The Hindu Business Line : Coffee crisis deepens as market rules weak

DESPITE the risk of frost in Brazil throughout the month of July, the coffee market remained weak, confirming the continued depressed state of the coffee industry in exporting countries. The commodity is yet to emerge from the deep depression in which it has been for the last three years.

The monthly average of the International Coffee Organisation (ICO) composite indicator price was 44.70 cents per pound in July 2002 compared with 45.56 cents/lb in June and 47.30 in May. Last month, the market barely reacted to the uncertainty caused by weather conditions in Brazil.

The extent of crisis in the coffee market may be seen from the fact that July 2002 average price was less than one third of the figure for July 1997, that is five year ago.

Coffee prices continue to face downward pressure, exacerbated by the size of the Brazilian harvest in 2002-03 crop year estimated by authorities at the origin at 44.7 million bags or 37.4 per cent of global production estimated at about 119.6 million bags.

According to the ICO, how prices will develop in future will depend on a host of factors including implementation of ICO programme to improve the quality of coffee, regional initiatives and production cutback.

Mexico and Central American countries have planned to destroy 5 per cent of their production considered to be of poor quality. Among Asian producers, Indonesia, Thailand and Vietnam are planning to stockpile robusta coffee to support the market price. India is also expected to take part in this Asian initiative, the ICO Executive Director has said.

Several countries are seeing coffee farms being abandoned or farm maintenance being reduced as price levels fall below production costs. In the absence of subsidies, coffee growing has ceased to be profitable and is seeing an ever shrinking workforce, with workers often opting for emigration, the ICO official lamented.

Brazilian production next year (crop year 2003-04) which commences in April 2003 is likely to be affected by a marked biennial, with coffee trees needing time to recover after yielding a bumper harvest in the current year.

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