G.K. Nair

Kochi , Sept. 25

COFFEE growers confused over the current fluid situation in the world coffee prices are said to be holding back their produce anticipating an increase in the prices during the winter season, when the demand peaks in the US, Europe and Japan.

The prices of arabica, which went up to 125 cents (average) a pound in New York futures market few months ago has dropped to 89 cents/lb now, while that of robusta dropped to $800-$900 a tonne from $1,200. Such a fall has taken place despite the projected drop of 6.2 per cent in the global production.

As a result, "exports are down. The growers don't want to sell because of the low prices," Mr Anil Kumar Bhandari, President, UPASI told Business Line on Friday. The conflicting reports on the world production could be a reason for the price fall. But, "up to now there is a deficit," he said. The prices fluctuate according to the local sentiment in New York, he added.

As against the global consumption estimated at 116-119 million bags in 2005, the availability would be less by four million bags, Mr Bhandari claimed. "The world coffee market is very volatile and sometimes the shortage is not reflected in the prices," he pointed out. The world "coffee economy is very vast and controlled by a very big lobby."

According to him, given the crop conditions the shortage has to exist for two to three years.

Such reverse trend has emerged, despite a recent market report of the International Coffee Organisation which said that the `coffee crisis,' which saw prices fall between 1998 and 2001 to the lowest levels ever recorded, has ended.

Earlier reports, in fact, said the world coffee production in 2005-06 (October/September) is expected to reach 6.3 million tonnes, registering a decline of 6.2 per cent over 2004-05. "In the main producer countries, Brazil and Vietnam, the 2005-06 outputs are expected to decline by 18 per cent and 11 per cent, respectively, which could lead to a continued upward trend in world prices for the rest of the year."

Provisional returns indicate a 27 per cent increase in global export earnings in 2004, suggesting that exporting countries might be recovering from the coffee crisis of the past five years, it said.

The Brazilian crop is critical to the overall global supply situation, and is expected to be down this year to around 32 million bags from around 39 million bags in 2004. "However, reductions in production are expected to be widespread, including in other major producers such as Colombia and Vietnam. Given this improvement in market balance prices should continue firm," it said.

Reports from Vietnam said, "because of drought, Vietnam's coffee output has fallen by 15 per cent, this time, and is set to fall by 30 per cent during the next crop. Against a global coffee demand of 106 million 60kg bags, supply is expected to fall by 8 million bags during this crop," it said.

Meanwhile, domestic coffee production is projected to increase by 6.7 per cent to 2.94 lakh tonne during 2005-06. However, it is unlikely to reach the projected figures due to widespread disease in about 2,000 hectares of plantations, industry sources pointed out. Domestic coffee production which was at 2,28,300 tonne in 1997-98 had gone up to 3,01,200 tonne in 2000-01. Thereafter, it declined due to neglect in the wake of rock bottom prices to 2,70,000 tonne in 2003-04, and then moved up to 2,90,400 tonne in 2004-05.

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