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Coffee price rise....For most small producers life will remain a struggle and the future uncertain, despite the fragile recovery.
The Observer, 4 April 2004

After four years of prices so low that many growers abandoned the crop, coffee perked up strongly in the first quarter of this year. But the recovery is still fragile, warn experts.

Excessive production caused the price to fall to 41 cents a pound in September 2001, the lowest in real terms for 100 years, and less than half the price in January 2000. But higher prices have slowly filtered through, and have this year showed signs of gathering pace.

The International Coffee Organisation (ICO) price rose from an average of 48 cents a pound in 2002 to 52 cents in 2003 and to 59.7 cents a pound in the first three months of 2004. It averaged 60.8 cents a pound in March, a rise of nearly 50 per cent since September 2001.

The ICO is now signalling a shortfall in coffee for export. The cause? It seems there's an awful lot less coffee in Brazil this year. Awful for Brazil, the world's largest producer, but good for other coffee exporting countries.

After producing a record 48.5 million 60 kilogram bags (the traditional measure of coffee) in 2002-3, Brazil's output has fallen dramatically in the current crop year, which ends this April, to 28.5 million bags - a drop of over 40 per cent.

The level of Brazilian production in crop year 2003-4 will create a situation in which world production will be below world consumption for the first time since 1997-8,' says Néstor Osorio of Colombia, executive director of the London-based ICO which runs the International Coffee Agreement between exporting and importing countries.

Prospects for the 2004-5 crop year, beginning next month, are modest: official Brazilian estimates put the figure at around 35.8 million bags.

After a bumper harvest in 2002-3, Brazil's output was expected to fall, say coffee industry analysts, but dry weather at crucial stages of the growing season was also responsible: 'Rain at the wrong time', said one. Low prices also meant that some growers neglected their bushes or diversified into other crops. Output in Vietnam, the second largest coffee producer, was also down - from 14.77 million bags in 2001 to 11.25 million in 2003 as farmers lost enthusiasm for the crop.

Osorio describes the rise in prices as 'very significant even though it does not signal the end of the crisis caused by a lengthy period of low prices'.

For the consequences of record low prices have been severe. Around 25 million farming families in some 80 developing countries grow coffee, many on small plots alongside food crops. For some, coffee is their only source of income. Many are now more heavily in debt or have switched to alternatives, including cultivating drug crops.

In Colombia, plantations of coca can now be found in coffee areas. In Ethiopia, Africa's largest producer, some farmers are said by Oxfam to have replaced coffee with chat, an illegal amphetamine, although Ethiopia has bucked the trend and reported higher output this year.

In Vietnam, farmers have sold their possessions to satisfy debt collectors. Coffee farmers from Mexico have died trying to enter the USA illegally after abandoning their farms. Indebted growers in India have committed suicide. 'The situation stimulates emigration to cities and to industrialised countries,' according to the ICO.

The fall in prices badly affected government revenues. In the early 1990s the export earnings of coffee producing countries were $10-12 billion a year, and retail sales of coffee about $30 billion. But in 2002, when retail sales exceeded $70 billion, coffee producing countries received only $5.5 billion.

But 'there is hope that price move ments will be more positive than in recent years', says Osorio. 'Market fundamentals seem to favour the upward trend in prices.'

Good news for government revenues and maybe, although not necessarily, for beleaguered growers. Prices are still lower than the cost of production for many. Lack of knowledge about prices means that growers can be exploited by traders who buy the crop at the farm gate before trading it on. Coffee can change hands up to 150 times before it reaches the consumer.

Around 5 per cent of coffee growers sell some of their beans in the sustainable coffee market - organic and fairly-traded - where sales have reached 1.1 million bags a year. Growers fare much better there, receiving 126 cents a pound in the fair-trade system.

World output of coffee in the current crop year 2003-4 is expected to be 101.5 million bags, compared with 119.74 million bags in 2002-3. Consumption is estimated at 111.5 million bags for 2003 against 109.3 million in 2002.

'A shortfall of around 10 million bags can be envisaged,' says Osorio. This 'could be the basis for a new market trend which would imply better incomes for producing countries.'

But the United Nations Food and Agriculture organisation warns that the recovery in prices is 'still fragile and uncertain, and most coffee producing countries continue to struggle'.

And the fall in the US dollar has 'tended to offset the advantages that some exporting countries could have gained from the current upturn in coffee prices', says Osorio. He cautions that it is too soon to speak of an end to the crisis which has affected the coffee industry in exporting countries.

Stocks of coffee, now around 41 million bags, have so far changed little. One industry analyst warns that Brazil's estimate of 35.8 million bags for the next crop year could be 'on the low side' and that the harvest may top 40 million bags.

Should that happen then supply and demand could be roughly in balance. But for how long?

When a severe frost hit Brazil's coffee lands in July 1975, the world price doubled overnight and then soared to eight times its pre-frost level. Between 75 and 80 per cent of the beans usually exported. Ethiopians drink it to dull hunger when they have no food

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