Chris Mburu
22 February 2004
analysis
Nairobi — Global coffee prices are on an upward trend this year, riding on a projected coffee output shortfall in Brazil, the world's largest producer.
According to the International Coffee Organisation, market fundamentals seem to favour the upward trend in prices. "Following a long period of low prices, the coffee industry has been so seriously affected that production levels have fallen in a number of countries," ICO executive director Nester Osorio, who was in Nairobi last week, says.
World coffee prices have nose-dived over the last six years due to over-production in Brazil and new growers in South East Asia, such as Vietnan and Cambodia.
However, production of Brazilian Naturals fell by around 41.35 per cent from 41.01 million bags in 2002/03 to 24.05 million in 2003/04. Official Brazilian estimates predict a reduced production of crop year 2003/04, and no significant increase is expected in crop year 2004/05 starting in April 2004 (around 35.8 million bags).
As a result, an upward trend in prices noted in December 2003 continued in January 2004. The monthly average of the ICO composite indicator prices rose in January 2004 to 58.69 US cents/lb compared to 52.44 US cents/lb in December and 49.81 US cents/lb in November 2003. The monthly average for January 2004 represents an increase of 11.92 per cent and 17.83 per cent compared to December and November 2003 respectively.
In Nairobi last week, marketing agent Kenya Planters' Co-operative Union registered a high of $318 per 50 kg bag of top grade AA for Mutwe wa Thi Co-operative Society in Nyeri. "Prices are going up, particularly for Arabica coffee from small-scale farmers," said KPCU's chief liquorer, Mr John Karuru.
Across the board, prices of all grades recorded an average of $124.62 per 50 kilo bag in Nairobi, an 8.7 per cent increase compared to $114.53 the previous week. These average prices were for Thika Coffee Mills and Socfinaf Ltd, the other two marketing agents, said Mr Bernard Kariuki, a manager at Kenya Coffee.
However, recent falls in the US dollar against many currencies tended to offset the advantages that some exporting countries could have gained from the current upturn in coffee prices, Kenya included.
According to the latest estimates, total world production in crop year 2003/04 will be 101.5 million bags. This is a downward revision (around 1 million bags) in relation to previous estimates. Production in crop year 2002/03 was 119.74 million bags.
Total production of Arabicas in crop year 2003/04 is estimated at 63.44 million bags compared to 80.68 million in 2002/03, a decline of 21.36. This means Kenya, a producer of Arabica coffee, has an opportunity now to gain from rising prices.
Total production of Robustas shows a slight reduction of 2.58 per cent, down from 39.07 million bags in 2002/03 to 38.06 million in 2003/04. The share of Arabicas in world production is down from 73.69 per cent in 2002/03 to 62.50 per cent in 2003/04 while that of Robustas was 37.50 per cent compared to 32.62 per cent in 2002/03.
Increases in production were recorded in Africa and in the Mexico/Central America region. In the case of the latter region, it should be noted that production cutbacks are anticipated in some countries but confirmation of the new estimates is awaited before these can be taken into account. In South America, there was a sharp fall in production for crop year 2003/04.
World consumption is estimated at 111.5 million bags for calendar year 2003 compared to 109.3 million in 2002. Domestic consumption in exporting countries in crop year 2003/04 is estimated at 27.66 million bags, of which 13.75 million is accounted for by Brazil and 1.83 million by Ethiopia.
In these two countries, domestic consumption accounts for a significant share of their total production. Domestic consumption in Ethiopia has supported its
production despite the four-year coffee crisis, while Kenya's coffee sector has not been keen to market domestic consumption.
Overall, 2004 is being viewed with a certain optimism and there is hope that price movements will be more positive than in recent years, mainly as a result of the cutback in production in many exporting countries and the anticipated reduction in Brazilian for crop year 2004/05 starting in April 2004.
However, "it is too soon to speak of an end to the crisis which has affected the coffee industry in exporting countries for the last four years. In these circumstances, I should like to alert exporting countries on the need to take all the necessary precautions to ensure a sustainable balance capable of defending more remunerative price levels," Dr Osorio warned.
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