Coffee Update

Summary

World coffee production in 1999/00 is forecast at 104.5 million bags (60 kilograms or 132.276 pounds), 2 percent below the previous year's record coffee crop. Brazil's coffee production for 1999/00 is forecast at 26.5 million bags, down 26 percent from last year's record. Partially offsetting this decline are some year-to-year increases from 1998/99 in the following countries: Cote d'Ivoire, 1.7 million bags; Colombia, 1.2 million bags; Ecuador, 853,000 bags; India, 665,000 bags; Vietnam, 667,000 bags; Mexico, 550,000 bags; Kenya, 467,000 bags; and El Salvador, 495,000 bags. Countries with downward projections from last season include Ethiopia, 367,000 bags; Papua/New Guinea, 105,000; and Guatemala, 60,000 bags.

Total world exports of coffee in 1999/00 are forecast at 82.4 million bags, up 1 percent from the estimated 1998/99 level of 81.5 million bags. Some key upward changes in year-to-year exports include: Cote d'Ivoire, 1.5 million bags; Ecuador, 803,000 bags; Vietnam, 700,000 bags; El Salvador, 504,000 bags; Ethiopia, 500,000 bags; Mexico, 430,000 bags; India, 350,000 bags; and Honduras, 325,000 bags. The projected increases in these countries exports more than offset the forecast decline in Brazil's exports. Brazil's exports of coffee are forecast to decline by 20 percent from 1998/99 to 1999/00, mainly as a result of lower supplies. Brazil's exports of coffee in 1999/00 are forecast at 17.8 million bags, 16.0 million bags of green coffee and 1.8 million bags of soluble coffee.

Brazil

Coffee production in Brazil is forecast at 26.5 million bags in 1999/00, down 26 percent from last season, but up 13 percent from the below-average crop of 1997/98. Arabica coffee production is forecast at 22.4 million bags, while robusta output is forecast at 4.1 million bags.

Three field trips through Brazil's major coffee producing areas were made in order to assess Brazil's coffee production for 1999/00. The first trip was made from September 30 to October 9, 1998, through Parana, Sao Paulo and Minas Gerais to observe the vegetative development and blossoming of the coffee trees. The second and third trips occurred from January 7-19, 1999, through Parana, Sao Paulo and Minas Gerais and from March 21 to April 2, 1999, through Sao Paulo, Minas Gerais and Espirito Santo, respectively, to observe vegetative development, cherry setting and fruit formation. The principal observations based on these field trips were:

--Coffee trees are predominantly in the off-year of the normal biannual production cycle, except for in the state of Parana where approximately 45 percent of the older-than-5-year-bearing trees are in the off-year and the reminder in the on-year of the biannual production cycle.

--Newly planted areas have higher tree density per hectare, but show good to very good yield potential, partially offsetting the expected decrease in production.

--Coffee trees show very good vegetative development because of favorable rainfall and temperature that prevailed during the growing season.

--Good crop management practices were evident in terms of weed control and soil management, a byproduct of favorable prices received by producers since 1997. In addition, an increase in pruning and stumping was observed in some areas.

The forecast for area planted to coffee in 1999/00 is forecast at 2.24 million hectares, unchanged from 1998/99. Both harvested area and tree numbers for 1999/00 are forecast at the prior year's level of 1.99 million hectares and 4.27 billion trees, respectively. The total tree numbers represent 3.33 billion bearing trees and 940 million non-bearing trees.

Mainly as a result of the lower production, total coffee bean exports in 1999/00 are forecast at 17.8 million bags, a decline of 20 percent from the estimated 1998/99 level. However, if realized, coffee exports in 1998/99-estimated at 22.3 million bags-will be a record. Brazil has been exporting heavily in recent months as its competitiveness in international markets was enhanced by the devaluation of the "Real" and the floating exchange rate. To maintain the level of coffee exports forecast for 1999/00, coffee stocks are forecast at a relatively low level.

Brazil continues to offer government-owned stocks through its auction system.

Colombia

Colombia's 1999/00 coffee production forecast is 12.7 million bags, 10 percent above last season's harvest. Coffee prices received by growers are now 6 percent lower than a year ago because of declining world coffee prices. The National Coffee Committee (NCC) is discouraging growers from expanding their coffee areas. Instead, the NCC is providing technical assistance to growers to achieve an improvement in coffee yields, while at the same time encouraging growers to turn to alternative crops.

Approximately 70 percent of Colombia's total coffee area is planted with the high-yielding, rust-resistant Caturra and Colombia coffee varieties. These two varieties, which produce well without shade, account for more than 85 percent of total coffee production. The remaining 30 percent of Colombia's coffee area is planted with traditional coffee varieties which are cultivated near shade giving trees to ensure a quality coffee. The central states of Antioquia, Caldas, Risaralda and Quindio cover 37 percent of Colombia's coffee area and account for over 50 percent of national output. Colombia's coffee crop is cultivated in mountainous regions where climate and soil conditions are suitable.

Colombia has shown an increasing interest in recent years in producing organic coffee. Production of this type coffee is based upon the non-usage of herbicides, pesticides, or chemical fertilizers. Currently, less than 1 percent of Colombia's coffee production is organic, but volumes are growing.

The Colombian Government and the National Coffee Committee (NCC) together allocated 60 billion pesos ($38 million) for the reconstruction of coffee areas affected by the earthquake. Reconstruction is underway. The aid program places a priority on repairing partially damaged processing facilities. Rehabilitation grants of up to 4 million pesos ($2,530), which do not require repayment, are being made available to growers. Additional funds are provided on a loan basis. During the first 2 years of the life of these loans, growers are not required to make repayment against either loan principal or interest. The National Coffee Growers Federation, Fedecafe, is taking this opportunity to urge farmers to shift to newer processing techniques.

Colombia's green coffee exports in 1999/00 are forecast at 10.5 million bags, unchanged from the estimated 1998/99 level. Although the size of the crop is forecast up significantly, total supply for 1999/00 is forecast down because of smaller ending stocks at the end of 1998/99.

Indonesia

Coffee production in 1999/00 is forecast at 7.2 million bags, up 4 percent from last season. The increase is attributed to a return to normal weather as the forecast for area harvested and bearing trees is unchanged from the 1998/99 levels. Bountiful blooms toward the end of the 1999 rainy season (April 1999) seemed to confirm a change in weather patterns.

Indonesia's total exports of coffee in 1999/00 are forecast at 5.6 million bags, essentially unchanged from the 1998/999 level.

Vietnam

Coffee production in Vietnam in 1999/00 is forecast at a record 7.0 million bags, up 11 percent from last season's revised level and up 5 percent from the revised 1997/98. Harvest season in Vietnam is from October to January. Prolonged drought affected the 1998/99 coffee crop, despite an increase in harvested area. In large part through the expansion of newly harvested coffee areas, Vietnam hopes to achieve a bumper 1999/00 crop. For the 1999/00 crop, Vietnam is expected to harvest 280,000 hectares out of a total planted area of 320,000 hectares. Production could be higher if yield-improving moisture recharges key areas of the Central Southern Highlands.

A continuing policy concern in the major robusta areas is the seemingly unchecked degradation of the environment, as farmers rush to convert natural forest into coffee area. Vietnam has also set an ambitious goal of 100,000 hectares of arabica by the year 2010.

Currency devaluations from major exporting countries such as Brazil and other Latin American countries, combined with the recovery of coffee production in Indonesia, have dampened international prices and increased competition. Similarly, rising transportation costs from Vietnam to major markets, e.g., the European Union, Canada and the United States, also present more challenges to Vietnam's export coffee sector. Because of higher supplies of coffee, Vietnam should remain competitive and coffee exports during 1999/00 are forecast at 6.7 million bags, an increase of 700,000 bags from the preliminary 1998/99 level.

Mexico

Mexico's coffee production in 1999/00 is forecast at 5.2 million bags, 12 percent above last year's revised estimate, but 4 percent less than the record 5.4 million bag harvest of 1995/96. As a result of on-year production in the main coffee producing areas, and higher yields from large and medium-scale coffee growers, production for marketing year 1999/00 is forecast to increase compared to the weather-reduced crop of 1998/99. Small-scale growers have found it difficult to finance much of the required cultivation practices in order to return to the mid-1990's production levels due to the current domestic inflation rate and lack of affordable credits. The government's recent financial support program will only partly aid small-scale growers in improving productivity because government budget cuts are limiting spending on the agriculture sector. Yields for 1998/99 were low largely due to poor weather and the impact of low international coffee prices on cultivation practices.

Domestic consumption increased in 1998/99 because of population growth and higher demand stimulated by lower domestic coffee retail prices which resulted from a weak export market. Consumption is expected to remain unchanged in 1999/00 as further population growth is offset by improvement in international prices which will attract more of Mexico's coffee production and result in higher domestic prices.

Mexico's exports of coffee in 1999/00 are forecast to increase to 4.2 million bags, up 430,000 bags from the depressed 1998/99 level. The United States continues to be the main export market for Mexico's coffee.

India

India's 1999/00 production of coffee is forecast at a record 4.5 million bags, up 17 percent from last year. Favorable weather conditions and timely rains are expected to contribute to this record coffee crop in 1999/00, for a total of 1.85 million bags of arabica and 2.65 million bags of robusta.

Increased production and slow growth in domestic demand will support larger exports. Coffee exports in 1999/00 are forecast at 3.2 million bags, up 12 percent from an estimated level of 2.85 million bags in 1998/99.

India's coffee sector provides an excellent example of the benefits derived from allowing the market economic system to operate. Since liberalization of India's coffee sector in 1996, there has been a marked improvement in the quality of India's coffee and growers have been able to receive remunerative prices in return for their efforts. In the past six months, however, traders have also been subject to the vagaries of the market as depreciation of the Brazil's real had a significant, negative impact on domestic coffee prices.

Cote d'Ivoire

Coffee production in 1999/00 is forecast at 5.0 million bags, up 52 percent, or 1.7 million bags more than last season due to good rainfall, entry of new trees into production, and the fact that the crop is on the on-year of the coffee production cycle. Since January 1999, weather conditions have been favorable, characterized by alternate rains and sunshine which are excellent for the coffee tree. Crop flowering has been abundant and crop development and cherry formation have been satisfactory. Many trees from farms created between 1994 and 1996 are also entering production and may contribute to the expected increased production with their high yields.

Field visits indicate that there are far more cherries on trees this year than the same period last year. There was a sufficient amount of cherry on every farm visited. The situation is similar throughout the entire production area.

The liberalization of coffee marketing started in the 1998/99 marketing year. Marketing activities have been lackluster due to farmers' inertia, difficulties of farmers to adapt to price fluctuation inherent in the system, the falling world market price and difficulties of exporters' access to credit facilities. The 1998/99 coffee marketing started late because farmers were uncertain when to sell and also the delay by the government in setting up PRIMAC (a program to provide market information on coffee and cocoa) to provide price guidelines to farmers. The situation was worsened by commercial banks' refusal to provide credit facilities to many exporters because of bad past performance and the need to minimize risk under a liberalized system in the absence of guarantees provided by the CAISTAB (the government marketing and stabilization board). Under this situation, only the few exporters with access to foreign bank credits were able to operate. The falling world market price, as publicized by PRIMAC, created doubts in the minds of many farmers as they misconstrued world market price for farmgate producer prices. This confusion made many farmers hesitant to sell.

As a result of the increased supply, Cote d'Ivoire is forecast to export 4.9 million bags of coffee in 1999/00, an increase of 44 percent, or 1.5 million bags, above the preliminary 1998/99 level. About 9 percent of total exports are in the form of solubles.

Guatemala

Coffee production in Guatemala for 1999/00 is forecast at 3.3 million bags, down 2 percent from last season and 19 percent less than the record 1996/97 crop. This decrease is due to three reasons: the fact that some coffee farmers located in the south part of the country are shifting to more profitable crops such as bananas, rubber and palm; expectations of a strong rainy season and the effects of Hurricane Mitch; and a liquidity problem that Guatemala's bank system experienced in late 1998 and early 1999 which affected coffee farmers hoping to borrow money from local banks for the 1999/00 crop. In addition, the substantial decrease in world prices has discouraged investment in coffee production.

Production for 1998/99 is estimated at 3.4 million bags, down from the 1997/98 crop of 3.9 million bags. This change is due to unexpected weather conditions and the effects of Hurricane Mitch. Some areas were wiped out in the north and northwestern part of the country; other areas had increases in funguses and other coffee diseases as well as high levels of fallen fruit. Production loss in the area is estimated between 20 percent and 35 percent due to flooding caused by Hurricane Mitch. In the western part of the country extreme dryness and late rains affected the crop causing around 10 percent loss due to poor flowering. In the south, excessive rains affected the crop leaving cracks in fruit and around 10 percent loss due to fallen fruit. Overall, around 2 million trees were damaged or destroyed due to the effects of Hurricane Mitch. More trees are expected to be planted for the 1999/00 crop to compensate for the losses.

The interest in farming organic coffee is increasing in Guatemala due to an increase in demand for organic coffee in the international markets and the bonus given above the regular price for organically farmed coffee. For 1999, Guatemala's registered organic coffee production accounts for 5 percent of total production, the same level as the 1998 organic coffee production because of the time lapse needed to be registered.

Coffee still is the number one agricultural export in the country and accounts for 21 percent of total exports. The coffee industry employs around 40 percent of the agricultural farm labor and contributes around 6 percent to Guatemala's Gross National Product. Exports for 1999/00 are forecast at 3.1 million bags, down 100,000 bags from 1998/99 and down about 23 percent from the 1996/97 level of 4.0 million bags.

Honduras

Honduras's coffee production in 1999/00 is forecast at 2.85 million bags, up 14 percent from the previous year's estimate. In 1998/99, Honduran coffee output is expected to decline from the previous year by approximately 400,000 bags largely as a result of Hurricane Mitch. This figure is actually higher than earlier estimates, however, due to the fact that the Honduran Coffee Institute (IHCAFE) underestimated production in its initial forecast. New plantations in the departments of Santa Barbara and Lempira which are just coming into production had not been accounted for in the initial forecast. In Honduras, exporting plants absorb the vast majority of coffee produced each year as exporters handle not only coffee, which is exported, but also the majority of coffee sold to domestic roasting plants. Therefore, the amount of coffee which exporters purchase from growers and intermediaries is generally used as a measuring stick to quantify production. According to IHCAFE exporter purchases have already reached 2.18 million bags as of mid May. This figure is expected to increase to 2.3 million bags by the end of the 1998/99 year. Another 185,000 bags are estimated to be exported illegally to neighboring countries and/or consumed on farm. Hurricane Mitch's impact is not to be understated. The most recent estimates have losses at approximately 460,000 bags. Other than the immediate losses from damaged plantations, the excess moisture accelerated cherry ripening and, without sufficient labor to pick coffee, a large share of cherries dropped to the ground. Compounding the situation was the damage Mitch caused to the road infrastructure, which made transporting coffee from farm to market all that more difficult and even impossible in some cases. Consequently, it is no surprise that the quality of this year's crop is below normal and this is being reflected in the discounts being applied to Honduran coffee in the international market.

The outlook for the 1999/00 year is positive, however. Continued expansion in production area and a rebound in the production cycle could raise output to 2.85 millions bags. Although the grower price has dropped in recent months, it is still above the break even point for growers. Of course, the effects of the 1999 rainy season on a very fragile road network and less than bright economic prospects for the coming year remain big question marks. Because Honduran coffee production is in the hands of roughly 80,000 low-tech growers, Honduras remains a low-cost producer which can withstand market lows better than some other countries with more efficient but more costly operations. In fact, over the years coffee production area in Honduras has continued to expand with seemingly little relation to international prices. Moreover, with Mitch greatly damaging Honduras's commercial agriculture (particularly banana production), coffee has been assured of being the chief export crop over the next few years. Therefore, coffee export earnings have become more important than ever to the Honduran economy. Honduran law makers have been quick to recognize this and they are creating incentives to assure the sector's well-being in the coming years.

Honduras's exports of coffee in 1999/00 are forecast at a record 2.58 million bags, up 14 percent from the previous year, and just slightly ahead of the 1997/98 level of 2.55 million bags.

Costa Rica

Costa Rica's coffee production for 1999/00 is forecast at 2.55 million bags, up 4 percent from last season. The 1999/00 crop is expected to increase because of newer areas entering production as well as an expected rebound in production in the areas of Palmares, Naranjo and Grecia in the province of Alajuela and also in the Southern region of Perez Zeledon. The rainy season, which is predicted to be heavier than normal, has started with strong rains. This will be one of the main factors expected to affect production mainly by year end and the beginning of 2000 when the bulk of the harvest takes place. Higher precipitation could result in stronger incidence of diseases in the plants (mainly "ojo de gallo").

Area planted has increased slightly, mainly in the southern region of Perez Zeledon. Some of the new areas entered production in 1998/99 resulting in higher total production. Other areas will not come into production until 2001 and 2002. Reportedly, the majority of the new areas are being planted by large producers, financed by multinational coffee companies, which in some cases have joint ventures or direct financial interests with the local companies.

1998/99 coffee production is estimated higher than previously expected and is now placed at 2.5 million bags. The higher production number reflects lower losses than previously forecast by ICAFE (Costa Rican Coffee Institute) as a result of the effects of Hurricane Mitch in the southern production area. Also, production in Turrialba, and especially in Los Santos, was stronger than expected, offsetting reductions in several regions in the Central Valley and the South.

According to ICAFE, coffee plantations in general have received appropriate care in terms of fertilization and cultural practices in preparation for the 1999/00 crop. However, there is some concern that the lower coffee prices in the international market may result in reduced fertilization by some producers.

Costa Rica's exports of total coffee are forecast at 2.3 million bags, unchanged from the 1998/99 level. Costa Rica has begun to export organic coffee, mainly to the United States and Europe. The volume is still relatively small (expected to reach between 6,000 - 8,000 bags this year) but is expected to grow in the future. Under this system, the cost of production is about 50 percent of the production cost under the traditional system, and the price per bag is higher. According to producers of organic coffee, the quality of their product is higher. Organic coffee exports are made under certification to ensure the quality of the beans.

Nicaragua

Coffee Production in Nicaragua in 1999/00 is forecast at 1.1 million bags, down 3 percent from the 1998/99 crop. According to preliminary data from the Nicaraguan Union of Coffee Growers (UNICAFE), the 1998/99 crop is estimated to reach 1.13 million bags on 101,550 hectares of planted area.

Despite Hurricane Mitch, coffee production increased in 1998/99. There were some problems with early ripening of coffee beans resulting from the hurricane, but the main challenge was transporting the harvest to market. Fortunately, the government of Nicaragua was largely successful in making reconstruction of secondary and tertiary coffee roads its top rural priority in the immediate aftermath of the hurricane.

El Salvador

Coffee production for 1999/00 is forecast at 2.27 million bags, up 28 percent from last season's below normal crop, hit by drought and Hurricane Mitch. The 1998/99 crop is expected to be 13,000 bags lower than previously reported. This lower production is mainly due to a drought attributed to the El Niño effect during the flowering stage. In addition, excessive rain from Hurricane Mitch caused cherry fall off mainly in lower altitude production areas. Above-normal precipitation is predicted for the upcoming winter season due to the La Nina weather phenomenon. As a result, production in 1999/00 is forecast to increase by 495,000 bags from the previous crop. 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.

El Salvador's total exports of coffee are forecast at 2.1 million bags, up 504,000 bags, or 32 percent, from the depressed level of 1.6 million bags in 1998/99.

Peru

Coffee production in Peru for 1999/00 is forecast at a record 2.15 million bags, up 9 percent from last year. Coffee is grown in Peru in three areas, the most important for both volume and quality is the central eastern slopes of the Andes in Chanchamayo. This area has been one of the most affected by drug trafficking and terrorism in the past, which has not allowed any increases in production or technical assistance during the last 20 years. Though terrorism has been eliminated from most parts of the country, it continues to have a threatening presence in this area.

The vast majority of coffee producers limit their cultural practices to picking the beans during the harvest, provided prices are attractive. Because of relatively high costs, plant replacement and fertilization are rare among coffee growers. Thus average yields are quite low, between 8 and 16 bags per hectare, compared with the 75 bags that some of the top producers are able to obtain in the same area.

As with most agricultural producers throughout the country, coffee growers face two major constraints. First, a lack of credit, as private banks do not take the farmer's often untitled land as loan collateral, and there is no official government lending institution. Most farmers obtain their loans from coffee buyers, with a subsequent high interest rate, and a sales contract on the coffee's price. Second, during the land reform of the 1970's, land was divided into extremely small plots, making it largely impossible to efficiently manage any crop. Since coffee grows in the coca producing areas, there have been some efforts by international aid agencies to provide technical assistance to produce and market coffee as an "alternative crop" for coca.

Venezuela

Coffee production in 1999/00 is forecast at 1.25 million bags, down 4 percent from last season and 9 percent less than was harvested in 1997/98. Despite the favorable reported harvest of 1997/98, Venezuela's 1998/99 coffee harvest is estimated to have decreased. Farmers have invested heavily in fertilizer and pesticides since 1993/94, with the purpose of increasing yield and production to take advantage of more favorable producer prices. Coffee growers have had no problem obtaining production loans during the last several years because returns on coffee have been excellent; however, the current economic crisis that has gripped Venezuela could reduce the level of inputs for the period 1999/00.

Ecuador

Coffee production in Ecuador for 1999/00 is forecast at 1.8 million bags, nearly double the 1998/99 outturn of 947,000 bags. Arabica production in 1998/99 was hurt the most by El Nino, which affected trees with untimely rains and winds. Last year, rains struck during the flowering stage, literally washing away flowers, and not allowing proper pollination. The weather was far better this season, with expectations for a bumper coffee crop in 1999/00. With Ecuador in the depths of a financial crisis, producers will harvest every available bean to garner much needed income.

On the policy side, the recently formed COFENAC is expected to begin providing credits to small producers, allowing them to upgrade their production by replanting with newer varieties and greater fertilizer use. The goal of the coffee industry in Ecuador remains to increase Arabica production, and become a producer of fine Arabica coffees.

Exports of coffee from Ecuador in1999/00 are forecast to recover to near the 1996/97 levels. Total coffee exports are forecast at 1.5 million bags, up 803,000 bags from the depressed levels of 1998/99.

United States

U.S. coffee stocks at the end of April totaled 2.53 million bags, up 124,000 bags from the March 31, 1999, level. Details follow:

Cocoa Developments

Dominican Republic

After an all-time high in 1997/98, production levels have fallen considerably during 1998/99 as a result of the high winds and flooding accompanying Hurricane Georges in late September (9-22-98). Industry sources have indicated that high winds knocked down shading trees and dispersed considerable amounts of sea water over the cocoa fields. Producers anticipate losses of at least 20 percent for the 1998/99 crop.

Industry sources note as a rule of thumb that consumption is approximately 10 percent of the production on a normal year. As production decreases, availability of product for the export market will also decrease. Exports are predicted to be at least 20 percent lower than the previous forecast. The volume of cocoa product exported is also anticipated to be lower.

For a detailed report, see the GAIN (DR9001) report dated March 30, 1999, located on the FAS Home Page.

U.S. Essential Oils and Spices

U.S. Mint Oil Prices Continue Lower as a Result of Oversupply

The "Yakima Herald-Republic" noted in an article dated May 5, 1999, that mint farmers are having a difficult time selling their crops at $8 a pound, continuing a downward trend in prices. According to USDA's National Agricultural Statistical Service (NASS), in 1998 the price of peppermint oil dropped to $11.60 per pound, down 10 percent from 1997. Spearmint oil prices have declined as well; down 8 percent from 1997 to 1998. According to sources, mint growers and buyers are holding an estimated 3-4 million pounds of mint oil in storage. Mint oils are mainly used in chewing gum, toothpaste, and mouthwashes. The oil has a long shelf life and a 55-gallon drum can flavor 5 million sticks of chewing gum and 500,000 tubes of toothpaste. A few years ago, growers responded to high mint oil prices by expanding area, resulting in an oversupply. In 1998, growers attempted to ease the situation, with the area harvested for oil (peppermint and spearmint oil combined) declining by 6 percent. However, very good yields for the crops actually resulted in a 2-percent increase in production. In addition to heavy supplies in the United States, reports indicate that China is planting record hectares of spearmint, and that India's production of peppermint is increasing. Because of this, mint growers are facing increased competition. As a result, combined U.S. exports of peppermint oil and spearmint dropped to 3,285 tons in 1998, a decline of nearly 4 percent from the 1997 level.

Last modified: Thursday, April 06, 2000