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2.0 World Coffee Production and Trade

2.1 Introduction

The world coffee demand and supply have traditionally followed a cyclical pattern driven by prices on the world market. From the mid-1980s, prolonged low prices in the cycle were predominant feature due to frequent oversupply, while short sharp price peaks followed natural disasters. By 1986/87 prices reached very high levels following the extensive drought in Brazil in 1985, which caused a large drop in output and a substantial reduction in global stocks. This event resulted in a considerable expansion in coffee areas. The ensuing over-supply situation in the early- 1980s was partly the result of international and national price support schemes which, to a large extent, insulated coffee producers from lower world market prices

2.2 International Coffee Organisation (ICO).

The International Coffee Organisation is an intergovernmental body whose members are coffee exporting and importing countries. It administers the International Coffee Agreement and is committed to improving conditions in the world coffee economy through international co-operation.

It was set up in London in 1963 because of the great economic importance of coffee. Coffee is one of the world's largest traded commodities with 100 million bags produced in 50 countries, providing a livelihood for some 100 million people around the world. Many of these countries are heavily dependent on coffee, which can account for over 80% of their total export earnings. Among consumers coffee is a universally popular drink, with over US$50 billion in retail sales a year. ICO exporting members account for over 97 percent of world coffee production and its importing Members are responsible for 65% of world coffee consumption. Discussions involve both developing and developed countries and members generally operate on a consensus basis so that important and sensitive measures which can have a major impact on coffee achieve widespread support and acceptance.

The ICO operated a quota system, whereby coffee supplies in excess of consumer requirements were withheld from the market, on and off from 1962 to 1989, when the system was suspended because of failure to agree on quota distribution. However even at that time decisions required the agreement of consuming Member countries. The 1962 and 1968 International Coffee Agreements contained provisions for the application of a quota system, together with other provisions for activities such as promotion. The operation of these Agreements helped prices to remain relatively stable throughout the years 1963 to 1972 and production and consumption became more evenly balanced. Changes in the pattern of supply and demand, resulting in an increase in prices, led to the collapse of the quota system in 1973, and the 1968 Agreement was extended with all provisions deleted. The 1976 Agreement included a new feature allowing for the suspension of quotas if prices were high and their reintroduction if prices became too low. Under this system, quotas were introduced in 1980 and remained in effect for most of the 1983 Agreement. While in effect, this Agreement was largely successful in maintaining prices within the agreed range of 120 - 140 US cents per lb. However the present Agreement has no provision for this type of regulatory mechanism.

A quota is the amount of coffee which exporting members are entitled to export under the terms of the Agreement. This is referred to as a coffee export quota. The global quota is the total quota for all exporting members and is set by the ICO council annually in accordance with the provisions of the Agreement. It is referred to as a global annual quota.
Individual annual quotas are allocated to all exporting members and are divided into quarterly quotas to ensure an orderly flow of coffee to the market. Adjustments to quotas may be made in response to market conditions in accordance with the procedures for the operation of a price/quota system.

Under the economic provisions of the 1983 ICO Agreement, members exporting more than 400,000 bags of coffee a year were entitled to a basic quota distributed among exporting members in accordance with the proportions established in the Agreement. Members exporting less than 400,000 bags were exempt from the allocation of a basic quota.

The ICO today helps price equilibrium by developing demand for coffee in emerging markets and through projects to reduce damage from pests and improve marketing and quality, enhancing coffee growers' long-term competitiveness and contributing to the fight against poverty.

In particular, it makes a practical contribution to the world coffee economy through:

2.3 World Coffee Production

World green coffee production reached 6.3 million tonnes in 1998/99. Latin American production increased almost 22 percent between 1997/98 and 1998/99, attributable to a 52 percent expansion in Brazilian production, which more than offset reductions in other major regional coffee producers. Production declines were notable for both Guatemala and Mexico, 19 and 14 percent respectively, between 1997/98 and 1998/99 due to damages sustained from Hurricane Mitch. Colombian production was also down by 6 percent for 1998/99 due to excessive rains which adversely affected bloom-stage tree development, resulting in reduced cherry output.

World exports of coffee were 4.8 million tonnes in 1998, a 12 percent increase over 1997. Exports from Brazil almost doubled to 1.3 million tonnes during 1998, and accounted for 28 percent of world total exports. Guatemala and Mexico, other major Latin American exporters registered declines in coffee exports. Shipments from major African coffee exporting countries such as Ethiopia, Kenya and Uganda increased over the same period, while exports from important Asian exporters, Indonesia and Vietnam, declined. The major coffee producing countries in Africa are Cote d' lvoire (Robusta), Cameroon (Robusta and Arabica), Ethiopia (Arabica), Uganda (87% Robusta and 13% Arabica), Kenya (Arabica) and Tanzania (64% Arabica and 36% Robusta). Annex 1 shows world coffee production figures for most of the World coffee producing countries for crop years, 1994/95 to 1999/2000.

2.4 Coffee Production in Africa Countries.

African coffee production increased by 8 percent between 1997/98 and 1998/99, attributable to increased production in Uganda and Ethiopia. Both countries, the world's eighth and ninth largest producers, registered significantly higher outputs in the 1998/99 season. These increases offset a reduction in Cote d'lvoire, where the impacts of drought continued to diminish coffee production in 1998/99.

Annex 2 shows coffee exports for selected African coffee producing countries for the years 1988 to 1998, while Annex 3 shows the monthly and annual average indicator prices for 1998 to 2000.


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