of Robusta/Conilon (%)

Source: U.S. International Trade Commission, Hedgepoint

Beyond trade flows, however, the biggest impact of the US tariffs is likely to be on domestic demand. So far, US import data has shown a recovery in coffee imports in the 24/25 crop compared to the 23/24 season, but it is uncertain whether this movement will continue in the current scenario. As mentioned in previous analyses, the sharp rise in coffee prices since the end of 2024 has already raised concerns about the possible destruction of demand at the global level.

In the US, the Consumer Price Index (CPI) for coffee has risen for all coffee grades since the end of 2024, reaching its highest level in February this year. With the new taxes imposed by the US government, the trend is for prices to rise again. Not just coffee, but other commodities could also rise in the coming months, increasing the cost of living for Americans, as fears of an economic recession grow. The tariffs are also increasing the chances of a trade war, with some countries already signaling retaliation against the US tariffs, such as China, which announced an additional 34% tariff on US products on Friday, the 4th. In this scenario, the likelihood of a drop in coffee consumption in the world's largest coffee-consuming country increases.

USA: Coffee Imports (M bags)

Source: U.S. International Trade Commission

USA: Consumer Price Index (CPI) - Coffee

Source: US Bureau of Labor Statistics

In Summary

The market was shaken this week by the announcement of new taxes imposed by the US government on various countries. The prospect of taxes on major coffee exporters in the world's largest coffee-consuming country added further uncertainty to the market and could affect both demand and commercialization of the product.

The taxes are expected to affect not only producing countries but also exporters of the processed product, which could lead to changes in US (and global) trade flows, especially given the different rates applied in different countries. While some countries may be taxed at 10 per cent, others may see their products taxed at higher rates, as in the case of Asian markets.

Beyond the impact on trade flows, however, the taxes are raising concerns about demand in the world's largest coffee-consuming country. The US CPI for coffee, which has already been rising more strongly since the end of 2024 due to the general increase in coffee prices, is expected to rise further in the coming months due to the expected increase in product costs due to the new taxes. In addition, global tensions are rising over a trade war, with some countries already retaliating against the US president's actions, which warn of a possible recession in the US economy. Against this scenario, the likelihood of a decline in US demand for coffee by 2025 is also increasing.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Lívea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

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