Commodities: Producers sign coffee pact

Lisa Vaughan
Sunday 22 August 1993 23:02 BST

COFFEE prices in British supermarkets could be set to rise, after last week's deal under which Latin American and African coffee producers accounting for 80 per cent of world coffee production agreed to set up an Opec-style cartel.

In a display of unity not seen for at least four years, 19 Latin American and African countries signed an agreement in Kampala, Uganda, promising to withhold 20 per cent of their coffee output from the world market from October to boost prices.

But prices in the shops will be affected only if the producers can finance, execute and police the scheme and that is a big 'if'. Coffee producers have a long history of disagreements, scotching efforts to work together to support the market.

Nevertheless, news of the plan saw coffee prices on the London futures market jump above dollars 1,220 a tonne, their highest in at least two years. By Friday they fell back to dollars 1,201, a weekly gain of about dollars 79 - though still dollars 200 up on a month ago.

A spokesman for Nestle, which makes Gold Blend and Nescafe and has a 40 per cent share of the instant coffee market, said it was watching the situation carefully, but had no plans at the moment for a price increase. A 100g jar of Nescafe has been selling for pounds 1.39 in most supermarkets over the past three years while world prices have been depressed. But in the past decade, price changes on its brands of instant coffee have been up to 20p a time.

London traders, who buy from producers and sell to roasters, said it was too soon to predict whether prices would continue climbing.

Ian Breminer, chairman of the UK Coffee Trade Federation, said: 'We all want to see exactly what is coming out: how they are planning to withhold coffee, how the scheme will be financed, how it will be policed. So far we have only headline news.'

Coffee-producing countries have been desperate to shore up prices since 1989, when a system of export quotas organised by the International Coffee Agreement - a pact between producing countries and consumers - collapsed.

Prices sank to the lowest real levels this century. In London, prices were at 20-year lows of around dollars 670 a year ago, compared with around dollars 3,750 during the last bull market in 1986.

Since 1989, producers' export revenues have been slashed to dollars 6bn a year from dollars 11bn because of the price fall. Disagreement among producers about how world quotas would be shared out led to the export quota system's breakdown. No country wanted to give up any of its traditional share of exports, though market realities and consumer tastes for certain coffees had changed over the years. Brazil was especially stubborn.

Repeated efforts by producers over the next few years to drum up support for a price-support system failed. Most coffee-producing countries tried to make up the revenues lost on prices by exporting hard in the free market, depressing prices further.

But in the past eight weeks, world coffee prices have revived by nearly 30 per cent as producers worked on an accord and amid scares of a frost in Brazil, the world's largest producer.

Coffee manufacturers say it usually takes four to six months for higher world prices to be passed on to consumers. But public tastes have shifted towards more expensive coffees in recent years, despite the recession. It is not clear that a 20p price rise would cause customers to switch to cheaper brands, or even drink less.

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