February 16, 2002
Coffee: Production cuts or return of quotas?
Sharad Mistry in Mumbai
That sinfully luxurious taste of coffee has turned a bit bitter as the coffee world currently has an awful lot of coffee on the shelf. Producers, roasters et al are trying hard to find a way out of rising coffee production which saw the prices plunge to 30-year low last year. One question debated among bean roasters is: Will coffee majors consider voluntary cut their production or bringing back the quotas first introduced in 1940? Currently, the coffee world nurses around 10 million bags (of 60 kg each) of excess production (against the demand of around 105 million bags the production is placed at around 115 million bags). And both Vietnam and Brazil, the largest coffee producers and exporters, may see their coffee production touch higher this year, with Brazil's around 40 million bags from 27.5 million last year. The need for reconsidering quotas was reportedly spelt out by participants at the recently concluded global coffee meet in New York which failed to accomplish anything to fight the supply glut in the market. It may be recalled that due to the economic importance of coffee exports, a number of Latin American countries had made arrangements before World War II to allocate export quotas so that each country would be assured a certain share of the US coffee market. The first coffee quota agreement was arranged in 1940 and was administered by an Inter-American Coffee Board. The idea of establishing coffee export quotas on a worldwide basis was then adopted in 1962, when an International Coffee Agreement was negotiated by the UN. The agreement was renegotiated in 1968, 1976, and in 1983. Despite the quotas in place, the world coffee prices plunged when participating nations failed to sign a new pact in 1989. "The world coffee industry might not recover from low prices until 2003," National Federation of Colombian Coffee Growers president Jorge Cardenas said at the 60th annual convention held in Bogota last December when he submitted his resignation after 18 years in the post. Colombia's coffee industry is confronting its worst crisis in decades after a 39 per cent decline in prices this year. Coffee is Colombia's second-largest export, providing $925 million in export revenue in 2001 and direct employment for 2.5 million people. In his final speech as president, Mr Cardenas said international prices would remain low until at least the 2002-03 season, when demand might overtake supply. But with demand rise nowhere on the horizon, at least at this stage, will the overburdened industry consider bringing back the quotas disbanded in 1989? The question seems more difficult and best not discussed openly, especially after the eight-year old 15-member Association of Coffee Producing Countries (ACPC) announced winding up of its operations last month. Producing almost 70 per cent of the global coffee, members of ACPC could not agree on who should cut what amount of coffee production to prevent the prices plunging further from last year's levels. Even some members failed to pay their subscription that made the cartel's operations difficult. Mr Cardenas had indicated last year that in the 2002-03 season, production may fall to 104 million sacks, while demand would rise to 110 million. But the opposite is seen happening. Amidst this, the Indian government has chalked out an over Rs 1,000 crore plan to boost both exports and domestic consumption during the next five years. Among other initiatives, this includes increased focus on the Arabica variety. The plan envisages five per cent annual increase in exports with a base of 2,50,000 tonne to achieve a target of 3,12,000 tonne in five years. It recommends an outlay of Rs 1,049 crore for the 10th Plan to ensure increase in domestic consumption to 90,000 tonne and exports to 3,12,000 tonne by 2007, improving productivity of Arabica plantations, and increased cultivation in north-eastern regions as well. The IICF is aimed at achieving part of these grand plans.
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