There's not a lot of coffee in Brazil this year

Prices will rise as farmers are ground down, reports Phil Davison
Brace yourselves for a surge in the price of coffee. And you can blame it on Colombian cocaine producers, a plague of insects, Brazilian showers or financial speculators.

Experts predict your coffee break is about to cost you considerably more within the next few days as supermarkets stick higher price tags on coffee beans, both ground and instant. They are distinctly less clear about the reason.

What we do know is that the price that the big roasting corporations pay to producers has rocketed 40 per cent since December and is about to be reflected on your supermarket shelves. The Dutch company Douwe Egberts yesterday became the first of the major roasters to warn retailers of an impending increase. It said it would raise retail prices by about 7 per cent on average for a 250-gramme pack.

Why? Take your pick. One factor is certainly bad weather during the recent harvesting season in Central and South America - particularly the world's top two producers, Brazil and Colombia. It is likely to cut their exports and further reduce dwindling stocks in the consumer nations.

Then there are the reports of a pending strike by Colombia's coffee farmers. They are angered by the fact that the world price rise has not been passed on to them by their National Coffee Federation. The government has also refused their demands for debt relief.

Another strike threatened by Colombia's public workers next Tuesday could also disrupt supplies. Previous strikes, by port workers last month and truck drivers previously, led to panic buying by roasters and pushed up prices.

Colombia, whose coffee exports make up around one-quarter of the world total in dollar terms, considers its green coffee beans, of the arabica variety and known in the trade as Colombia Milds, to be the best in the world. That, of course, would be considered sacrilege by the Jamaican growers of Blue Mountain coffee.

On his farm, the Hacienda La Colina in Pereira, Colombia, grower Fabio Zuluaga notes another problem. "An experienced coffee bean picker earns around twice the minimum wage during the September-November picking season," he said. "But the traditional pickers can now earn five times that much by picking coca leaves for the narco-traffickers."

Coca leaf, the basis for cocaine, used to be grown mainly in Peru and Bolivia. To cut costs and beat drug-interdiction efforts, however, the big Colombian cocaine cartels now finance coca leaf growing in remote areas of Colombia, tempting coffee bean pickers away.

Like other Colombian growers, Mr Zuluaga has also been battling a plague of insects known as broca, barely visible to the human eye but deadly to the coffee bean. In the barn where he separates his beans according to quality, he has posted a warning placard which reads: "Don't leave ripe or over-ripe fruit near your coffee fields. It feeds the broca. Attack the broca before it destroys your harvest."

Neil Rosser, of London's ED and F Man International tradehouse, says prices are also being affected by reports that Brazil's 1997 crop may be significantly below earlier estimates, following heavy rains last week. Some revised estimates speak of Brazilian production of only 18 million bags, compared with last year's already relatively-low 27 million bags. A bag weighs 60kg or 132 pounds.

"Coffee prices don't always move in response to the basic conditions, however," said Martin Wattam of the London-based International Coffee Organisation. "It's a highly unpredictable market. At present there's something of a shortfall in supply since the Association of Coffee Producing Countries is curtailing exports to bolster prices."

"Don't forget, when you talk about adverse weather and impending strikes, it's in the interests of the producers to talk up prices," said another London-based expert. "It's not always easy to distinguish."

On the sidelines of a meeting in Bali, Indonesia, this week of the 61- nation ICO, grouping producers and consumers, the organisation's Executive Director, Celsius Lodder, admitted to Reuters there was some confusion. "The fundamentals are not explaining price variations 100 per cent," he said. "The fundamentals of demand, supply and stocks, weather conditions ... elements you use to analyse the market, they are not explaining price movement." He appeared to be referring to speculation in the coffee futures market.

The answer may lie in the financial markets, where coffee is just another way to make money. "We've seen a lot of fund buying," said Mr Rosser. "People who maybe used to dealing in foreign exchange are now investing in coffee. That, in turn, has a snowball effect and attracts more funds."

Bean counting

The leading coffee producers, in descending order, are: Brazil, Colombia, Indonesia, Mexico and Vietnam.

The top consumers are: the US, Germany, Japan, France and Italy. Britain is sixth, consuming 2.42 million 60kg (132 pound) bags a year.