- A growing number of green coffee traders are being acquired by big players – a symptom of a sector in crisis
- In the last 3 years, monopoly power has tripled the profits of global agricultural commodity traders
- Big traders are finding opportunity in crisis and rushing into the coffee trading space
THE recent acquisition of Volcafe by Hartree Partners, a global energy and commodities trading company, marks another chapter in the ongoing consolidation of the global green coffee trade.
Announced with little fanfare, Hartree’s move to acquire the majority of ED&F Man Commodities’ three business units Volcafe, ED&F Man Liquid Products and ED&F Man Sugar by purchasing its “outstanding senior legacy debt” has raised eyebrows.
This acquisition is far from an isolated incident. Rather, it is indicative of a broader trend sweeping through the sector. While such deals are often celebrated as signs of strength and market confidence, a closer look reveals a different story: the green coffee trading sector is in crisis, and consolidation is becoming a troubling symptom.
Volcafe, once a titan of the coffee world, found itself grappling with financial difficulties, a situation not unique in today’s market. Similar issues have plagued other players, leading to downsizing, cost-cutting, and layoffs.
Nordic Approach, a Scandinavian trader known for its specialty coffee focus, recently reduced its operations, citing market pressures. Shortly after, it was acquired by Neuman Kaffee Gruppe in a strategic move to consolidate and secure a stronger foothold in the specialty segment, building on its prior investment in Atlas Coffee Importers. Sustainable Harvest, another well-regarded name, has also been absorbed by Sucafina North America under similar circumstances.
These companies, struggling to stay afloat amid rising costs and mounting debts, have become prime targets for acquisition.
The acquisitions we are witnessing are not merely business as usual. They represent a strategic manoeuvre by larger, financially robust entities to gobble up distressed assets at a fraction of their value.
Purchasing debt, as seen in the Volcafe deal, allows these big players to expand their portfolios without the need for massive capital outlays. But beneath the surface, these deals are symptomatic of a sector that is rapidly consolidating, with monopoly-like conditions on the horizon. The once-diverse landscape of green coffee traders is shrinking, with major implications for the industry at large.
Green coffee trade is at a tipping point
The green coffee trade is navigating one of its most challenging periods in recent memory. Rising interest rates have compounded the debt burden on many traders, making it increasingly difficult for small and medium-sized players to survive.
The bankruptcy of Mercon and Coex, two notable names in green coffee trading, is a stark reminder of the precarious position many traders find themselves in.
“When big trade houses like Mercon and Coex go under, it’s usually because they get overleveraged with their positions in the futures market – meaning the market goes against whatever positions they have on their books, so they can’t afford to hold those positions any longer and have to close them out at a big loss to cover the margin call,” says Alonso Tomas, President of Altico Trading.
“Had they kept their position size in check, those big losses probably wouldn’t have occurred. The physical side of coffee is challenging to make money in, but there is usually a big loss component in the futures market that accompanies a bankruptcy, and not just import/export losses.”
Meanwhile, the combination of high C-market prices, inflationary pressures, and logistical challenges in a post-COVID world has created a perfect storm.
Uncertainty reigns supreme, exacerbated by new regulatory demands, such as the EU’s mandatory due diligence requirements and the looming Deforestation Regulation. These policies, while aimed at improving sustainability, add another layer of complexity and cost to an already strained sector.
Access to finance has tightened as lenders become more risk-averse, leaving smaller traders with fewer options. Banks are increasingly focusing their risk-taking on the stronger players in the industry.
“The inverted switches are breaking traders too – covering margins is draining their cash,” says an anonymous Brazilian coffee trader. “For commercial coffees, at least out of Brazil, we see roasters working with low inventories, stretching the ‘just in time’ delivery to its limits.”
The C-market is nearing historical highs, yet the benefits of these prices are not trickling down to the smaller players who are struggling to maintain liquidity. Instead, many are forced to sell, leading to what can be seen as a wave of dispossession, consolidation, and even austerity within the sector.
While mergers and acquisitions are at a low globally, the coffee sector is bucking the trend. The scramble to consolidate is in full swing, driven by the harsh economic realities that many traders face.
The result is a rapidly changing industry landscape where small and medium-sized importers are disappearing, swallowed up by larger entities that are better equipped to weather the storm.
Mega players find opportunity in crisis
Amid this turmoil, mega players are seizing the opportunity to dominate the coffee importing space. Acquiring debt-laden companies at a discount allows them to expand their reach and capabilities with minimal investment.
In the last three years, the profits of the five biggest traders in agricultural commodities tripled compared to the years before. A striking example is ADM, Bunge, Cargill, COFCO and Louis Dreyfuss Company holding a monopoly position on the global market, enabling them to influence pricing and costs.
StoneX’s acquisition of Mercon, which included its specialty coffee division, is another prime example. Rather than building a specialty coffee arm from scratch, StoneX acquired one for a fraction of the cost. This strategy is proving highly effective, with financial institutions charging a premium for their services as they tighten the screws on struggling importers.
As long as these challenging conditions persist, the cycle of consolidation will continue. The result is likely to be an industry dominated by a handful of large players, making it increasingly difficult for niche, small-scale importers to compete.
Large-scale land acquisitions and contract-farming arrangements have allowed traders to seize new business opportunities, reduce risks, and expand their influence in, and control of, the production stage. Swiss-based Sucafina reportedly stated that if they were content to stay at their current size and weren’t vertically integrated, they would eventually get acquired by someone.
The days of small traders commanding premiums for high-scoring coffees are fading; today, exceptionally few high-quality lots fetch prices above the C-market baseline. This shift could fundamentally alter the coffee industry, leading to a homogenised market where variety and uniqueness are sacrificed in favour of scale and efficiency.
Looking ahead, the coffee industry of ten or even five years from now could be markedly different. With fewer, larger players controlling the market, the diversity of offerings may dwindle, and the power dynamics between producers and importers could shift further in favour of the latter.
The small, independent importers who once championed the cause of quality and sustainability may find themselves edged out, leaving a more uniform and less vibrant industry in their wake.
The current wave of acquisitions is not just a trend—it’s a warning sign of the challenges and changes that lie ahead for the coffee world.
Coffee Intelligence
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