Coffee Nations Fret As Volatile Prices Threaten Demand

Coffee producing nations led by Brazil began talks in London on Monday when they will discuss whether to suspend their export quotas to try to help cool an explosive rally in world prices.

Some of the 14 members of the Association of Coffee Producing Countries (ACPC) worry that soaring prices - one US futures contract hit a 20-year high last week - may erode demand for the beverage as people drink tea or soft drinks instead.

"It is not logical to keep the quota system right now," the chief delegate of Costa Rica, Ricardo Seevers, told reporters.

As the talks began, London coffee futures extended the blistering rally that has seen prices roughly double since 1997 began, in the longest sustained rally for two decades. The July contract was up $125 at $2,180 per tonne within 20 minutes of the start of trading.A volatile mix of factors - low stocks, tight supply from Colombia and fears that Brazil may have another frost - has lured speculators to the futures markets.

 

The London coffee talks opened with a session of an ACPC technical group of Brazil, Colombia, Ivory Coast, Indonesia, Uganda and El Salvador which will put forward proposals for a full meeting on Wednesday.

The attitude of Brazil, the biggest seller, may be crucial to any decisions. But the Brazilian president of the ACPC, Rubens Barbosa, declined to make any comment to reporters on Monday morning.

Indonesian delegates said it was necessary for the group to consider suspending quotas. Costa Rica's Seevers, attending the technical session as an observer, said this view was shared by Central American producers.

Last week saw New York spot May futures for quality arabica beans trade at $2.79 per pound, the highest since June 1977. July, a more active and representative arabica contract, has more than doubled to reach $2.62 this year. Prices eased slightly late last week on profit taking, dealers reported.

The ACPC accounts for about 75 percent of world output. Quota rules now in force aim to cap its exports at 25.5 million bags in the first half of 1997.

But at talks in March the members rescinded new cuts by 500,000 bags as the market tightened, even as some delegates now talk of suspending quotas altogether.

A top official from Colombia hinted last week that he would be ready to put any extension of the export curbs beyond June 30 on hold.

"The producers' desire is to send a signal to the markets and there's no question of having prices at a certain level just for the sake of it or of creating artificial conditions," said Jorge Cardenas, veteran head of the Colombian Coffee Federation.

Government officials said linchpin Brazil's position will only be defined during the London talks. But Gilson Ximenes, the president of the growers' Brazilian Coffee Council, said he was in favour of retained the current quota policy.(Reuter)

Brazil is expected to exceed its quota for January-June by about 1.0 million bags but local exporters say there was a shortfall of 2.0 million in quotas in the previous programme.

The French and British were last Friday the latest among consumers to be stung by new price rises in the shops.

Douwe Egberts France, owned by Sara Lee Corp, said this year's French retail increases on its arabica coffees now totalled around 45 percent.

French Cafes Excella SA said it planned new retail prices rises in June. But marketing director Jean-Jacques Dothee said he did not believe that futures reflected supply/demand fundamentals.

"There is no risk of a coffee shortage. We are being held hostage by a speculative game..." he said.

Dothee also gave a warning that high prices might scare away consumers, notably young people switching to soft drinks.