Despite Cut in Consumer Spending, Coffee Sales in Australia to Rise 2.6% in 2011

Hard times have caused Australians to eat out less, but many are not giving up their daily coffee fix.

A study by business analyst IBISWorld released on Tuesday forecast a 2.3 per cent growth or coffee sales in 2011 despite slower consumer spending. Although sales volume is high, profit margins are low and there is intense competition, said Karen Dobie, IBISWorld general manager for Australia.

Over the next five years, revenue of cafes and coffee shops in the country is expected to grow at 32 per cent and income to top $6.55 billion, Dobie said.

"At the height of the global financial crisis, restaurants and caterers endured consecutive declines in income, while cafes and coffee shops' income continued to grow - albeit at a slower rate. Australians consider buying coffee outside the home an essential part of the daily routine - and we're willing to sacrifice other things rather than forego our daily cup," Dobie explained.

She attributed the rise in coffee prices - at $2 a kilogramme or a 5 per cent rise in the past 12 months - to the increase in world coffee prices. As a result, an eight-ounce takeaway cappuccino would cost between $3.09 in Sydney and $3.72 in Perth.

"Despite these price rises, Australians are still prepared to stretch their budgets to purchase one or more coffees a day," Dobie said.

In the last five years coffee prices went up 122 per cent. Coffee is one of the world's most traded commodities with over 96.7 million bags exported in 2010 from key growing regions such as South Asia, South America and East Africa. Half of that volume was purchased by the European Union.

On Tuesday, Bloomberg reported that Colombia, the world's second-largest producer of Arabica coffee beans next to Brazil, cut its 2011 production estimate by 5.9 per cent due to recent rainstorms. As a result Colombia's output will go down to 8 million bags from 8.9 million bags in 2010, the National Federation of Coffee Growers in Colombia said.

It was the second cut in predicted output due to the adverse weather conditions caused by the La Nina weather pattern. On the first week of November, NFCG Chief Executive Officer Luis Munoz trimmed the estimate to 8.5 million bags from 9 million bags.

Colombia's Arabica coffee beans are favored by many brewers, including Starbucks.

News of the lower production caused Arabica coffee prices for December delivery to slide 2.5 cents or 1 per cent to $2.3640 per pound at 11 a.m. on ICE Futures U.S. in New York.