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1198 views July 10, 2017 posted by Maja Wallengren

MARKET ANALYSIS: The Uncomfortable Truth For The Coffee Market After 25 Years Of Stagnated Production

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The world of coffee is in crisis with over 70 percent of the land cultivated with coffee worldwide currently being in a state of partial or complete abandonment because of close to two decades of predominantly low prices. The Uncomfortable Truth for the coffee market is that as much as the market tries to ignore the failure of growing countries to revive output in ailing farms, production has for the past 25 years remained stagnated! Yes, you read correctly — despite the many reports written by and attributed by market-indoctrinated reporters and trade-sponsored analysts, the coffee market does NOT have access to “abundant supply” and stocks in importing countries — the only stocks the trade can measure in some certifiable way — are at 6-year-lows. The figures speak for themselves — please do read on for full details, because we are not trying to make up figures for convenient arguments. SpillingTheBeans owner and author, Global Coffee Writer and Independent Commodity Analysts Maja Wallengren, has today arrived in the Colombian town of Medellin which in the next three days will host the 1st ever World Coffee Producers Forum, organized by the National Coffee Growers Federation of Colombia. Stay tuned for news from the forum over the next few days, and read on for the SHOCKING figures of a 25-year-low for Arabica production in Latin America where, with the sole exemption of Brazil, supply today is below the levels seen in 1991-92.

JULY 10, 2017 (SpillingTheBeans)–-At the beginning of 2017 the coffee trade was all excited that Honduras, Central America’s largest grower and exporter, was making a strong come-back from what had been a temporary set-back in the Honduran expansion plans that followed the rust crisis. But overall production in the region and the lack of recovery in overall numbers remains a concern to roasters and traders in the market.

“After several weak years Central American production is expected to tick up in the year to September 2017, due almost entirely to higher production in Honduras. Central America has suffered from widespread leaf rust problems, and Central American production is only 79% of what it was five years ago,” said John Abbink, analyst for the online investment forum fronteranews.com, in a blog post published last December. A review of production statistics from both the USDA, the ICO and independent German statistician F. O. Licht confirm that world coffee production, with only a handful of exemptions including Honduras, has stagnated not just since before the rust crisis, but all the way back to the 1990-91 crop cycle.

A stunning 25 years of consecutive decline from poor husbandry, low prices and aging trees have only been offset by new production from Brazil, Vietnam, Honduras, Tanzania and Ethiopia. Peru, which also saw production booming in the years up to the rust outbreak, has seen rust taking production back to the levels recorded in the late 1990s. And Colombia, while it has made a solid recovery from the production crisis that started there in 2008, is still well behind the figures of production between 14.3 and 17.8 million bags seen from Colombia between 1990 and 1993, ICO-data reveal.

Overall the key Latin American Arabica producers of Mexico, Central America, Peru and Colombia are projected to produce 32.925 million bags in the current 2016-17 harvest cycle, only a tad up from production in the last 2015-16 crop of 32.55 million bags. This is below production not only in the 1999-2000 record cycle for the region where this group of countries produced 33.3 million bags, but even further below production in the 1991-92 cycle of 35.226 million bags. Increasing the severity of the supply situation, production in 1991-92 was measured against world consumption of 79 million bags while global demand today has soared to a stunning 154-156 million bags.
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7 Comments

  • Great point on stagnant production. Persistent low prices hurt growers who must import from NorthAM nutrients & pesticides in depreciated currencies, so their trees can maintain output.

    New trees can require a 4 year investment in fertilizers & nutrients before they produce a single bean- thus low prices discourages new investment.

    Another area of concern is lax regulatory oversight into investigating possible market manipulation in the COFFEE futures market. Futures traders in NY & London can press prices lower regardless of positive supply/demand fundamentals; which transfers wealth from the growers to large multi-national buyers.

    Unfortunately these above factors have left Coffee farmers facing cruel economic circumstances, which discourages investment in new production.

    • Thanks for this excellent comment Anthony, and interesting point about regulatory oversight, this is something that could make for some interesting and much needed reporting. Really appreciate your input, Maja

  • New York quotes are no longer the reflection of supply and demand, the world of algorithms and big speculators will not get the right price. In my opinion, global public policies are necessary, including the Brazilian government, by not complying with its own legislation, allowing Brazil to sell below the cost of production, and this is DUMPING

    • Thanks for your comment Marco, I have followed your various writings about a possible dumping case, and while dumping has a lot of highly complicated issues extending beyond the actual purchase and sales prices, it’s an issue that definitively deserves a closer look and I would be more than happy to collaborate to publish more about this topic. Would you maybe be interested in writing a more detailed piece for the blog here? Best regards, Maja

  • Technology is shattering many old business models e.g. AIRBNB, Uber and Amazon. There is no reason why the current business model for coffee can’t be shattered as well. I believe that with training and a small investment many coffee cooperatives can vertically integrate their value chain and sell direct to consumers via channels like Amazon. Instead of making pennies per pound farmers can smart making dollars. My students are in the initial stages of a project with a rural cooperative in Costa Rica to see if it is feasible for the cooperative to roast, package and sell direct to US consumers. I believe that once there are several successful examples of cooperatives selling direct then many…many more will join them.
    http://www.coffeefromthefarms.com

    • Thanks for your comment Tim, we have already seen multiple efforts from producers and farms reaching out to consumers directly through the internet, and increasingly also via social media so there is no doubt that your project is feasible and targeting Coops directly is a great way to connect with tiny small holders as well. I look forward to see how this moves forward, Best Maja

  • The article makes some very nice references that encourage me to mention the following:
    1- Leaf rust has been present since the mid 1980’s without significant coverage from the news, in most of Mexico, Central, and South American producing countries. Cultural practices have mostly shifted either to only harvesting (without tending the fields regularly), to planting of high yielding varietals, (which are highly dependent on higher doses of fertilizer), and in many cases, farming practices have reduced the natural shade which aides in the preservation of cooler temperatures inside the fields. The propagation of the fungus could have been as a result of a combination of higher temperatures, humidity, winds, and debilitated plants. The quest for newer varietals that have not had time to become acclimated to the environment, lack the resistance, previous cultivars from the 1980’s had. The extensive propagation of the rust is one indicator of the precarious situations that most fields are in.
    2- Stagnation of production also has to be analyzed by different fronts. Since the collapse of the economic clause of the ICO, detailed inventory reporting in producing and consuming countries was suspended. The absence of the quota system eliminated the discipline of recounting real effective stock in producing countries. Hence, giving figures could be a little tricky. On the consumer side, stocks should be differentiated between coffee that is usable for human consumption and roasted, from those that were used to hedge and support financial operations making them unusable as physicals for market purposes. Local governments are also a contributing factor to either stimulate production or generate enough bureaucracy to hinder productivity.
    3- Crisis in the mid-nineties generated many long lasting effects, which you are making a point in your article. Many coffee fields were abandoned, and many others changed their cultivation to other uses, from real estate, rubber trees, precious woods, sugar cane, etc., which decreased the effective net cultivated areas dedicated to coffee. Subtropical forests in many cases were depleted and those will take a long time to recover. Climatic changes also should be considered in this formula.
    4- Organic production has to be considered also as a cultivation method that tends to yield much less, most organic trees are older and have not been renovated, lower density, poor husbandry, and a pulverization of land ownership may also be considered as a cause for lower output. Certification agencies became more strict as years went by, adding new sets of processes, procedures, regulations, and costs. The “premium” net prices to the grower, many not have been sufficient to compensate income to the farmer.
    5- Sustainabilty? How do we define this? Coffee is a long term cultivation system, and needs a good amount of resources, from good soil, sufficient labor, technology, a great amount of know-how, and money. The market is there. For all of us who are passionate coffee people, we will continue to find solutions to deliver one of the most incredible drinks in the world. Happy drinking!

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