There is not enough coffee on the market, stocks already at the lowest historical level

The International Coffee Organization (ICO) warns exporting countries of this commodity that by increasing their production to compensate for the expected reduction in supply from Brazil, they could jeopardize the recently initiated recovery of prices in that market.

According to Nestor Osorio, the executive director of this intergovernmental organization of coffee-exporting and importing countries based in London, Brazil expects a decrease in its production by eight to ten million bags from last year’s 41.5 million bags, or by at least 20 percent after the harvest in the April-May 2007 season. “There will not be enough coffee on the market, as stocks are already at the lowest historical level,” he told the AFP news agency in Bangalore, where he attended a three-day Indian coffee festival.

According to his estimates, in the next season, 110 million bags of coffee, each weighing 60 kilograms, will be produced worldwide, while demand will amount to 120 million bags. This deficit between production and demand could prolong the recovery in that market from the crisis that began in 2000, when coffee prices fell below production costs.

 “We are at a turning point, at a moment where we leave the crisis period behind us, with prospects for price recovery in the future,” said Osorio. “However, much remains to be done, and producers must be cautious. They must not think that the current situation opens the door to increased production. Quality is essential, not quantity,” he added. Exporting countries produced 120 million bags of beans last year from which the world’s most popular hot beverage is made, of which importing countries consumed 117 million.

The fate of the market, where 25 million growers in 60 countries struggle for survival, is determined by Brazil, the largest producer with a 25 percent share, followed by Colombia and Vietnam. If another frost occurs in Brazil, like the one that destroyed the crop in 1994, significantly cooling the international coffee market and causing a sharp rise in prices, panic will ensue, Osorio further warned. After speculation in the futures market raised coffee prices three times that year, to as much as two dollars per pound, competing producers increased their harvest at the end of the 1990s.

Vietnam even tripled its export of cheap low-quality Robusta coffee, leading to an oversupply and triggering the 2000 crisis, when prices fell to just 60 cents per pound. The value of exports fell to five billion dollars in 2001 from 12 billion in 1996, but recovered to 10 billion last year. The price of coffee now stands at one dollar and five cents per pound – slightly above the production cost, and only about half of the highest price ever reached for coffee. In India, which exports three-quarters of its production, some producers committed suicide to avoid the burden of rising debts during the 1990s.

 “What happened at the end of the 1990s led to the crisis in 2000,” says Osorio. “What we do today with the harvest will determine the price of coffee for the next three to four years,” he added. Coffee is one of the most traded commodities and for many developing countries, it ranks just behind oil in terms of foreign exchange reserves. In consumer terms, retail coffee revenues reach 70 billion dollars worldwide. Osorio also warned that Hurricane El Nino, which has severely affected some producing countries like Vietnam and Indonesia, could also impact this year’s harvest. (H)