STiR coffee and tea magazine

24 STiR coffee and tea | 2024 Issue 1 (February / March) B By Judith Ganes anks decide to exit or reduce involvement in commodity trade finance due to regulatory changes, reputational risks, and financial performance. They may exit specific market segments while adapting strategies in response to evolving market dynamics. Credit tightening threatens the coffee trade in the current market, adversely affecting producers as the initial link in the global value chain. There are sig- nals that Dutch lender Rabobank, which closed its commodity trade finance desks in London, Shanghai, and Sydney in 2021 to focus on agriculture commodities, including coffee, may exit the sector soon. Coffee's journey from coffee farms to a coffee drinker's cup involves an intricate network of transactions, risks, and financing. Commodity trade finance is the lifeblood of the coffee industry, enabling its complex supply chain to function efficiently. With- out sufficient financing, the industry would face numerous risks, from supply chain disruptions to financial losses. Banks and trade firms must collaborate, adapt to chang- ing market conditions, and prioritize responsible and sustainable coffee production to ensure the long-term viability of the coffee industry and its financing ecosystem. The coffee supply chain encompasses multiple stages, each involving various stake- holders. The first link is the coffee producer, which grows and harvests coffee cherries with the beans within. Before reaching consumers' cups, the coffee bean must pass through a series of intermediaries, including coffee mills, exporters, importers, roast- ers, distributors, and retailers. Each step in the supply chain requires financing to cover operational costs, manage risk, and ensure timely delivery. The need for financial backing is critical at all levels. Associated risks can occur through the value chain, but especially during periods of increased volatility, which is the current challenge the coffee trade faces. The pool of banks financing commodities is dwindling as the risks for those that remain grow. Commodity trade finance is the lifeblood of the coffee industry. Risks and Implications: The Crucial Role of Commodity Trade Finance Unprecedented threats The years following the pandemic have been unprecedented. The temporary shutdown or delay in parts of the supply chain has had a ripple effect on the cof- fee trade. The extended closure of China created an even greater dislocation of shipping containers, delaying freight, and increasing costs. The Russian aggression against Ukraine sent commodity prices soaring with increased costs for fuel and fertil- izer. There was a temporary blockage in the Suez Canal. The Panama Canal passage has become sluggish due to reduced water levels from drought and engineering capacity constraints on wa- ter flow to support the safe passage of larger container ships. Interest rates soared to help tame inflation. This is in addition to climatic challenges due to La Niña and El Niño, curbing world production. Now, the Red Sea is facing a barrage of targeted at- tacks on shipping containers that have any links to Israel. The market structure (pricing from one delivery month to the next) has also inverted due to related concerns about tighter nearby availability than in the future.

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