STiR coffee and tea magazine

54 STiR coffee and tea / Issue 5, 2018 (October / November) By Bethany Haye OCT 17 DEC 17 FEB 18 APR 18 JUN 18 90 120 150 Prices on the Intercontinental Exchange (ICE) fell below $1 per pound in September. The International Coffee Organiza- tion's composite indicator fell to a 57-month low in August. Source: Intercontinental Exchange ICE Series1 C-Price long-time conundrum in the coffee industry has been the disconnect between low stocks and decreasing production of arabica worldwide (very small localized increases, for example in Colombia in 2016 -2017 notwithstand- ing) and the disastrously low prices obtained by growers' co- operatives for this increasingly high-demand product. According to Conservation International, coffee is the most widely traded tropical agriculture commodity on earth. Expand- ing consumption, in terms of both quantity and quality, and higher prices paid at the point of consumption in main import- ing regions US and Europe, have spurred phenomenal growth in the retail end of the sector, with global market value of coffee expected to rise 5.5% in the next five years. Yet international coffee prices in August 2018 were down 20.1% compared to August 2017, averaging a pitiful $1.02 per pound and falling as low as $0.95. This decline is linked pri- marily to market fundamentals, though fluctuations in exchange rates and futures markets also have an impact. The monthly average of the ICO composite indicator fell by 2.9% to $1.07/lb. in July 2018. This is the lowest monthly aver- age for July since 2007, according to the International Coffee Organization (ICO). On the other hand, world coffee consumption has steadily grown at an average annual rate of 2%, increasing from 90 mil- lion 60-kilo bags in 1990/91 to an estimated 162 million bags in 2017/18. Globally coffee is valued at $300 billion. So, how is it that the grower is pocketing an ever-decreasing share of all that revenue? Obviously, there's a complex web of forces along the entire length of the supply chain at work. Number one is the downward pressure exercised by com- modities markets. Which is why in a joint statement from Brasilia on 27 August, Brazilian and Colombian agriculture ministers and agencies stressed the importance of taking con- trol of coffee stocks. "Producing countries must develop internal policies to sup- port the ordering of the supply, such as the Funcafé in Brazil, which finances the carry of inventories to avoid sales in mo- ments of depressed prices," reads the communiqué This would also help to counter the crushing power of an increasingly concentrated distribution sector, which imposes abusive payment terms of more than 200 days on growers. This is catastrophic for financing day-to-day operations and for in- vesting in the next year's crop. (See p6, UpFront.) Researchers at Cornell University who evaluated four co- operatives in Peru, Honduras, Colombia, and Mexico found "the best case scenario for a Latin American farmer is receipt of 87% of the export value." That is not enough to cover costs of farm equipment, land, and water improvements, fees to market and sell the coffee and to service debt. It's no wonder farmers are dropping coffee for other crops. But that's not the whole picture. Increased production costs Ironically, many of these costs reflect positive trends. A neces- sary but cost-incurring switch to sustainable production and the rise in labor costs - both crucial to improving environmental and socio-economic conditions for rural populations, have added to the growers' burden. In 2016, production costs finally overtook sale prices in a majority of coffee-producing regions worldwide, pushing the sector to breaking point. The sector is locked in a vicious cir- cle: the lower the price paid, the less incentive farmers have to grow coffee and the higher the rate of attrition in family-owned farms. And hence, lower production. How Far Will Prices Fall? A

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