Growers miss out on full fruits of coffee boom

by Agrimoney.com

Coffee producers have, thanks to the depreciation of the dollar, not reaped as much as might be expected from a boom in coffee markets, raising questions over how signicantly soaring prices will stimulate extra production.

The International Coffee Organization said that coffee prices, as measured by its own indicator, rose again in April to an average of 231.24 cents a pound, a 34-year high.

The high prices, coupled with "continued dynamism of consumption", had encouraged coffee exporters to lift shipments, which hit a record 10.4m bags in March, up 19.5% year on year.

Coffee exports during the first six months of the 2010-11 crop year, which began in October, rose 15.4% to 52.9m bags, led shipments of arabica beans, the type traded in New York.

'Limiting factor'

However, the gains to producers had, in their own currencies, been eroded by a decline in the dollar which on Wednesday set a three-year low against a basket of currencies, taking losses over the past year to 13%.

"Despite this firmness in prices, the depreciation of the US dollar reduced export earnings of many exporting countries, in particular Brazil, Colombia, Guatemala, India, Indonesia and Mexico," the ICO said.

Furthermore, farmers faced growing costs.

"Prices of oil products have continued to rise, further increasing costs of the important production factors in the coffee supply chain, such as transport and fertilizers."

Indeed, the raised expenses "might be a limiting factor" to investment in plantations needed to stimulate production, which last year fell behind consumption for a fourth successive season.

Inventories drained

Indeed, coffee stocks in producing countries had fallen to 13.0m tonnes, the lowest for at least 20 years, as of the start of 2010-11, sapped by the strong pace of export and, in many countries, growing domestic consumption too.

And these inventories looked set to remain weak.

"The strong export performance is unlikely to favour the immediate reconstitution of stocks in exporting countries," the ICO said.

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