Will coffee plus conscience give prices a boost?

By Russell Blinch –
SINGAPORE (Reuters) – It’s the world’s second biggest commodity and it’s an indispensable fuel for many, but unlike oil there are no looming shortages and prices are anything but healthy.
Although it would be hard to tell after a trip to the gourmet coffee shop, coffee has suffered five years of depressed prices now, largely because the world is awash in low quality beans.

“There’s not much hope,” said a coffee trader at a firm in Ho Chi Minh City.
Yet some farmers are finding hope in the so-called Fair Trade model, under which the farmer gets premium prices and can re-invest in his business and pay his workers decent wages.
In turn the buyer gets access to top quality beans to market to the sophisticated coffee drinker, who might welcome a chance to sip with a clear conscience.
In the early 1990s, earnings for coffee-producing countries were around $10-12 billion and retail sales, largely in industrialised nations, totalled about $30 billion, according to the International Coffee Organisation.
A decade later, retail sales have more than doubled to $70 billion, but earnings for the often poor producing countries have fallen by half, to about $5.5 billion.
Prices, in real terms, have been at their lowest in about a century, the organisation says. Prices which averaged $1.20 per pound in the early 1980s slumped to lows of 50 cents, although they have recently recovered to around 75 cents on U.S. markets.
“The landscape for coffee is incredibly bearish,” said James Cordier, president of Liberty Trading Group, a U.S.-based specialised futures brokerage, noting sharp worldwide increase in coffee production.
Much of the coffee glut has been caused by new plantations in Brazil, the world’s number one producer, and the rise of Vietnam as the new coffee powerhouse, vying with Colombia for the number two spot.
Worldwide production in the crop year that ended in September is expected to have fallen 17.4 percent to about 100 million bags. But analysts hold out little hope for struggling producers.
“Despite this situation, which could be favourable to a reduction in the imbalance between supply and demand, the existence of a fairly large volume of poor quality coffee continues to exert a downward pressure on prices, making it difficult for them to maintain any firm trend,” the International Coffee Organisation said.
The Fair Trade model frees the producer from the vagaries of world markets, but many are sceptical that the movement will do much any time soon for the average farmer burdened with producing low grade coffee.
“From the positive point of view, Fair Trade gives good prices for coffee, from $1.20-$1.45 per pound of green coffee, which is more than the non-Fair Trade producers get. But this money rarely reaches the producer directly,” said Diego Manuel Woolrich, president of the Mexican Coffee Producers Confederation.
Luis Rodriguez, chief of studies at the Salvador Coffee Council, however, believes the Fair Trade initiative does offer hope over the long run.
“I believe Fair Trade has permitted the creation of a conscience about the magnitude of the crisis in several spheres and that is something that must be recognised. It has also helped a lot of small growers who otherwise would probably have disappeared,” Rodriguez said.
Increasingly the coffee world is seen splitting into two camps, the well-paid farmers who produce the designer coffee and the farmers saddled with “robusta” beans that are bought up and used in a range of products, including instant coffee.
“We are moving toward a two-tier market where we have higher qualities being sold at one price level and commercial grades being sold at another level,” said Ted Lingle, executive director of the Specialty Coffee Association of America.
“Consumption of high quality coffee is beginning to outpace supply now, so we see those price levels moving upward. On the other hand, commercial grades — strictly those from Brazil and Vietnam — continue to wallow at the press-price levels primarily because there is an oversupply,” he said.
He said he has been anticipating a shortage of the higher grades, as evidenced by roasters scrambling to find good-quality coffees with washed-mild prices moving up.
“Consumers now are very comfortable in viewing coffee as a differentiated product. So they are much more comfortable with high prices for good quality than ever before, and we can see that there is a growing worldwide demand for good quality coffee.” Lingle said.
Source: Reuters UK