Coffee is Making you Broke and Xmas isn’t Helping

Coffee drinking might be the most common habit people have. Have you ever thought about how much non-coffee drinkers save? This piece is going to look at monthly transactions and expenses for three different price levels of coffees: cheap, average and expensive. Every month, people are spending more on expensive coffee and less on average-priced coffee.

Even if you’re not a java junkie,  you probably just ended up inviting a friend for coffee.  But if you regularly guzzle it, have you ever made an estimate of your monthly expenses on java?

There can be huge variations between the “standard” amounts of coffee consumed by most people. That means how much we really spend on coffee each month remains a puzzle. In a study by Amerisleep (2018), 1,008 coffee drinkers were asked about their coffee drinking habits. 79 % of coffee drinkers stated they consume at least one cup on a daily basis, even though 12% of those daily drinkers believed that caffeine is “damaging to their bodies”. One of the most interesting insights from this study is that millennials spend more on coffee than any other age group.

There is no doubt that demand for coffee has always been solid. The International Coffee Organization estimated that 11.2 million bags of 60kg of coffee were distributed all over the world in August 2018, or 5% more than the previous month.

Some countries drink more cups of coffee per day than others. The Finns, for example, grind their way to the top of the ranking through an impressive 12kg per person per year, according to stats from the International Coffee Organization (ICO, 2018). In the same ranking, the Netherlands scores quite high with the average Dutch drinking 1.84 cups of coffee per day.

If millennials and the Dutch like coffee, it does not take a math wizard to conclude that the Dutch millennials love drinking coffee. But how much do students actually pay for coffee? The following data comes from the Netherlands’ biggest student city of Utrecht. It covers coffee consumption at small kiosks next to university campuses from October 2017 until September 2018.

Data and Insights

When it comes to good coffee, those who appreciate it are willing to pay a little bit extra and that makes price a pretty good measurement of quality. For that reason, looking at coffee by price brackets might be a more insightful picture.

We define cheap coffee as any coffee sold below one euro, average coffee as any priced between one and three euros, and expensive coffee as any sold above three euros.

Let’s start by looking at transactions. How many cups of coffee were consumed each month during the last year on the university campuses of Utrecht?

Figure 1: Coffee transactions in Utrecht by monthimage (18).png

On average, 4,000 cheap coffees were sold each month, followed by 10,000 average-priced coffees and 45,000 expensive coffees per month. On average, a total of 60,000 coffees are consumed each month with a spike in the months of October through December.

How about expenses? How much do non-coffee drinkers save? The figure below  shows that cheap coffee drinkers spend around €25 each month on coffee. The average coffee drinkers fork out €78 and the biggest coffee snobs splurge €110.

Figure 1: Coffee expenses in Utrecht each monthimage (19)

What is striking about the figure above is that monthly expenses on average-priced coffee have decreased by 25%, while those on expensive coffee have increased by almost 10%.

This can be seen from a drop in demand for average-priced coffee from January onwards while demand for premium coffee rises.

It could be the case that the price of average coffee went up during the last year and exceeded the threshold of three euros. Keeping in mind how difficult it is to switch to a different type of coffee, the sales boom of pricier coffee should not come as a surprise.

Download the full report: Coffee is Making you Broke and Xmas isn’t Helping

Extreme Weather Isn’t Small Potatoes for Agricultural Companies

Western Europe has seen an unusual heat wave during the past month due to hot air coming up from North Africa. Extreme-weather events frequently drive agricultural production fluctuations, increase price volatility, and create uncertainty on agricultural commodity markets. We can quantify this impact using the share prices of agricultural firms in the Netherlands, the world’s second largest agricultural exporter valued at nearly €92bn last year, behind only the US. Our data shows serious concerns about food production due to the heatwave and drought. Put simply, smaller potatoes are not small potatoes for share prices of major agricultural players.  

 The unusually warm and dry summer so far has provoked forest fires in Europe from Greece in the South to the Arctic Circle in Northern Sweden. According to the United Nations Regional Information Centre for Western Europe, 85% of the area burned in forest fires in Europe is in major agriculture exporting countries in Southern Europe, like Croatia, France, Greece, Italy, Portugal and Spain (UNRIC, 2018).

An article funded by European Commission Research Centre on Sustainable Resources, Chatzopoulos et al. (2017) posits that weather events affect commodity markets through a two-fold impact on crop production. The direct effect is biophysical and pertains to yield reduction when crops are hit by extreme weather at critical developmental stages. The indirect effect boils down to altering the efficiency and perhaps the timing of input application. This two-fold impact dictates fluctuations in production and stock-to-use ratios as well as price volatility at least in the short run.

A crop shortfall is a relevant short-term consequence with corresponding long-term implications for both area (planted or harvested) and intensity (number of crops grown within a period of time).

While simulation models of regional agriculture typically assume normal weather in deterministic scenarios, the current heatwave has thrown out production forecasts.  This has had a strong downside impact on agricultural firms.

At its most basic level, if investors observe that supply in commodities market is limited and profits are impacted, they foresee a fall in the earnings potential of the stock, which in turn reduces demand for the stock, resulting in lower prices.

If we define extreme weather by extreme temperatures, then days with average temperature below -2˚Celcius and above 23˚Celcius are considered extreme in the Netherlands. Since end of May 2016 until today, there are 52 extreme days registered in the Netherlands. The following table gives information about the average share price of three agricultural corporations – For Farmers NV, Wessanen NV and Amsterdam Commodities NV in normal days and extreme days since the end of May 2016.

Table 1: Average share prices of the three corporations: For Farmers NV and Amsterdam Commodity NV and Wessanen NV in normal and extreme weather

  Average Share Price
Extreme Weather 15.21
Normal Weather 15.45

As it can be noticed in the table above, the average share price for both of these corporations is slightly lower in days where weather is considered to be extreme. This effect can be observed in Figure 1 below where the share prices of both of the agricultural corporations started to go down once the average temperature started to exceed 23˚C in Mid-July 2018.

This effect is especially visible in the extremely warm days of the second last week of July, when temperatures hit a high of 28˚Celsius and the average share price of the basket hit the second low in 3 months of 14.17, to be followed with the yearly lowest on the 2nd of August of 14.02. Even though average temperatures are starting to get normalized, the confidence in earnings potential will take a bit longer to mature.

Figure 1: Stock prices of the basket average (For Farmers NV, Amsterdam Commodities NV, Wessanen NV) and average daily temperature in Amsterdam. 

image (1)

The claim above is not only true for the upper extreme temperatures. When compared to the average daily share price of the two commodities above since end of May 2016 which is 15.45 the average share price in extremely cold days is 15.25. Frozen ground and colder temperatures can affect planting, which has a direct impact on the commodity production and subsequently on investors’ confidence about performance in the agricultural sector.

This report looked at the possible impact that extreme weather has on share prices of a basket of agricultural corporations in the Netherlands. The link between the two can be approached through the lens of current and future low crop production which in turn affects corporations profit and sales. It becomes clear that July’s high temperatures and the lower share prices raise concerns about agricultural production in the Netherlands.

Download the full report: Extreme Weather Isn’t Small Potatoes for Agricultural Companies