Global coffee market hangs in fine balance
September 27, 2005
Salvador, Brazil - World coffee stocks have reached a critically low level because of a collapse in Brazilian reserves, the head of the International Coffee Organisation said on Monday.
"It is a very critical situation," ICO director general Nestor Osorio told a press conference after the two day World Coffee Conference here.
"I don't think the world has taken account of Brazil's low stocks and those of producer countries," he said. "A drought, a mini-freeze - any problem would be a shock."
The Colombian head of the London-based ICO predicted that world coffee prices would remain "firm" at around $1 a pound.
After a collapse in prices, the coffee market has rebounded strongly this year because of bad weather in Brazil and Vietnam, the world's two largest producers.
Osorio said coffee stocks were moving from producer countries to consumer nations.
"During the quotas time, stocks were high, but now it is the contrary. Coffee reserves are in the hands of importers who have about 20-22 million sacks. A year ago, the producers had about the same amount, but the fall in production in Brazil has left stocks at a critical level," he said.
Brazil's stocks have fallen to their lowest level in decades and are expected to be around two million 60-kilogram bags next year, because 2005 production is expected to be down to 33.3 million sacks against 39.3 million last year.
The ICO chief said that Vietnam, the world's second largest producer, had little in reserve and in Colombia, Mexico, Indonesia and India, the next major producers, had about eight million sacks between them.
"The market does not reflect these fundamentals," he said, and when consumer countries start to dig into their reserves, "the market will feel it."
The weekend conference heard calls for greater emphasis on quality, rather than market intervention, to maintain consumption and achieve higher penetration in new markets such as Asia.
Brazil's Agriculture Minister Roberto Rodrigues said, "The great lesson has been that intervention mechanisms such as quotas or production restrictions did not work in the past and must not be used in the future."
He said producers had to take advantage of the boom in coffee shops, such as the US chain Starbucks, ensure greater quality --
with new beans and organic coffee - and find new products such as coffee-based beverages.
Rodrigues highlighted the complaints of many producers when he said that growers get only one percent of the final price of a cup of coffee sold in the United States and other western nations.
Osorio and the leaders of many coffee producing nations have called for greater industrialisation of the process in the growing countries. But experts say this is costly while distribution would remain a problem.
World coffee consumption was estimated at 115 million sacks in 2004, a rise of about 2.9 percent over 2003.
But David Neumann, of the Neumann Gruppe, said worldwide consumption could hit 121-148 million sacks by 2010. In China and Russia, the number of cups of coffee drunk is rising at the rate of 15 percent a year.
Japan has also increased demand and is now the world's third biggest consumer. - AFP
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