Since the beginning of this year, every change in the European Union’s stance regarding the implementation of the European Union Deforestation Regulation (EUDR) has significantly impacted global and Vietnamese coffee prices. On November 13–14, the EU will make an official decision on the timeline for enforcing this regulation.
According to the Vietnam Commodity Exchange (MXV), regardless of the outcome, there will be two corresponding scenarios for coffee prices in the subsequent period.
Coffee Market Fluctuations Follow EUDR Developments
On May 16, 2023, the European Parliament (EP) approved the EUDR. The regulation is set to take effect on December 30, 2024. Coffee is among the seven product groups prohibited from being imported into the EU if its production process caused deforestation after December 31, 2020.
The EU is the largest coffee importer globally, accounting for approximately 33–35% of the global market share. In Vietnam, the EU is the top coffee export market, representing about 38% of the country’s annual coffee exports. As a result, the EU’s new import regulations have immediately raised concerns about potential supply-demand disruptions in domestic and international markets.
These market concerns have quickly reflected in coffee price trends in 2024. As the EUDR enforcement deadline approaches, combined with historically low inventory levels in Europe, EU countries have been racing to import coffee to ensure supply before December 30. The pressure increased as 2024 saw a decline in coffee production in several leading countries due to prolonged droughts. Rising demand coupled with falling supply led to a temporary imbalance in the market. Furthermore, this supply-demand shift spurred speculative trading in the coffee derivatives market, driving prices to record highs.
However, a turning point emerged in early October when the European Commission (EC) proposed delaying the EUDR enforcement by one year, a proposal swiftly approved by the European Council (EUCO). This led to a sharp reaction in coffee prices as speculators refrained from betting on further increases. According to MXV, Robusta coffee prices on the Intercontinental Exchange Europe (ICE-EU) dropped by 10% within two trading sessions following the EC’s proposal. Prices subsequently entered a downward trend throughout October, losing their historical peaks.
Nonetheless, the Coffee Prices proposed delay faced opposition from environmental organizations. The EP will cast its final vote on the EUDR timeline on November 13–14, with the market closely watching the outcome of this meeting.
Coffee Prices and EUDR Scenarios
With just under a week remaining until the EP’s decision, the market is split into two camps. One side advocates for adhering to the original EUDR timeline to uphold commitments to climate change mitigation (IPCC). The other side supports postponing the regulation’s enforcement as proposed by the EC. According to MXV, two potential price scenarios will unfold based on the EP’s decision.
Scenario 1: The EU maintains the original EUDR timeline, starting on December 30, 2024. This decision would receive backing from environmental organizations but pose significant challenges to current coffee supply chains. Global coffee-producing countries are not yet fully prepared to meet EUDR requirements, while importing countries would rush to secure compliant supplies. Two market reactions could emerge:
- In the short term, importing nations may accelerate purchases in the remaining months of 2024, driving up demand for coffee. Meanwhile, supply is unlikely to meet this sudden surge, especially as Vietnam begins harvesting the 2024–2025 coffee crop. This supply-demand imbalance would provide substantial support for coffee prices in the last two months of the year.
- In the long term, exporters unable to meet EU standards would seek new buyers, while EU importers would search for alternative compliant sources. The market would require time to stabilize supply and demand.
Scenario 2: The EU decides to postpone EUDR enforcement, likely by 12 months as suggested by the EC. This decision would gain support from stakeholders within the coffee supply chain rather than environmental groups. Under this scenario, producing countries would have more time to comply with the new standards. Simultaneously, EU importers would not need to rush imports at the end of 2024. Coffee supply and demand would temporarily stabilize, supplemented by new supplies from Vietnam’s 2024–2025 harvest. Global coffee prices would likely stabilize below $4,700/ton, while domestic prices in Vietnam would range from 100,000–110,000 VND/kg.
EU’s Likely Decision and Market Implications
Regarding the EU’s upcoming decision, Mr. Nguyen Ngoc Quynh, Deputy General Director of MXV, noted that while either scenario is plausible, the EU is likely to favor extending the timeline. This approach would ensure internal supply stability, especially amid a supply-deficit market trend. Moreover, transitioning to a Coffee Prices greener market and addressing environmental issues are long-term goals that can be pursued even with a delayed start.
Since the announcement in 2023, Vietnamese producers, businesses, and the government have proactively prepared to meet the EUDR’s stringent standards. This proactive and adaptable approach must be sustained to ensure the highest level of compliance with the new regulations and readiness for any scenario.
