World cocoa bean production for the 1998/99 season (October/September) has been revised upward 3 percent to 2.78 million tons from the October 1998 forecast of 2.69 million, but down 5 percent from the record 2.94 million ton output of 1995/96. Production increases from October for Cote d'Ivoire, Ghana, Indonesia, and Nigeria more than offset decreases for Brazil, and Ecuador. The world grind number for 1998/99 has been reduced from the October forecast of 2.88 million tons to 2.82 million tons.
Production in 1998/99 in Cote d'Ivoire, the world's largest cocoa bean producer, is forecast at 1.18 million tons, up 3 percent from the October forecast and 5 percent above last year. This projected increase is due to favorable prospects for the mid crop. Satisfactory rains from the latter part of September 1998 in cocoa producing areas have favored tree flushing and contributed to increased flowering of the mid crop. Cumulative arrivals through the third week in January were 5 percent above the same period in 1998. Field travel indicates that there are comparatively more pods and flowers on trees than at the same time last year. The main crop is forecast at 980,000 tons, down 2 percent from the October forecast because of insufficient rains in June to September 1998, and is expected to cause bean arrivals to tail off by mid-March.
Cote d'Ivoire's cocoa bean export forecast for 1998/99 remains unchanged from the previous forecast, despite the increase in production. Total supplies in 1998/99 of 1.4 million tons are up 4 percent from the October forecast, reflecting the larger harvest.
Ghana's 1998/99 production forecast has been revised upward 8 percent to 390,000 tons. This increase is based on improved rainfall patterns in the major cocoa growing areas. The rainfall pattern during 1998 was favorable for cocoa production as rains occurred at night and sunshine was adequate during the day. As a result, there was no major outbreak of Cocoa Black Pod disease. The revised 1998/99 forecast consists of a main crop of 350,000 tons and a midcrop of 40,000 tons.
The government of Ghana (GOG), through the Ghana Cocoa Board (COCOBOD), completely removed the subsidy on input costs for cocoa cultivation in the 1997/98 season. This has resulted in an increase in availability of input supplies in COCOBOD warehouses in all cocoa growing districts. However, due to the increase in input prices, the small cocoa farmer is unable to buy the needed insecticides to effectively spray the cocoa trees. The price per liter of insecticide, for the control of cocoa pests, increased from the GOG-approved price of 3,000 Cedis to 20,000 Cedis.
Ghana's exports of cocoa beans and cocoa products in 1998/99 are forecast to increase from the October forecast to nearly 396,000 tons, but down 8 percent from last season's large shipments of 430,000 tons.
The Cocoa Processing Company Limited, at Tema, increased its milling capacity near the end of the 1997/98 cocoa season, and accounted for the only increase in the local crushing/milling capacity of Ghana's cocoa industry for the past five years. The total milling capacity now is estimated at 85,000 tons.
Brazil's1998/99 production forecast was revised downward 3 percent from October to about 164,500 tons, but is up slightly from 1997/98. The cocoa production estimates for the state of Bahia for the 1996/97 and 1997/98 crops have been revised to reflect more recent information. Production of the 1998/99 main crop in Bahia is estimated at 60,400 tons, down 10 percent from the previous year. The expected reduced outturn is mostly attributed to high rates of tree infection, "witches broom", and the effects of the drought on flowering during early 1998. The Bahia midcrop is forecast to increase 10 percent from last year to slightly more than 83,000 tons. Good rains in the last months of 1998 in the southern Bahia cocoa producing areas are the reason for the increase.
|Brazil: Cocoa Bean Production By State|
|Bahia Main Crop (October-April)||
|Bahia Mid-Year Crop (May-September)||79,936||75,336||83,100|
Brazil's exports of cocoa beans and other cocoa products are forecast at 117,100 tons in 1998/99, up 14 percent from last season. Imports of cocoa products reached a record of 35,500 tons in 1996/97, and are expected to reach 32,400 tons in 1998/99.
The 1998/99 forecast for Indonesia cocoa bean production has been revised upward 6 percent, to 330,000 tons, 4 percent above last season, exceeding production records set in the previous three seasons. The 1997/98 estimate was increased to 318,000 tons, 4 percent above the previous estimate. Despite the drought caused by El Nino in 1997 and the first half of 1998, significant increases in prices received by farmers encouraged improved management and crop maintenance. Farmers were able to apply optimum levels of fertilizer to the trees. Production is forecast to continue increasing because of favorable prices and strong export demand.
Indonesia's exports of cocoa beans in 1998/99 are forecast at 255,000 tons, the same as last year. Domestic consumption in 1997/98 is estimated to have dropped 50 percent to 15,000 tons, as local processors bought fewer beans because of higher prices and economic difficulties. Consumption in 1998/99 is forecast to increase 2,000 tons to 17,000 tons.
The 1998/99 cocoa bean forecast of 100,000 tons is unchanged from the October 1998 forecast, and up 2 percent from last season. This forecast, though, is down 17 percent from 1996/97 and well below the record 1989/90 harvest of 240,000 tons. Extremely dry weather during the first quarter of 1998 took a heavy toll on cocoa bean production throughout Malaysia in 1997/98. With a shortfall in domestic supplies, local grinders have imported more beans. Bean imports in 1998/99 are forecast at 52,000 tons, nearly unchanged from the previous season.
The forecast for 1998/99 cocoa production has been revised upward 27 percent from the October forecast to165,000 tons, and up 6 percent from last season's output. Despite the erratic rainfall at the beginning of the cocoa crop season, production is expected to exceed earlier projections. Rainfall in the cocoa belt was favorable from September through October 1998, both in terms of volume and distribution. Incidences of black pod disease were minimal due to the moderate rainfall.
Exports in 1998/99 are forecast at 142,000 tons, up 6 percent from last season.
Speculative buying pushed domestic market prices of cocoa beans above prevailing international prices. Traders are reported to be holding stocks in anticipation that the falling value of the local currency will result in higher domestic market prices for beans.
Ecuador's cocoa production forecast for 1998/99 has been lowered from the initial forecast by 20 percent to 70,000 tons. However, the current crop is 136 percent above the disastrous crop of 1997/98. The recovery in cocoa production in1998/99 has been hampered by El Nino weather. Cocoa trees remain stressed and are now subject to the unpredictable La Nina weather, which could affect the next harvest. El Nino weather reduced the amount of sunlight, increased foggy conditions, and elevated temperatures during the flowering stage and most of the growing season. Ecuadorian exports of cocoa beans and cocoa products in 1998/99 have been reduced from the October forecast of 84,000 tons to 67,000 tons.
U.S. exports of cocoa and cocoa products totaled $389.8 million in calendar year 1998, a decrease of 10 percent from the 1997 value. More than 82 percent of the total is accounted for by exports of other cocoa and chocolate products. Canada is the largest U.S. market, accounting for 50 percent of total U.S. exports or $194 million, followed by Mexico, Japan, Australia and the Philippines.
U.S. imports of cocoa and cocoa products increased to $1.67 billion in 1998, up 13 percent from the previous year. U.S. imports of cocoa beans in 1998 increased to 423,845 tons, up from 342,223 tons in 1997. Cote d'Ivoire remains the largest supplier of cocoa beans to the United States, followed by Indonesia.
A deadly earthquake shook Colombia's coffee belt on January 25, 1999. The area affected by the earthquake accounts for 30 percent of Colombia's coffee production. Although coffee trees were not affected, on-farm processing facilities, regional threshers, coffee warehouses, and roads throughout the zone were damaged. The industry estimates that 12 percent of all on-farm processing facilities in the coffee belt were destroyed by the earthquake. The industry, however, is prioritizing its reconstruction efforts to rebuilding damaged facilities, estimated at more than one out of every 5. Many pickers, particularly seasonal workers, have moved to local towns where they are receiving aid in the form of free food. This has adversely impacted labor availability for coffee farms. The government of Colombia is attempting to remedy this problem by curtailing its food distribution activities in the hope that it will encourage workers to return to their normal work activities in coffee areas.
Colombia produces coffee throughout the year, but there are two principal harvest periods. The dominant harvest occurs October-December while the minor crop is collected April-July. Coffee output in the second half of 1998/99--beginning in April 1999--is projected to fall 6 percent from the same period a year earlier. Most of this decrease is attributed to an excess of precipitation during August 1998-January 1999 which adversely affected the bloom stage of crop development. The resulting reduction in cherry output accounts for roughly 90 percent of the 400,000-bag reduction in the coffee production forecast to 12.1 million bags. The balance of the reduction is expected to result from losses emanating from earthquake damage to the coffee processing infrastructure.
Colombia's coffee industry is confident that it will be able to meet the country's 1998/99 export quota of 10.5 million bags of green coffee set by the Association of Coffee Producing Countries. Coffee bean exports combined with roast, ground, and soluble shipments will enable Colombia to reach the export forecast for 1998/99 of 11.16 million bags of green bean equivalency.
Although the initial estimate of loss was inflated (now only 6 percent estimated loss vis-a-vis 30 percent), there are still concerns about the effects of Hurricane Mitch on the coffee harvest. Hurricane Mitch damaged 1,275 hectares and is estimated to drop production to 1,050,000 bags. The roads had been the major concern, but repairs done by the U.S. military and through European Union support have addressed most of the problem in all production areas. Repair of the roads, at least to the point that they are passable, has been one of the Ministry of Agriculture and Forestry's top priorities in the immediate aftermath of Hurricane Mitch. The Ministry reports that these repair efforts were substantially completed by the end of November 1998. Another concern was the availability of labor, but that has not been an issue in any production area.
With the extra moisture this year, there are also concerns about an increase in the incidence of coffee rust. Moreover, there is a risk of higher than normal post harvesting losses since many coffee processing facilities were located close to rivers and consequently were damaged.
Brazil continues to offer government-owned stocks through its auction system.
|Brazil: Auction of Government-Owned Coffee Stocks|
|Date of Auction||Quantity Offered||Quantity Sold||Price Range|
|--------60-kilogram bags--------||Brazil reais/bag|
|October 21 (soluble)||37,548||37,548||89.00-93.00|
U.S. coffee stocks at the end of January totaled 1.75 million bags, up 343,000 bags from the December 31, 1998, level. Details follow:
|Location||December 31||January 31||Difference|
Coffee consumption in Japan has increased steadily since World War II. Japan is the third-largest importer of coffee in terms of total volume. Per-capita consumption places them (according to the International Coffee Organization, ICO) at seventeenth, estimated at 2.79 kilograms in 1998, a decline from the 2.91 kilograms per person in 1997.
Sources indicated that the increase in consumption during the recent decades has been a result of the steady rise in the consumption of canned coffee; coffee that is ready to drink, blended in a variety of ways, in both hot and cold forms, and introduced into the market in 1969. According to sources, this canned-coffee phase had its beginning with the "coffee" milk sold in train stations and at kiosks. According to one source, the President of Ueshima Coffee Company (UCC) was in a train station and bought this coffee milk. Since the president did not have time to drink the beverage and return the bottle, as was required, he thought of putting the product into cans. UCC's original coffee is considered a dairy drink and has a label "milk drink". UCC expanded this concept to regular coffee drinks and to a regional approach.
In Japan, vending machines are popular, as are convenient stores. This provides a network for coffee companies in Japan to get their product out into the market. This network is not as popular to non-existent in other countries.
According to the sources, total consumption of coffee is 283 cups per person per year, or .8 cups a day. However, this is for regular coffee, excluding canned coffee. Coffee consumption in Japan, as a percentage of the total market, now surpasses green tea consumption. Following are statistics comparing coffee and tea consumption in Japan:
|Coffee and Tea Consumption in Japan|
|Green Tea||Regular Coffee||Instant Coffee||Brown Tea|
|Source: Ueshima Coffee Company, Ltd.|
Regular coffee now comprises 46.2 percent of consumption, a significant increase just since 1970. According to sources, as coffee prices came down, coffee became more a part of the culture of drinking in Japan. In addition, people in their 40's have the highest purchasing power and they are more inclined to consume coffee. Coffee consumption is highest in males, 25-39 years of age; second highest in males 40-59 years of age; and third highest in females 40-59 years of age.
There has been an increase in the number of coffee shops that has helped boost coffee consumption. Japanese companies have increased their number of coffee shops. In addition, Starbucks opened its first store in Japan three years ago and the chain is now quite prevalent in Japan.
According to sources, the trend of coffee consumption is for continued increase, but not at the same rate. The coffee companies in Japan are always looking at new products and ways to increase consumption. Last year, UCC introduced flavored coffee into Japan and recently launched a speciality coffee program. This program has three main features: 1) the raw material will be of a high quality; 2) the method of roasting will be changed to smaller lots with a longer roasting time; and 3) it will be moved to the consumer faster to maintain the freshness and will be monitored and pulled from the shelves after 10 days. The purpose of this project is to supply high quality coffee to 'regular' consumers. For this project UCC will select only the highest quality of coffee from around the world. For instance, UCC normally uses Colombia's "excelious". For this project, it will use only "supremo".
Even though the actual volume of coffee imports has continued to increase, at the same time the price paid for the coffee has increased, indicating imports of better quality coffee. The unit value of imports of green coffee, compared with the ICO composite indicator price, indicates that importers purchase coffee at an average premium of more than 10 percent.
The following table shows the breakdown of Japan's coffee market. Catering is defined as consumption in coffee shops, restaurants, the workplace and from fresh-brew vending machines in catering establishments. Industrial use is defined as mainly for the ready-to-drink liquid coffee, in cans or bottles.
|Japan's Coffee Market Segments|
|Total (all coffee)||5,332||5,623||5,926||5,887||5,970||5,932|
|Total (regular coffee)||3,153||3,359||3,789||3,854||3,866||3,938|
|Total (soluble coffee)||2,179||2,264||2,137||2,033||2,104||1,994|
|Source: The All Japan Coffee Association.|
Vietnam is now the fourth-largest coffee producer in the world, and the third-largest coffee exporter. A large portion of coffee production is of the robusta variety. Recently, steps have been taken to increase arabica production in order to obtain the higher prices, and hence higher foreign exchange from its coffee exports. Right now, according to sources, Vietnam has approximately 305,000 hectares of coffee, that allows for exports of 400,000 tons of coffee, valued at $600 million. Note: Numbers may not agree with USDA estimates.
According to sources, coffee was introduced into Vietnam over 100 years ago, but only really started taking off 15 years ago. Up until 1980, total area was only 15,000-16,000 hectares, concentrated in the highlands. After 1975, when the country was unified, is when the coffee crop started to be developed. According to sources, the main reason for the rapid expansion of coffee area was that the government allowed "land-right use" to the farmer, allowing the farmer to keep the profit from the land. In addition, the private sector was allowed to do business. There is credit that is available to the farmer, at low interest rates, provided by the provincial authority.
According to Vinacafe (Vietnam National Coffee Corporation), its aim is to keep robusta area stable and shift the focus to arabica area and production. Vietnam's goal is to achieve 100,000 hectares of arabica by 2010. This area of arabica will be concentrated in the north where it is more suited to grow. Vietnam is planting the variety of arabica coffee, "catura". Vinacafe is working with a French Development Project using about $42 million to plant 40,000 hectares of arabica by 2002. There have been agreements with other countries (Germany, the former USSR, among others) to develop coffee in Vietnam, helping with fertilizers, equipments, etc.
Vietnam practices free trading in the case of coffee exports. Any private or state-owned company can freely trade coffee. This has had a positive impact on trade. According to sources, there are 80 coffee exporters in Vietnam, with the top 10 exporting 80 percent of the total. Vinacafe alone exports 25 percent of the total. Up until April 1998, all exporters were state owned. At that time, the government allowed private exporters, provided they have a license and were of a certain size, and of a certain financial strength.
Vinacafe manages 25,000 hectares of coffee. Vinacafe helps the poorer, remote areas of Vietnam by assisting the farmers in growing coffee. They build the infrastructure necessary, in addition to schools, health centers, etc., providing a better situation for the remote areas. State-owned enterprises are required to do everything concerning the social aspects of the areas, while private companies are not under the same requirements. Vinacafe buys back the coffee from the farmers. There is a social benefit for the rural areas.
Vinacafe does not envision Vietnam becoming a member of the Association of Coffee Producing Countries (ACPC) any time soon. It does not have enough capital for providing the storage of coffee beans as required by the ACPC. According to Vinacafe, their main objective is what is good for Vietnam, not whether they are number 1 or number 2 in exports. Vietnam recognizes the need to improve the quality of its coffee. The country has a strong, competitive advantage; good water and cheap labor. It is better to have good processing of coffee, but the resources are lacking to dry coffee and store coffee, so quality declines. Vinacafe plans call for increasing the processing capacity, also.
Farmers are very attuned to the market for coffee. Coffee prices are broadcast widely to farmers via television. Two years ago, f.o.b. Vietnam coffee was $250-$300 below the London price. Now, as Vietnam improves its quality, f.o.b. Vietnam coffee is about $200 below London. The main reason is operation/transportation costs, which run about $170 per ton.
Coffee production has transferred money to the farmer. Buon Ma Thuot, which is a city in the center of the coffee production area, is one of the richest cities in Vietnam. According to sources, the farmer in Vietnam gets about 95 percent of the f.o.b. price for coffee.
After 1994, when the U.S. trade embargo was lifted, the United States became a very important coffee market for Vietnam. Since 1995, the United States has been Vietnam's largest customer, taking about 25 percent of the total volume of exports. Last year, Vietnam exported coffee to 52 countries. According to sources, shipping of coffee (and other commodities) is a problem. Coffee leaves Vietnam in very small vessels and then most is transited in Singapore for shipment to the final destination. Coffee is now the second most-important export, behind rice.
There are significant concerns about the expansion of coffee area in Vietnam. Vietnam is already facing severe environmental problems because of the expansion of coffee production. A significant problem in Vietnam is the deforestation. Farmers cut down trees, sell them, and then plant coffee trees. In addition, coffee demands much of the water resources. Almost all areas are irrigated, especially the robusta areas. In some cases, water is pumped for thousands of yards to get it to the coffee trees. People see this as a problem with competition with people living in the cities. In addition, there is becoming more of a problem with erosion. Although sources indicate that there are penalties in place to prevent further cutting of trees, enforcement may be difficult.
The Ministry of Agriculture and Rural Development sees 400-450,000 hectares as the maximum area devoted to coffee. That means 100,000 hectares more, but the plans call for the area to be devoted to arabica. According to Vinacafe, it has been assigned to promote 400,000 hectares of coffee by the year 2010, with a total production goal of 600,000 tons (10 million bags of coffee). If realized, this would make Vietnam the third largest coffee producing country in the world behind Brazil and Colombia.