Statement of Frank Lee
Deputy Administrator for Commodity and Marketing Programs
Foreign Agricultural Service
U.S. Department of Agriculture
Before the Subcommittee on the Western Hemisphere
House International Relations Committee
July 24, 2002
Mr. Chairman, members of the Subcommittee, I am pleased to be here today to discuss the world coffee situation.
The U.S. Department of Agriculture would like to be as helpful as possible with regard to information on coffee imported into the United States. The United States is a net importer of coffee, the largest single user in the world. Our private sector imports coffee from all over the world to keep pace with domestic demand.
USDA’s Foreign Agricultural Service tracks the supply and demand of coffee and forecasts the production for the current year. USDA sets quality and grading standards for many food and agricultural products. However, USDA has no such standards for coffee.
Production and Supply Update
Today’s world coffee situation is characterized by record production and low world prices. Producers around the world face a bleak situation. Many are being forced to abandon their coffee trees, or lower their production costs in order to survive. Governments also face difficult consequences: rising unemployment and reduced export earnings are hurting the budgets of many countries.
This crop year, 2002/03, world coffee production is forecast at a record 122.1 million bags (1 bag = 60 kilograms or 132.276 pounds), up 10 percent from the previous year=s level, fueled largely by record production in Brazil.
In addition to Brazil, major production increases this year compared to last include: Mexico, up 500,000 bags; Nicaragua, up 300,000 bags; Thailand, up 157,000 bags; Kenya, up 130,000 bags; and Madagascar, up 100,000 bags.
Producers being pinched by low prices have reduced tree maintenance, which has led to lower yields. Countries where production is forecast to decline in 2002/03 include: Vietnam, down 1.75 million bags; Dominican Republic, down 200,000 bags; Indonesia, down 200,000 bags; Zaire, down 170,000 bags; Honduras, down 150,000 bags; India, down 150,000 bags; Costa Rica, down 114,000 bags; and Colombia, down 100,000 bags.
Total global supply (carry-in stocks plus current production) in 2002/03 is forecast to reach 143.6 million bags, up nearly 6 percent over the previous year, and again largely as a result of the large Brazil crop. We have not seen coffee supplies reach this level since 1991/92. Brazil is expected to account for about 37 percent of total supplies, with Colombia=s and Vietnam=s share forecast at 8 percent each. In comparison, during 1991/92, Brazil=s share of total supply was 34 percent; Colombia=s, 16 percent; and Vietnam=s share, only 1.5 percent. This oversupply is not likely to lessen anytime soon.
Although world coffee exports are forecast up nearly 4 percent over last year’s, the bottom line is that export growth will not boost prices, given rising production and near-record supply levels. Total coffee exports in 2002/03 are forecast at 92.0 million bags, up nearly 4 percent over 2001/02, with Brazil accounting for most of the increase.
I would like to take a few moments to highlight the current situation in the two leading Western Hemisphere coffee producing countries.
Brazil=s coffee production forecast in 2002/03 (July-June) is a record 46.9 million bags, up 39 percent, or 13.2 million bags from the previous year. The arabica coffee production is forecast at 35.5 million bags, while robusta production is forecast at 11.4 million bags.
Brazil=s coffee exports are forecast at 28.6 million bags, a 15-percent increase compared to last year. Brazil=s coffee is expected to remain competitive internationally due to the availability of product, low domestic prices, and the steady devaluation of the Brazilian currency compared to the U.S. dollar.
Colombia=s coffee production for 2001/02 was estimated to reach 11 million bags, up from 10.5 million in 2000/01. This increase, in the face of low global prices, is because 200,000 hectares of coffee trees renovated during the 1998-2000 period under a National Coffee Federation incentive program are now entering into full production. However, in 2002/03, production will not benefit as much from this factor and will begin to decline due to reduced use of inputs.
Production in 2002/03 is forecast at 10.9 million bags. If low international prices persist, further decreases in production are almost certain. The historically low international coffee prices over the past year and a half, which on average are below the break-even point for growers, have forced farmers to sell off assets to generate working capital. The combination of reduced farmer assets, difficulty in obtaining credit, and lack of resources in the National Coffee Fund make any recovery in Colombia=s coffee sector largely dependent upon a recovery in international prices.
In addition, low international prices have eliminated the contributions made by growers and exporters to the National Coffee Federation. As a result, many of the social and production-related programs supported by the Federation have been almost completely eliminated, with the remaining programs dependent upon fund transfers from the government and loans from overseas financial entities.
I would now like to comment briefly on the price situation.
Due to the over supply situation, coffee prices continue to decline. Brazil’s arabica coffee price (the type most widely consumed in the United States) in June 2002 was $.43 per pound, down 17 percent from the June 2001 level, and down over 75 percent from the June 1997 level. According to some reports, inflation-adjusted prices for coffee beans are now at a 100-year low. Low coffee prices are severely affecting those countries that heavily depend on coffee export earnings. Unemployment is increasing as some farmers have abandoned their coffee trees. Many growers report that production costs are above the market price. As a result, lower fertilizer and chemical inputs, such as pesticides, are affecting yields. In those countries that produce higher quality arabica coffee beans, this has resulted in a drop in supplies. Producers in Central America and Africa have been particularly hard hit as coffee exports are crucial for export revenue. Some countries in Africa reportedly realize 60-70 percent of their export earnings from coffee.
Some countries have been trying to help farmers by helping them to diversify into other crops, but farmers are reluctant to give up their coffee trees. It has taken them many years to get their trees to produce and in some countries there are few alternatives.
World coffee consumption has been stable in recent years, averaging about 111 million bags per year. U.S. coffee consumption has likewise been stable, averaging about 18 million to 19 million bags per year.
However, due to large carry-in stocks, U.S. coffee imports declined nearly 11 percent during calendar year 2001. The United States continues to buy primarily from Brazil, Colombia, and Vietnam.
I appreciate the opportunity to present this information to the committee. I would be happy to try and answer any questions you might have.
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