INTERNATIONAL 37
rising, could also deter investment in coffee. "Supply should stay tight for the next year
or two," said José Sette, Acting Executive Director of the International Coffee Organization, speaking at the NCA conven- tion. "The precarious balance between supply
and demand continues to favour firm prices. With prices expected to continue at such remunerative levels, a high level of export performance can also be expected in coffee year 2010/1," said Mr Sette. "However, the prospect for replenishment
of stocks in producing countries remains weak. Recent increases in prices of oil products are likely to accentuate increased production costs for most agricultural prod- ucts, including coffee." On the demand side, industry sources
say that it remains to be seen whether con- sumers are willing to pay higher prices or whether they are likely to drink less coffee. According to a study conducted by Nestlé, world coffee consumption had tended to grow fastest if global economic growth stays above 4 per cent and green coffee prices at or below US$1 a pound - which was the case for most of the last decade - when global consumption grew at 2.3 per cent annually. In general, market participants say that
with the price of a cup of coffee rising 5-10 cents over the last few months a price hike is unlikely to dent demand yet, mainly because the price remains relatively cheap when compared with other beverages. Some expect consumers to drink more cof- fee at home, rather than in coffee shops, benefitting companies catering to grocery stores and supermarket’ shelves.
Guatemalan
growers still in debt Ricardo Villanueva, president of Guatemala's National Coffee Association, told C&CI that the country’s output is unlike- ly to rise significantly as producers are still dealing with high debt levels – around US$150 million - incurred during the crisis in the last decade. "Next year’s crop could grow 2-5 per cent
but not more than that…producers still have a lot of debt and they don’t want to plant the seed of another price bust," he said. Rodolfo Trampe Taubert, Executive Co-
ordinator at Mexico’s Coffee Association, Amecafe, agreed, saying that what he called "cautious investment" would keep the coun- try’s crop steady around 4.2 million bags.
Rodolfo Trampe Taubert, executive coordinator at Amecafe, says he does not expect production to increase significantly
"It takes 3-4 years for new plantings to
bear fruit…but we are being cautious because we don’t want producers to cook up the next crisis," he said.
Effect of high prices
Starbucks and other coffee shop chains are feeling the effect of higher prices, and although the company’s CEO claims that a lot of the price jump has been caused by speculative involvement in commodities, the Seattle-based giant and its rivals may have to get used to high prices. Starbucks recently hiked coffee prices by
12 per cent and may need to do more to maintain margins. JM Smucker, maker of Folgers Coffee and Dunkin’ Donuts pack- aged coffee, and Kraft Foods, maker of Maxwell House and Gevalia, have also announced steep price hikes in recent months. Even so, the higher prices are not
Ricardo Villanueva, president of Guatemala’s National Coffee Association, said producers are still struggling with debt
enough to make up for the increases in the price of green coffee. The consensus in industry seems to be
that production is not expected to increase much in the near future. As a result, a long period of high prices may well be a possi- bility and a new price floor is in the making, so said Carlos Brando, president of P&A Marketing and a consultant to the ICO and the World Bank.
Colombia
Colombia had four very good flowerings in recent months, which could bring better crops in the second half of 2011, but it would be unwise to count on that happen- ing. The country has been hoping for higher output for the last three years, but so far the results have been disappointing. For 2011, it is estimated that output
could reach a level of 9-9.5 million bags, but that is a far cry from the 12.5 million bags harvested in 2007.
Brazil’s ‘off’ year
In Brazil, although it is widely accepted that the gap in production between an ‘on’ year and an ‘off’ year has reduced, thanks to better farm practices and higher density plantings, the harvest is expected to be 45 million bags at most, leaving the local mar- ket with very tight supply. The following year, the country could har-
vest 55-60 million bags, easing somewhat the tightness in the market, but this will depend on the weather in the meantime. Brazil is expected to consume in excess
of 20 million bags in 2011 and, with exports above 31 million bags, the country needs to maintain huge output to replenish dwindling stocks. The ICO estimates that total produc-
tion worldwide for crop year 2010/11 will be around 133.7 million bags, represent- ing an increase of 8.6 per cent in relation to the preceding year. A fall of 3.2 per cent is expected in the Asia and Oceania region, where Indonesia has recorded a significant decline due to adverse weath- er conditions. Production has increased a little in other regions, particularly in Mexico and Central America and South America. In the meantime, production is expected
to increase in nearly all African exporting countries, in part encouraged by the higher prices, but not to such an extent that prices are likely to be greatly affected. C&CI
May 2011 C&CI
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