COMMODITIES-BRAZIL: Government Comes to Coffee’s Rescue

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 21 2002 (IPS) - The Brazilian government began to buy up local surplus coffee Wednesday in a bid to prevent low international prices from pushing growers into bankruptcy even though they are producing and exporting more coffee this year than ever.

The over-supply of coffee on the global market has sent prices downwards, maintaining the decline that has persisted over the last four years.

This state acquisition could amass as many as six million 60- kilo sacks of coffee, which are destined for the inventory of the state-run National Supply Company (CONAB).

The first auction, with prices near 30 percent over the national market levels, removed 909,600 sacks from the marketplace, or 71 percent of the total.

The volumes and conditions of future government purchases will depend on how interested coffee-growers are in getting rid of their own reserves.

Brasilia has also opened a line of credit for coffee export companies, allowing them to expand their storage capacities as they await higher prices.

This intervention to shore up Brazil’s coffee economy came about as a result of Brazil’s unprecedented harvest this year, which is almost completed.

CONAB estimates that the total will hit 44.7 million sacks, 58.8 percent more than last year.

Meanwhile, the Council of Green Coffee Exporters (CECAFE) predicts foreign sales of 25 million sacks in 2002, surpassing last year’s 23.5 million, which itself was a record, with a 29.7- percent increase over the 2000 total.

Brazil, the world’s leading coffee producer and exporter, recovered the slice of the international market it had lost in the 1990s, but coffee export revenues have been in a slump since 1998 due to the excess supply of the bean worldwide.

Income for this sector fell from 1.78 billion dollars in 2000 to 1.43 billion last year, and to 647 million dollars in the first seven months of this year. Arabica coffee, Brazil’s most popular export variety, has fetched an average price of just 49.67 dollars per sack this year, 27 percent below 2001 prices.

The International Coffee Organisation (ICO) predicts a reversal of this trend during the coffee-growing year 2003-2004, with demand outstripping supply, which would push prices upwards — that is, if Brazilian output does not surpass 30 million sacks of coffee.

There is no way to accurately predict the volume of Brazil’s harvest for that period, and the results of the first bloom will not be known until October, but the ICO forecast has three solid foundations, Hercilio Amaral, secretary-general of Brazil’s National Coffee Council of growers, told IPS.

These three bases are the biennial cycle of alternating stronger and weaker coffee harvests, predictions of scant rainfall in Brazil’s top coffee-growing regions, and the likely decline in productivity arising from the price slump, which has discouraged investments in the sector, explained Amaral.

The new government measures will help stabilise the market and pave the way towards overcoming the prolonged crisis afflicting the coffee industry, he said.

The magnitude of Brazil’s production and exports are determining factors in fluctuations of the international coffee market. The freezes that hit the South American country in 1975 and 1981 devastated coffee crops for several years, pushing prices upwards.

The expansion of coffee growing in other countries, which sought to cash in on the price rises, ultimately led to over- production worldwide, with subsequent price drops and social consequences in a sector that employs millions of people.

The same cycle was repeated following the freezes of 1994, but was exacerbated by the effects of a halt five years earlier to an agreement between coffee exporting and importing countries to regulate trade through quotas in order to stabilise the market.

In 1997, high coffee prices allowed Brazil to take in more than 3.0 billion dollars from exports of that commodity, double the mark of 1996, even though the volume of those exports fell by a third between 1996 and 1997.

The high profits in coffee spurred the proliferation of coffee plantations around the globe. Vietnam became the star of the process, as it became the world’s second producer in just a few years, bumping Colombia to third place.

The current crisis has caused financial losses and bankruptcies everywhere, but Brazil upped its sales due to the increase in productivity from new coffee plantations, the depreciation of the currency — the real — in early 1999, and the reduced export capacity of Colombia and Central America, its competitors on the Arabica coffee market.

The problems marking the last few years have discouraged many of those who were attracted to the coffee business by the high prices of 1994-1998, but those who have been in coffee farming since before that time are still growing the bean, said Amaral.

This repeats the phenomenon “of the four crises I have lived through in the last two decades,” caused by freezes or low prices, stated the head of the National Coffee Council.