Brazil, Colombia and Central American producers announced on Sunday that they would be holding back 20 per cent of their exports from 1 October, in an effort to revive prices that have more than halved since 1989. Latin American producers account for about 60 per cent of world exports.
Alex Ole Murunga, general manager of the Coffee Board of Kenya, said the move 'would definitely boost prices and we are inclined to go along with it'. Coffee for September delivery increased by dollars 24 a ton to dollars 952; traders said that if the price cracked the dollars 950 barrier it could head up to dollars 1,000.
Before the 1989 collapse of the International Coffee Agreement - a pact between suppliers and consumers - the price was above dollars 2,000. With no form of control, prices tumbled and led to misery in producer countries, which say they have lost dollars 10bn in export revenue. There was not, however, a corresponding drop in the retail price of coffee.
The coffee price reached a 20-year low of dollars 670 a year ago. It rallied on signs that the Brazilian coffee crop was shrinking, but dropped back when it emerged that stocks held by consumer countries had failed to fall as a result.
Until this March there were hopes that a new accord with the consumers would be signed. The price rose modestly after these were dashed, as the markets decided unilateral action had become more likely.
Lawrence Eagles, an analyst with GNI, the London futures broker, said he was sceptical that a producers-only agreement would be effective. 'Not the least of the problems is policing the agreement,' he said. 'Without the consuming countries, you have to have independent verification.'
Although he expected other big producers, such as Indonesia, to join up, a prospective cartel would also be undermined by the consumer countries' stocks. These now stand at 20 million tons, compared with a normal level of 10-12 million tons. 'If the price goes up, they will just draw down their stocks.'
Mr Eagles said there could be further reaction today, when the US futures market reopens after the Independence Day holiday. Most Latin American coffee is traded in New York.