The green coffee trading sector is consolidating because it’s in crisis

pie chart in coffee cup
  • The last few years have seen a new consolidation trend in green coffee trading, with Sucafina and Neumann Kaffee Gruppe (NKG) acquiring smaller traders
  • 2024 will be a tough year for traders, with increased competition and what the Financial Times branded “the worst year for banks since 2008” triggering high interest rates and lower profit margins
  • Small to medium-sized green coffee traders will need to adapt in order to survive, either through wise financial partnerships or adapted business models  

THE CURRENT economic landscape is reshaping the coffee industry from top to bottom. In the last few years, we’ve been seeing a marked trend of consolidation amongst coffee roasters. Now, green coffee traders seem to be following a similar path.

The green coffee trading sector is in crisis, and larger green coffee traders are seizing the opportunity to consolidate their market position through strategic acquisitions of smaller players. 

By integrating smaller traders into their operations, big traders are gaining access to new markets, customer segments, and sourcing networks, while smaller players struggle to compete with limited resources and scale.

In 2018, Neumann Kaffee Gruppe led the way, making a majority investment in Atlas Coffee Importers. In 2023, Sucafina North America acquired Sustainable Harvest, followed a few months later by Neuman Kaffee Gruppe acquiring Nordic Approach

“Many new importers have entered the space in the last five years,” says Bram de Hoog, Managing Director of Paso Paso. “They will continue to chip away at the market share of bigger traders. Nevertheless, they’re unlikely to keep up with growth from a finance and logistics perspective, and this is where acquisition comes into play.”

This dynamic is also a way for bigger traders to gain back market share lost in the early to mid 2000s, when a host of new, smaller traders emerged on the coffee scene, disrupting the big trader oligopoly.   

The slew of traders and coffee importers who started working in the last five to ten years were used to a very different economic landscape. 

“Many of them are maybe used to cash being cheaper, and that’s a big element of any kind of trading work,” says Stuart Ritson, Director of Sales for Europe and the UK at Osito Coffee

“If you can borrow money at low interest rates, that allows you the liquidity to take on more challenges. But if cash is expensive, then it’s going to make traders’ lives harder. Green coffee trading is harder than last year, and definitely tougher than a few years ago.”

A case in point is when Mercon filed for bankruptcy protection at the end of 2023, after Rabobank called in a US$325mn credit line. Banks are becoming stricter on lending, and traders are scrambling for capital.

2024 will be a tough year for traders 

Today, traders across all sectors are facing challenges because the finance sector has become increasingly volatile. In fact, according to the Financial Times, “2023 (was) the worst year for banks since 2008”. 

Against this backdrop, payment terms are evolving – with buyers increasingly demanding extended credit periods, squeezing the cash flow of smaller traders who rely on prompt payment to finance their operations. 

Rising interest rates and escalating logistics costs further erode margins, making it increasingly difficult for traders to operate profitably in an environment marked by already thin margins and fierce competition.

With increased competition from both traditional players and new entrants, securing capital to fund growth initiatives becomes a daunting task, further exacerbating the challenges faced by smaller traders.

“I don’t think that many traders will necessarily go out of business or consolidate, but I do think that they’re going to feel the pinch and struggle in ways that they haven’t before,” says Stuart. “And those that don’t have a good client base or access to financial options may really, really struggle.”

Traders are also being weighed down by spot positions, unable to move coffees that are sitting in warehouses. “Carrying stock is a huge burden on cash flow for traders, and just a couple of defaults from roasters over-purchasing can be fatal,” says Bram.

With margins under pressure and access to capital incredibly constrained, smaller traders face an uphill battle to survive in an increasingly consolidated industry landscape.

How can green coffee traders survive this crisis?

With a finance crisis, an oversaturated market in both the roasting and importing space, and a consolidation trend that seems to be picking up, it’s hard to see how small to medium-sized green coffee traders can survive.

Despite it being tough, traders can still strategise to adapt and fine-tune their value proposition. Crucial to survival will be who they partner with, and how solid their lenders and investors are.

Like-minded financiers can provide smaller traders with the scale and resources needed to compete effectively in a rapidly evolving market. “Securing finance through other (bigger) traders can take some stress out of the day-to-day cash flow operation,” says Bram. “Focusing on forward sales can also take a lot of risk out of the equation.” 

But while the finance and green coffee trading sectors may be in crisis now, circumstances will inevitably change, and so will market demand. Traders must keep looking at the long game. 

“If there’s a rush towards just buying cheap coffee because it’s a tough time for roasters, they may be disappointed further down the line,” says Stuart. 

“Some of the people that they rely on for their most innovative or relationship-driven projects may no longer be doing that work in a year or two. They may have shifted to more commercial or ‘safe’ business by then, because that’s the only thing they could afford to do.”

The consolidation of green coffee traders is definitely a trend that is happening as a reaction to times of crisis. The smaller green coffee traders will need to adapt in order to survive through financial partnerships that will act as a buffer for tough times. 

Another way for them to walk this tightrope will be to entirely pivot their business models and value propositions.  

Coffee Intelligence

Want to read more articles like this? Sign up for our newsletter here.