The Hindu Business Line : Coffee prices seen ruling firm

Kochi, Aug 8 Contrary to expectations, the global coffee supply position next year is unlikely to outweigh the demand and in such a situation, most likely to happen according to trade sources, the prices are to rule firm in the next coffee year also.

Despite the projection of a good crop in 2008-09 in Brazil, the world’s top producer, which drives the world coffee price, the rates are ruling firm at moderate levels. It is a clear indication that there is an equilibrium between demand and supply in the world market, Mr Anil Kumar Bhandari, Coordinator, India International Coffee Festival to be held in March next year.

According to him, the consumption of coffee in the world is growing at two per cent a year while in India it is estimated 8-10 per cent.

New Areas

Another significant factor of late is that coffee is becoming popular in many non-traditional markets in Asia and Eastern Europe, where coffee consumption is increasing rapidly, he claimed. Meanwhile, a report from Vietnam, the world’s second largest producer of coffee said: “The world demand for coffee is expected to increase by 1,20,000 tonnes a year to 8.4 million tonnes by 2018.”

Indian Prospects

The total Indian output in 2008-09 is estimated at 2.93 lakh tonne as against 2.62 lakh tonne in 2007-08, Mr Bhandari said. The increase in the Indian production is insignificant given the growth in consumption in the country, he said.

Prices Up

According to International Coffee Organisation (ICO) despite a downward correction, with the ICO composite indicator price falling from 142.99 US cents per lb on July 01 to 132.17 cents/lb on July 31, prices remained firm, with the July monthly average at 132.78 cents/lb compared to 130.51 cents/lb in June.

This firmness, the ICO said, reflects the general increase in prices of agricultural and mineral commodities.

In response to these rising price levels, retail prices have been going up in most importing countries, it said.

Brazil Crop

Opening stocks in Brazil for crop year 2008-09 totalled 11 million bags, the lowest level recorded since the early 1980s, it pointed out. Even though the current Brazilian crop is likely to be large, because of the biennial crop cycle, it is likely that some of this crop will need to be retained to meet domestic consumption and export requirements in 2009-10.

Total exports, according to the ICO, during the first six months of calendar year 2008, fell by 2.8 per cent compared to that in the same period in 2007. Exports during the first half of the current year fell in some countries, particularly in Vietnam (- 18.1 per cent), Brazil (-6.1 per cent) and India (-5.5 per cent) compared to their levels in the same period in 2007.

“Possibility of increasing production in response to the firmness in coffee prices is limited by the weakness of US dollar and the rising costs of production and farm upkeep,” the ICO said. Besides, it added, in Central America production costs are relatively high while in some African countries the coffee industry has experienced difficulties in recent years. Above all opening stocks for crop year 2008-09 are expected to be at their lowest levels in many years.