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Coffee Update

World coffee production in 2001/02 is forecast at 117.7 million bags (60 kilograms or 132.276 pounds), up less than 1 percent (or 738,000 bags) from the 2000/01 level. Although production is up only slightly in 2001/02, total supplies of coffee are forecast 4 percent ahead of the 2000/01 level, the result of beginning stocks being about 4.9 million bags higher than the previous year. Some producing countries constrained their exports in 2000/01 in an attempt to bolster coffee prices.

Major upward production changes in 2001/02 from the previous year include, in 60-kilogram bags: Guatemala, up 482,000 bags; India, up 405,000 bags; Cote d'Ivoire, up 367,000 bags; El Salvador, up 292,000 bags; Mexico, up 200,000 bags; Papua-New Guinea, up 166,000 bags; Ethiopia, up 117,000 bags; and Nicaragua, up 107,000 bags.

Those countries with production forecast to decline in 2001/02 include: Vietnam, down 833,000 bags; Brazil, down 1 percent, or 400,000 bags; Indonesia, down 215,000 bags; and Colombia, down 100,000 bags.

Brazil

Brazil's coffee production in 2001/02 is forecast at 33.7 million bags, down 400,000 bags from the previous crop. Arabica coffee production is forecast at 23 million bags and robusta production is likely to amount 10.7 million bags, up 3.2 million bags relative to the past crop. The average coffee yield for 2001/02 is forecast at 16.81 bags (60 kilograms) per hectare, slightly above that obtained last crop. Expected higher yields for the robusta areas in Espírito Santo and Rondônia, and for the arabica area in eastern Minas Gerais are likely to offset expected lower yields for the arabica areas in Paraná, São Paulo, southwestern and center-western Minas Gerais due to frost and drought problems.

Brazil's coffee exports in 2001/02 are forecast at 22.0 million bags, green bean equivalent, up 16 percent from the previous season. Green coffee exports are likely to reach 20 million bags, due to the expected high availability of the product, depressed domestic and international prices, and the end of the government of Brazil (GOB) regulation requiring coffee exporters to hold in stocks 20 percent of their export volume. Soluble coffee exports are projected to remain stable at 2 million bags, green bean equivalent.

On May 4, 2001, the GOB published "portaria interministerial" # 218, adjusting rules regarding the coffee retention program. According to this measure, the federal government will be the sole responsible entity to show to the Association of Coffee Producing Countries (ACPC) the retention certificates declaring that the country has followed the plan to hold in stock 20 percent of the export volume. The GOB will include the coffee held by producers and financed through Banco do Brasil (pre-marketing credit line) as retained coffee. Exporters are no longer required to hold stocks equivalent to 20 percent of their export volumes. Total coffee volume held under the old retention practice is approximately 2.6 million bags, over 95 percent of which belongs to exporters. This volume will remain in the GOB warehouses.

Brazil suspended its monthly stock auctions after the March 14 auction. A senior Agriculture Ministry official has stated that the Brazil government is likely to restart its auctions of coffee stocks by July.

Colombia

Colombia's coffee production in 2001/02 is forecast at 11.4 million bags, down about 1 percent from 2000/01, but still at a higher level than in 1998/99 and 1999/2000. The higher levels are due to increased renovations of coffee plants two to three years ago, which have increased the productivity of these plants, and very favorable weather during the blooming period. The Colombian weather agency also anticipates favorable weather during the second half of 2001, which should result in good output in much of 2001/02. However, the dramatic drop in international coffee prices since August 2000 will reduce investment in renovations this year and undoubtedly lower fertilizer use, which will negatively affect production.

One of the most important developments in the Colombian coffee situation is the effect of the sharp drop in international coffee prices on the financial situation of the National Coffee Fund (NCF). The operating funds of the NCF come from a check-off-type system whereby the NCF receives a portion of the sales of coffee at the local level. However, the amount varies depending on the international price level, and when prices fall below a certain level, the check-off is waived, which has been the case since the fall of 2000. Despite a zero income stream, until recently the NCF carried out its normal program expenditures and maintained the guaranteed price system to growers, accumulating a deficit of US$115 million in commercial year 2000. This huge deficit has forced the NCF to cut back on ongoing programs and abandon the guaranteed price system for a floating price system based on international price. Although many of the programs that were eliminated were social in nature and not directly related to production, the drastic cutback in activities by the National Coffee Committee (NCC) will no doubt have a negative effect on production over time. However, this could be offset somewhat by the increasingly important role played by local grower cooperatives in educational and assistance programs. One likely cutback, according to reports, is that Colombia will phase out its popular "Juan Valdez" Colombian coffee advertising campaign to cut costs. Valdez was created in 1960 by DDB Worldwide Marketing as the fictional spokesman for Colombia's coffee, "The Best Coffee in the World," according to the advertisement.

Exports in 2001/02 are forecast to increase 4 percent over the previous year, due to sustained higher production levels. The United States and Germany are the top buyers of Colombian coffee, accounting for approximately 32 and 19 percent of all coffee sales, respectively.

Indonesia

Indonesia's coffee production in 2001/02 is forecast to decline again to 6.28 million bags, down 3 percent from 2000/01. The decline is due in large part to low yields from farms where farmers are using lax management techniques because they find that the market price is not high enough to warrant special care of the crop. This follows two poor seasons in which total production dropped significantly from previous estimates. In general, coffee production in Indonesia is suffering due to low market prices. Around 90 percent of the coffee area in Indonesia is managed by small-holder farmers who own only 1 to 2 hectares and are very sensitive to price changes. With the current low coffee prices, coffee farming has become a losing business for some farmers. As a result, many discouraged farmers are either skimping on fertilizer and other management activities or holding back on harvesting altogether.

As one of the largest robusta coffee producers, Indonesia has serious concerns about declining world coffee prices. As a member of the ACPC, Indonesia has supported from the beginning the retention scheme announced in 2000. Initially, the industry itself withheld beans from the market in anticipation of financial intervention by the government of Indonesia (GOI), which would eventually support stocks already held and additional retention. However, the GOI was unable to fulfill its intention to financially support the ACPC coffee retention scheme. With an average annual export volume of 5 million bags, the total cost of coffee retention for Indonesia is estimated around US$80 to US$100 million. The GOI currently faces a budget deficit of as much as 3 to 4 percent of GDP for calendar year (CY) 2000. This and other fiscal constraints has rendered GOI support untenable. For the industry, self-financing the scheme is also economically impossible. Small-holder farmers simply must sell or else diversify into other crops.

Mexico

Mexico's coffee production in 2001/02 is forecast to increase from the 2000/01 level due to improved inputs and currently moist weather allowing for excellent and abundant initial flowering of coffee plants throughout Mexico's main coffee-producing regions. On the other hand, coffee production for 2000/01 is revised downward due to drastic cuts in international prices, which have led to reductions in Mexico's coffee production. Nevertheless, the government is continuing to assist producers through state and federal support programs, in an attempt to help small coffee growers (under five hectares each) overcome their dire situation.

The Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Foodstuffs (SAGARPA), recently announced in the Diario Oficial (Mexico's Federal Register) the new support to coffee producers in several states. The new support, called "Special Support Program for Coffee Investments," will be applied to coffee growers in 10 states. The new support payment program will be valid through December 31, 2001.

Coffee exports for 2001/02 are forecast to increase by nearly 5 percent from the previous year's revised estimate due to increased production and Mexico's emphasis on the export market. Most of Mexico's coffee exports continue to be washed arabicas. Approximately 85 percent of total exports go to the United States and Switzerland.

Cote d'Ivoire

Coffee production is forecast to increase in 2001/02 due to fairly good rainfall and the fact that production is at the 'on' side of the alternate cycle of coffee production. However, the expected increased production will be moderated by unsatisfactory rains in certain producing areas and poor farm maintenance. Coffee flowering started in late December and withered off due to drought conditions in January and February. Flowering resumed in late February and March and the subsequent rains helped in cherry formation. Field visits indicate that there are more cherries on trees than the same period last year. However, low farm revenue has caused some farmers to neglect farm maintenance.

Guatemala

For the year 2001/02, production is forecast at 5.0 million bags, up 11 percent from the previous year. This increase is due to a rise in production from small coffee farmers as a result of the technical assistance that they have been implementing, and the fact that in the coffee cycle the year 2001/02 is forecast to bring good yields, assuming favorable weather conditions. The technical assistance has been provided by an international cooperation program.

Coffee exports for 2001/02 are forecast to increase to 4.9 million bags, up nearly 13 percent from 2000/01. This increase in exports is due to a rise in coffee coming from Honduras. There are continuing reports of contraband coming from Honduras. The contraband is estimated at 317,500 bags for 2000/01 and steady at 317,500 bags for 2001/02. The steady contraband is due to an increase in production in Honduras and disincentives in their local prices. The United States is Guatemala's most important customer, accounting for almost half of total coffee exports in 2000.

El Salvador

Production of coffee in 2001/02 is forecast at 1.9 million bags, up 18 percent from 2000/01. Local meteorologists are predicting normal precipitation for the upcoming winter season. The bearing tree population continues to diminish due to urbanization in low altitude coffee areas, decreased cultural practices and lack of replacement due to low coffee prices. The Multi- Sectoral Investment Bank (BMI) continues to offer a 10-percent dollar loan for new planting. However, the coffee sector is reluctant to access this particular program due to their already deep debt situation. The government of El Salvador (GOES) has recently announced a long-term loan program to renovate old coffee areas.

In 2001/02, coffee exports are forecast at 1.8 million bags due to the expected rebound in production. Local prices paid by coffee exporters to producers are not sufficient to cover production costs. Additionally, the rate of investment on the part of local producers continues to diminish. Thus, if prices continue at the same range or fall even lower, exportable production numbers could vary due to decreased use of fertilizers and overall cost-cutting practices.

The president of El Salvador has recently announced a plan to refinance overdue loans and repair coffee mills damaged by the recent earthquakes. The new policy calls for approximately $488 million to help the sector from collapsing due to a historical low crop and international prices below production costs.

United States

U.S. coffee stocks at the end of April totaled 5.9 million bags, down 63,814 bags from the March 31, 2001, level. Details follow in 60-kilogram bags:

Last modified: Wednesday, July 21, 2004