Coffee price tumble to have long-term consequences

By Agrimoney.com – Published 09/07/2013

The International Coffee Organization warned of a long-term hangover on coffee markets from the tumble in prices as it urged government to support growers facing extreme hardship as values fall below costs of production.

The ICO, an intergovernmental group, said that the fall in coffee futures, which for arabica beans are down 60% from a 2011 high, would prompt “increased price volatility” as markets cope with the drop in output likely to follow.

“Given current price trends, there is a diminishing incentive for farmers to invest in their crops, and the use of inputs such as fertilisers and labour will likely be reduced,” the ICO said.

“This could potentially have a negative impact on production volumes,” bringing market swings as buyers compete for tighter supplies.

‘Devastating consequences’

Output could be effected by the potentially “devastating consequences” of the market fall to growers, which represent an important part of the rural economy for major producing countries such as Colombia.

Indeed, the ICO urged government in coffee producing countries “to help the millions of small‐scale coffee farmers affected as prices fall below the cost of production.

“Of immediate concern is the issue of food security, as poor farmers find themselves without enough cash available to secure adequate nourishment for their families in the last few months before they harvest their next crop.”

However, longer-term solutions were also required, the organisation said, flagging “the need to train these same farmers into small entrepreneurs, possessing basic skills not just in agronomy, but also in broader farm management”.

Production upgrade

The decline in prices of both arabica and robusta prices to multi-year lows reflects in part ample supplies of beans.

The ICO nudged higher by 300,000 bags to 144.6m bags its estimate of world coffee output in 2012-13, despite the damage caused by the outbreak of coffee rust in Central America, for which it kept at 2.7m bags its estimate for losses.

However, prices had also been hurt by “weaker‐than‐expected economic data from China at the beginning of the month suggested a slowdown in demand growth for commodities.

“In addition, signs of an end to the quantitative easing programme in the US resulted in a widespread decline in commodity markets.

“These two factors exacerbated the weakness in the coffee market.”

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