Coffee set for prolonged surge in prices on short harvests

Coffee prices are set to rise after an exceptionally poor harvest year in both Colombia and Brazil, the world's leading coffee producers.

Last year's Colombia harvest was the worst since 1974, due to bad weather, with the International Coffee Organization (ICO) warning the coffee crop for next crop year, beginning September 30, could also fall short of the 9.5 million bags predicted.

As things stand, analysts predict that global demand will be about 131 million bags in 2010, while world production will be around 124 million bags, leading to a further rundown in world coffee stocks, which are already running low.

This has already seen prices surging, from last year’s average price per pound of coffee of 115.67 US cents to an average this year to the end of March of 125.3 US cents per pound, according to the ICO’s composite price index.

The price rises have also been coming through strongly in Kenya, with the price of AA grade coffee up by $54 dollars to $686 per 50kg bag just in the two weeks from the beginning of March.

Kenya currently exports some 57,800 tons of coffee a year to European countries, including German, USA, Sweden, England and Belgium.

Globally, Arabica coffee now accounts for around 60 percent of coffee exports, at 59.53 million bags in the year to March, compared with the more downmarket Robusta, at 32.74 million bags.

Arabica coffee is used for making fresh coffee and up-market instant coffees, with cheaper instant brands made primarily from Robusta.

However, Arabica supplies look set to remain under pressure.

The Brazilian government agency CONAB has released its 2nd estimate for the 2010/11 crop, showing improved production levels in the year ahead. Output is predicted to be 47.04 million bags, compared to 36.9 million bags in 2009/2010.

But while Brazil’s expected return to higher output will push world production to 124 million bags that total remains substantially short of world demand estimates.

Moreover, other producers have also suffered major setbacks, such as Guatemala, where production dipped by 30 per cent in the 2009-2010 coffee season.

Meanwhile, demand continues to rise.  The ICO now predicts further price rises based on the 2010/2011 harvest predictions.

 Written By Robin Okuthe and James Karuga