1. introduction · are greece, italy, spain and portugal. in germany, gdp grew by almost 1% in...

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1 | Page Document No. 329/13/F Date: 18 October 2013 2012/2013 COFFEE MARKET REVIEW ------------------------------- 1. Introduction This report provides an overview of the recent developments in the global coffee industry, with particular emphasis on the coffee year 2012/2013. The analysis takes into account the market fundamentals such as supply and demand and price situation [the price situation is not part of the market fundamentals. The fundamental factors will explain the dynamics of prices for the 2013/2014 Coffee Year.]. The development of the coffee industry is highly dependent on the economic environment. Indeed, the global economy has weakened in 2012. A growing number of developed countries have fallen back into a double-dip recession, particularly in Europe, while those facing an accumulation of unsustainable levels of debt sank deeper into recession. Many developed countries are caught in a downward spiral reinforcing with high unemployment, a weak global demand exacerbated by fiscal austerity, high public debt and a still fragile financial system. The economic difficulties in developed countries affect the developing countries and economies in transition through the weakening of their exports and the increased volatility of capital flows and commodity price which the volatility also depends on the fluctuation of the U.S. dollar. The international economic environment in 2012 is characterized by continued uncertainty, the fragility of the financial markets and pressure on the debt of some advanced countries. Economic policies in the major advanced economies have not restored confidence in the medium-term prospects and extreme risks including those related to the viability of the euro zone continue to concern investors. Thus, the analysis is done in the context of a global economy that is facing an unprecedented crisis. This context should have depressive effects on the world economy and particularly on commodity prices. However, despite the global recession, the coffee economy has performed well except for the price aspect. Indeed, the ICO composite indicator price has trended downward since the last quarter of 2011 to reach a level of 116.45 cents US /Pound in August 2013. Exports increased during the first ten months of the coffee year 2012/13 by recording 94.5 million bags against 91.2 million bags for the same period in 2011/12. Similarly, the global consumption has increased despite the financial crisis in many importing countries. The euro zone, traditional global coffee market with the United States, faces its worst forms of economic crisis in 2012, with a GDP decline of 0.4%. The recovery of the previous two years, a rather modest growth, was short-lived: the GDP grew by 1.9% in 2010 and 1.5% in 2011, after collapsing with 4.3% in 2009. In 2013, stagnation and even a slight decline is expected while growth is projected to bounce back in 2014, around 1 to 1.5%. The euro zone is still a victim of a loss of confidence, because of the crisis of the sovereign debt and banking system in many of its member countries. These events, coupled with fiscal austerity, depress domestic demand, while the sluggish global trade penalizes export sectors. The weakness of aggregate demand makes it even more difficult to reduce budget deficits. Heavily indebted countries strive to earn competitiveness advantage by cutting salaries (internal devaluation). The most affected countries are Greece, Italy, Spain and Portugal. In Germany, GDP grew by almost 1% in 2012, while in France and the United Kingdom; it has stagnated or declined marginally.

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Page 1: 1. Introduction · are Greece, Italy, Spain and Portugal. In Germany, GDP grew by almost 1% in 2012, while in France and the United Kingdom; it has stagnated or declined marginally

1 | P a g e

Document No. 329/13/F Date: 18 October 2013

2012/2013 COFFEE MARKET REVIEW

-------------------------------

1. Introduction

This report provides an overview of the recent developments in the global coffee industry, with

particular emphasis on the coffee year 2012/2013. The analysis takes into account the market

fundamentals such as supply and demand and price situation [the price situation is not part of the

market fundamentals. The fundamental factors will explain the dynamics of prices for the

2013/2014 Coffee Year.].

The development of the coffee industry is highly dependent on the economic environment. Indeed,

the global economy has weakened in 2012. A growing number of developed countries have fallen

back into a double-dip recession, particularly in Europe, while those facing an accumulation of

unsustainable levels of debt sank deeper into recession. Many developed countries are caught in a

downward spiral reinforcing with high unemployment, a weak global demand exacerbated by

fiscal austerity, high public debt and a still fragile financial system.

The economic difficulties in developed countries affect the developing countries and economies in

transition through the weakening of their exports and the increased volatility of capital flows and

commodity price which the volatility also depends on the fluctuation of the U.S. dollar. The

international economic environment in 2012 is characterized by continued uncertainty, the

fragility of the financial markets and pressure on the debt of some advanced countries. Economic

policies in the major advanced economies have not restored confidence in the medium-term

prospects and extreme risks including those related to the viability of the euro zone continue to

concern investors. Thus, the analysis is done in the context of a global economy that is facing an

unprecedented crisis. This context should have depressive effects on the world economy and

particularly on commodity prices. However, despite the global recession, the coffee economy has

performed well except for the price aspect. Indeed, the ICO composite indicator price has trended

downward since the last quarter of 2011 to reach a level of 116.45 cents US /Pound in August

2013. Exports increased during the first ten months of the coffee year 2012/13 by recording 94.5

million bags against 91.2 million bags for the same period in 2011/12. Similarly, the global

consumption has increased despite the financial crisis in many importing countries.

The euro zone, traditional global coffee market with the United States, faces its worst forms of

economic crisis in 2012, with a GDP decline of 0.4%. The recovery of the previous two years, a

rather modest growth, was short-lived: the GDP grew by 1.9% in 2010 and 1.5% in 2011, after

collapsing with 4.3% in 2009. In 2013, stagnation and even a slight decline is expected while

growth is projected to bounce back in 2014, around 1 to 1.5%. The euro zone is still a victim of a

loss of confidence, because of the crisis of the sovereign debt and banking system in many of its

member countries. These events, coupled with fiscal austerity, depress domestic demand, while

the sluggish global trade penalizes export sectors. The weakness of aggregate demand makes it

even more difficult to reduce budget deficits. Heavily indebted countries strive to earn

competitiveness advantage by cutting salaries (internal devaluation). The most affected countries

are Greece, Italy, Spain and Portugal. In Germany, GDP grew by almost 1% in 2012, while in

France and the United Kingdom; it has stagnated or declined marginally.

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However, the overall situation on the world coffee market sounds good. Available data indicate

that coffee consumption is maintained in the developed countries of North America, Europe and

Japan, which account for about 58% of global consumption. Generally the world coffee

consumption should be dynamic, despite the global economic crisis. The consumers need for

coffee does not decreased, especially in rich countries but also by improving the standard of living

in Asia.

The International Coffee Organization (ICO) estimated that global consumption had increased by

2.4% in 2010 to reach a record of 134 million 60 kg bags and 137.6 million bags in 20111.During

the year 2012 the global consumption is estimated at 142 million bags, driven by strong demand in

emerging countries, particularly the growth of the demand for coffee in China, where coffee is

drunk mainly in restaurants or specialty channels should not slow down. The same goes for the

coffee consumption in India.

A proof of this emerging interest for coffee is the fact that Russia joined the OIC which includes

the major producing and consuming countries in March 2012.

2. Coffee Consumption

Coffee is the most consumed beverage per day after water .

1.5 billion cups of coffee are drunk every day.

Other data show how this foodstuff is integrated into the daily life of some nations. Thus, in some

places, 85% of the population drink coffee daily, 79% use it for breakfast, and 48% after lunch.

This social practice increasingly shared by the people, led directly to the development of the

global consumption of green coffee, which invariably presents a significant growth over the past

decade.

Thus, between the 2009 and 2012 coffee seasons, coffee consumption has increased from 132.27

million bags to 142 million bags, that is to say an increase of about 7.35 percent. The annual

growth rate of world consumption during the period 2000-2011 was 2.5% against 1.8% during the

period from 1990 to 1999, showing a strong momentum of consumption over the last ten years.

This trend can be explained in part by the increase in domestic coffee consumption in the

producing / exporting countries and the increasing consumption in some importing countries as

well as the increasing consumption in emerging markets.

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Table 1: World Coffee Consumption (in 000 60 kg bags): 2009-2012

2009 2010 2011 2012 Consumption

trends in %

2011-2012

World Consumption 132270 137025 139050 142002 2.1

Exporting Countries : 39615 40910 42397 43455 2.5

Brazil 18583 19070 19573 20178 3.1

Indonesia 3333 3333 3333 3584 7.5

Mexico 2200 2239 2354 2354 0.0

Ethiopia 3089 3253 3383 3387 0.1

India 1605 1725 1829 1917 4.8

Philippines 1770 1973 2150 2175 1.2

Vietnam 1068 1302 1583 1583 0.0

Venezuela 1649 1605 1650 1650 0.0

other 6320 6366 6542 6628 1.3

Importing Countries: 92653 96115 96653 98547 2.0

Traditional Markets: 69204 71004 70717 71389 1.0

Germany 8897 9292 9460 8830 -6.7

Canada 3273 3586 3574 3498 -2.1

Italy 5806 5781 5689 5731 0.7

France 5677 5713 5962 5789 -2.9

Spain 3352 3232 3149 3435 9.1

Japan 7130 7192 7015 7131 1.7

UK 3220 3134 2925 2926 0.0

USA 21436 21783 22044 22238 0.9

other 10413 11290 10898 11810 8.4

Other Importing Countries:

Emerging Markets 23449 25111 25936 27157 4.7

Russia 3131 3661 3695 3767 2.0

Republic of Korea 1551 1666 1801 1714 -4.8

Australia 1223 1370 1407 1631 15.9

Algeria 2066 2021 1942 2117 9.0

Poland 2001 2156 2034 1950 -4.1

Others 13478 14236 15057 15979 6.1

Source: ICO

Table 1 presents some data from the World coffee consumption. Looking at the trends and

performance, it appears that the consumption of the 2011/2012 Coffee Year exceeds that of the

previous year. The prospects for coffee demand continue to be promising especially in emerging

markets.

From Table 1, consumption in exporting/producing countries increased by about 10 percent over

the analysis period of four years, and 3.15% in traditional markets over the same period.

Consumption in emerging markets increased by more than 15% mainly driven by the strong

Consumption growth in Russia (20%) and Australia (33.36%). Among exporting/producing

countries, the increase showed in the consumption in countries such as Brazil and the Philippines

was important up to about 9% in Brazil and 23% in the Philippines.

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The world coffee consumption of the 2012 calendar year is estimated at 142 million bags,

representing an increase of 2.1% compared to 2011. Consumption in the traditional coffee

consuming countries reached 71.4 million bags, an increase of 1% compared to the previous year.

The United States is the largest consumer country with 22.2 million bags in 2012 against 22

million bags in 2011. In the EU, the total consumption increased slightly from 0.6% to 41 million

bags, a significant increase from 9.1% in Spain and declines of 6.7% and 2.9% in Germany and

France respectively. Consumption in Italy and the UK remained relatively stable compared to

2011.

The growth of the most dynamic coffee consumption over the recent years has been recorded in

the exporting countries. Brazil is by far the largest consumer amongst the exporting countries.

During the 2012 calendar year the volume of consumption amounted to 20.2 million bags or an

increase of 3.1 % over the previous year. A strong consumption growth was also recorded in

Indonesia, an increase from 7.5% to 3.6 million bags, and in India with an increase from 4.8 % to

1.9 million bags.

In IACO member countries, the consumption is quite negligible, even in the main producing

countries of the continent. Coffee consumption which is considered as a tradition in Ethiopia grew

between 2011 and 2012 of 0.1 % and about 10 % between 2009 and 2012. In the other countries

that are not IACO member countries, coffee consumption is becoming increasingly important. The

said countries are Algeria, South Africa, Morocco, Egypt and Sudan.

In fact, despite a trend of decline in consumption in Europe, this situation is more than offset by

increased demand in two groups of countries:

Emerging markets such as Eastern Europe, Australia and Asia.

Producing countries themselves, such as Brazil, where coffee promotional campaigns drive

consumption up. "In these countries, a whole category of people are beginning to have access to

coffee consumption. In this context, coffee is seen as a fashionable product, very trendy. It is a

status symbol that represents modernity and wealth: it is a symbol of the ideal liberal consumer

society, an ideal for the fledgling middle classes. "(Jean-Pierre Blanc, Director General Malongo

coffees).

In addition, advertising and marketing have helped change the image of coffee. We talk about it

like a wine, citing its source, its wineyard ... No wonder that the Swiss Group, Nestle recorded a

30% increase in 2009 sales of its subsidiary Nespresso brand based on high-end products.

Globalization has substantially concentrated the actors that regulate consumption practices. Thus,

five commercial coffee companies share about 40% of total imports of green coffee in the world.

In alphabetical order, they are:

Dreyfus (France);

EDF Man/Mercon (UK);

Esteve (Brazil);

Neumann (Germany);

Volcafe (Suisse.)

Meanwhile, ten roasters share amongst themselves 60% to 65% of sales of processed coffee,

mostly sold under brand names. The four largest in alphabetical order are:

Kraft Foods (United States - Jacques Vabre, Café Grand’Mère, Carte Noire,... );

Nestlé (Suisse - Nescafé, Nespresso,...);

Procter & Gamble (United States);

Sara Lee/DE (United States/Netherlands - Maison du café, Douwe Egberts, Senseo,

Merrild,..).

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Today, the actors exclusively relating to such commodity, as the Italian Lavazza or the American

Starbucks (SBUX), are scarce. The United States has three major roasters which are listed in the

stock exchange: Green Mountain Coffee Roasters Inc. (GMCR), Diedrich Coffee (DDRX) and

The J. M. Smucker Company (SJM), new owner of The Folgers Coffee Company, a group

created in 1850 and that became an overseas institution. The new strategy of the roasters is the

relocation in the producing countries. They even purchase the product at the farm gate while being

more and more involved in the production.

In general, the global economic crisis has failed to curb the growth of coffee consumption.

Instead, the global coffee consumption rose 2.5% per year since 2002 and despite the global

economic crisis, it still seems to increase slightly.

3. Coffee Exports

In response to the increasing global consumption of coffee, coffee exports rose by 9.81 percent

from the 2007/2008 and 2010 /2011 agricultural seasons or from 94,157 million bags to 103,403

million bags (see Table 2) . In 2011/2012, the world exports reached a record of 110.6 million

bags, an increase of about 7% compared to 2010 /2011. This increase is mainly due to the strong

performance of Vietnam (increase of 39.3 % compared to 2010 /2011) as well as the recovery in

Côte d’Ivoire (71.6%) and India (44.27 %).

However, Africa region exports declined by 5.73 % between 2007 /2008 and 2011/2012. Coffee

exports from Africa in 2011/2012 were the worst in the past five years. This decrease is attributed

to Ethiopia and Uganda who have experienced a fall in exports given that these two countries

account for more than half of African exports. All other coffee producing regions have

experienced increases in their coffee exports during the analysis period.

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Table 2: World coffee exports (in 000 60kg bags): 2007-2012

2007/2008 2008/2009 2009/2010 2010/2011 2011/2012

Volume of global exports

94157

95461

94589

103403

110599

IACO Members 11142 10507 11180 10835 10503

Angola 6 8 3 5 9

Benin 0 0 0 0 0

Burundi 277 351 173 351 202

Cameroon 549 540 822 545 484

Central African Republic 37 60 88 87 78

Congo, DR 216 173 163 132 158

Republic of Congo 0 0 0 0 0

Equatorial Guinea 0 0 0 0 0

Ethiopia 2806 1868 2904 3022 2832

Gabon 0 1 1 1 0

Ghana 32 20 28 113 146

Guinea 276 361 462 358 346

Côte d'Ivoire 1665 1616 2029 958 1644

Kenya 627 541 507 672 650

Liberia 2 7 8 5 6

Madagascar 155 150 45 89 137

Malawi 20 20 16 16 26

Nigeria 2 2 2 2 7

Rwanda 223 357 267 328 246

Sierra Leone 37 66 98 28 72

Tanzania 768 1116 648 795 567

Togo 134 142 202 159 151

Uganda 3210 3054 2669 3150 2727

Zambia 68 34 28 13 10

Zimbabwe 32 20 17 6 5

Asia/Océania 24701 27255 27308 26960 35669 India 3389 2954 3389 2954 4262

Indonesia 4418 5667 7990 5948 6185

Papua New Guinea 970 1064 1049 880 1418

Thailand 150 184 289 328 329

Vietnam 15774 17386 14591 16850 23475

Mexico/ Central America 14244 13329 13019 14896 16702 Costa Rica 1402 1301 1170 1209 1384

El Salvador 1430 1343 979 1904 1055

Guatemala 3822 3456 3446 3654 3721

Honduras 3395 3021 3161 3866 5474

Mexico 2555 2775 2567 2727 3392

Nicaragua 1640 1433 1696 1536 1676

South America 43294 43758 41648 47098 45877

Brazil 28044 30285 30215 33858 31888

Bolivia 73 75 82 70 83

Colombia 11557 8716 7196 8064 7299 Ecuador 962 859 1156 1274 1553

Perou 2658 3823 2999 3832 5054

Others 776 612 1434 3614 1848

Source: ICO

Exports in 2011/2012 in the South American region declined, partly because of the slack year of

the biennial cycle of production in Brazil, which recorded its highest export level in 2010/2011.

The Total exports for the first eleven months of the 2012/2013 coffee year (October to August)

being 2.7% higher than last year in the same period with 102.4 million bags in August 2013

amounted to 8.6 million bags, 6.4% less than the estimation of August 2012.

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4. The Coffee Supply

The coffee supply like all the other agricultural products is sensitive to climatic conditions,

including frost and drought while being dependant to input costs and government policies in the

entire industry. Developments in the coffee industry in Brazil, Vietnam , Colombia and Indonesia,

the four major producers , also have a significant influence on the global supply of coffee.

In general, the global coffee production was rather erratic over the past five years (see Table 3) ,

compared to the consumption that has increased slowly but steadily ( Table 1). World coffee

production increased from 128 million bags during the 2008 /2009 coffee year to about 123

million bags the following year, a decrease of 4 percent. Production still reached 133.5 million

bags for the 2010/2011 coffee year and 134.5 million bags in 2011 /2012. However as a whole ,

the production increased from 117 million bags during the 2007 / 2008 coffee year to 134.5

million bags in 2011 /2012 or an increase of 14.9 percent.

Table 3: Production figures in selected countries (000 60 kg. bags)

Crop Year 2007/08 2008/09 2009/10 2010/11 2011/12

Total

116636

128257

122660

133502

134500

IACO Members 15939 15951 15835 16305 16691

Angola 36 38 13 35 29

Benin 0 0 0 0 0

Burundi 133 412 112 352 187

Cameroon 795 750 750 608 1083

Central African Republic 43 60 93 95 120

Congo, DR 416 422 346 300 1056

Republic of Congo 3 3 3 3 3

Equatorial Guinea 0 0 0 0 0

Ethiopia 5967 4949 6931 7500 6500

Gabon 0 1 1 1 2

Ghana 31 27 33 52 35

Guinea 323 505 499 496 450

Côte d'Ivoire 2317 2397 1795 982 1600

Kenya 652 541 630 658 680

Liberia 7 12 13 9 10

Madagascar 614 728 457 529 597

Malawi 19 21 17 17 21

Nigeria 42 50 34 42 50

Rwanda 224 369 258 319 230

Sierra Leone 40 86 91 33 70

Tanzania 810 1186 709 800 534

Togo 125 138 204 161 200

Uganda 3250 3197 2797 3290 3212

Zambia 61 35 28 13 13

Zimbabwe 31 24 21 10 9

Asia&Océania 27460 34211 36372 35427 36241 India 4319 3950 4794 5033 5333

Indonesia 4474 9612 11380 9129 8250

Papua New Guinea 968 1028 1038 870 1415

Thailand 650 376 470 579 693

Vietnam 16405 18438 17825 19467 20000

Others 644 807 865 349 550

Mexico/Central America 18180 17197 16793 19078 18595

Costa Rica 1,791 1320 1450 1588 1799

El Salvador 1505 1450 1065 1860 1175

Guatemala 4100 3785 3835 3950 3750

Honduras 3842 3450 3575 4326 4500

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Crop Year 2007/08 2008/09 2009/10 2010/11 2011/12

Mexique 4150 4651 4200 4850 4300

Nicaragua 1905 1445 1871 1669 2100

Others 887 1096 797 835 971

South America 54615 60456 53181 63007 59089

Brazil 36070 45992 39470 48095 43484

Colombia 12515 8664 8098 8523 7800

Ecuador 1110 691 813 854 1075

Perou 3063 3872 3286 4069 5443

Others 1857 1237 1514 1466 1287

Other producers1 442 451 479 570 637

Source: ICO

The South America region continues to dominate the world's coffee profuction. It produced 47

percent of the world coffee for the 2007/2008, 2008/2009 and 2010/2011 coffee years. The share

of the region declined to 43 percent in 2009/2010 and to 45 percent in 2011 /2012. The decrease in

production normally associated with Brazil biennal cycle was fully offset by strong increases in

Vietnam, Honduras and Peru, among others.

African coffee production also experienced a slight increase of 0.1 percent between the 2007/2008

and 2008 /2009 coffee seasons. However, the continent's share of the world market has declined

from 13.7 percent to 12 percent during the same period. Over the past five years, however,

production increased from 15.9 million bags of coffee in 2007/2008 to 16.691million bags in

2011/2012, an increase of 4.9 percent. The share of Africa in the global coffee production is 12.4

percent for the 2011/2012 coffee year. The African coffee production is driven in recent years by

Ethiopia, Uganda and Côte d’Ivoire.

Ethiopia remains the first and largest African coffee producing country and the fifth in the world.

The country has increased its coffee production from nearly 6 million bags in 2007/2008 to 7.5

million bags in 2010/2011, or 25 percent. In 2011/2012, however, the coffee production in the

country has decreased by 13 percent to stand at 6.5 million bags.

Uganda is the second largest coffee producing country in Africa. The production, however, was

down between the 2007/2008 and 2009/2010 coffee years from 3.25 million bags in 2007/2008 to

3.2 million bags in 2008/2009 and to 2.8 million bags in 2009/2010.

Production has increased by nearly 18 percent in 2010/2011 to 3.3 million bags, but declined

slightly again with 3.2 million bags the following year.

Côte d'Ivoire is now Africa's third largest coffee producing country. The country lost the second

position which is now held by Uganda. The coffee production in the country has been seriously

affected by the internal conflict that coffee farmers have abandoned their farms. But now Côte

d’Ivoire seems to have recovered from the political crisis that has affected its production in

2010/2011 recording nearly two million bags in 2011/2012.

At the end of the 2012/2013 season, the total production was estimated at 145.2 million bags, or

9.6% more than the previous year.

The 2012/2013 coffee season was a tremendous production cycle year for Brazil, and production

has increased from 16.9 % to 50.83 million bags. The Brazil Arabica production increased from

19.1 % to 38.34 million bags while the Robusta production moved from 10.5 % to 12.48 million.

According CONAB , the Brazilian government agency responsible for crop forecasts , the total

production in 2013/2014 will decline from 6.5% to 47.54 million bags, of which 36.67 million

1 Equatorial Guinea, Guyana, Laos, Sri Lanka and Trinidad and-Tobago

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bags of Arabica and 10.88 million bags of Robusta . Elsewhere in South America, Colombia

continues to recover from four years of below average production with a total harvest in

2012/2013 estimated at 10 million bags, or 30.7 % more than the previous year. The production in

Peru, however, decreased from 17.2 % to 4.5 million bags mainly caused by coffee leaf rust

affecting up to 40% of the coffee production. The damage resulted from the coffee leaf rust were

also an important factor in Mexico and Central America causing the total production of the

region to decline by 14.7 % from 20.3 million bags in 2011/2012 to about 17.3 million in 2012

/2013. The largest decline is tentatively envisaged to occur in Nicaragua (39.3 %), followed by

Guatemala (-18.2 %) , Honduras (17 %) and Mexico ( 14.5% ) . However, production is expected

to increase in Costa Rica (+14.5 %) and El Salvador (+7.9 %).

In Asia and Oceania, the total production of coffee for the 2012/2013 season is estimated at 42.3

million bags, representing an increase of 11.3 % compared to 2011 /2012. The Production of

Vietnam is expected to be maintained around 22 million bags. In Indonesia, however, production

has increased by 74.7% to 12.7 million bags, against 7.3 million in 2011 /2012. Production in

India is relatively stable from 5.2 to 5.3 million bags, but a decline is forecast in Papua New

Guinea (-49.3 %) and Thailand (-39.9 %).

Coffee production in Africa in 2012/2013 has increased in most countries, with a total production

in the region increased by 16.6% to reach around 18.4 million bags, the highest level since 1999 /

2000. The largest producing country in the region is Ethiopia, whose production increased from

19.1 % in 2012/2013 to 8.1 million bags. Uganda showed 3.2 million bags, an increase of 13.6 %

compared to the previous year. Production in Côte d'Ivoire reached 2 million bags, an increase of

6.1%, and that of Tanzania has more than doubled from 534,000 bags in 2011/2012 to 1.1 million

in 2012/2013.

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5. World Coffee Prices

Table : Average monthly prices 2010-2012 (US Cents/Pounds)

Year/Month Composite

Price ICO

Columbia milds Other milds Natural

Brazilian

Robusta

2010

January

February

March

April

May

June

July

August

September

October

November

December

2011

January

February

March

April

May

June

July

August

September

October

November

December

2012

January

February

March

April

May

June

July

August

September

October

November

December

2013

January

February

March

April

May

June

July

August

September

October

November

December

147.24

126.85

123.37

125.30

126.89

128.10

142.20

153.41

157.46

163.61

161.56

173.90

184.26

210.39

197.35

216.03

224.33

231.24

227.97

215.58

210.36

212.19

213.04

193.90

193.66

189.02

156.34

188.90

182.29

167.77

160.46

157.68

145.31

159.07

148.50

151.28

147.12

136.35

131.31

135.38

131.51

131.38

129.55

126.96

117.58

118.93

116.45

225.46

207.51

204.71

205.71

199.50

200.33

224.49

235.52

243.98

247.77

230.02

244.02

261.97

283.84

279.88

296.44

300.68

312.95

302.17

287.95

285.21

286.97

287.54

257.66

256.99

251.60

202.08

255.91

244.14

222.84

214.46

207.32

184.67

202.56

187.14

190.10

181.39

170.08

164.40

169.19

161.70

161.53

161.76

158.35

147.55

147.46

143.26

195.96

158.90

157.86

164.50

169.24

173.28

190.90

203.21

211.59

222.71

217.64

233.48

248.17

271.07

263.77

287.89

292.07

300.12

291.09

274.98

268.02

270.44

274.88

247.82

245.09

236.71

186.47

237.21

224.16

201.26

191.45

184.65

168.69

190.45

174.82

178.98

173.32

159.91

152.74

157.29

149.46

149.78

149.81

147.19

138.26

138.39

135.15

153.68

131.67

124.57

126.21

125.71

127.32

143.20

156.87

163.21

175.15

175.38

190.62

204.25

247.62

219.77

247.00

260.98

273.40

268.66

250.59

245.69

249.83

255.64

234.28

236.75

228.79

174.97

228.21

215.40

192.03

180.90

174.17

156.17

175.98

160.05

166.53

161.20

148.25

140.69

145.17

136.63

133.61

132.62

130.29

120.01

119.47

116.81

78.74

70.08

67.88

67.25

71.52

70.61

76.92

85.27

82.68

81.28

85.27

92.04

94.06

109.21

101.09

109.35

118.13

117.37

121.98

117.95

112.73

112.07

106.06

98.10

97.24

98.41

102.82

96.72

101.93

103.57

101.80

106.88

105.70

107.06

106.52

104.95

104.47

97.67

96.59

96.69

104.03

106.26

101.68

99.18

90.79

95.21

94.01

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11 | P a g e

AVERAGE

ANNUAL

PRICES

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

45.59

47.74

51.90

62.15

89.36

95.75

107.68

124.25

115.67

147.24

210.39

156.34

72.05

64.90

65.33

81.44

115.73

116.80

125.57

144.32

177.43

225.46

283.84

202.08

62.28

61.52

64.20

80.47

114.86

114.40

123.55

139.78

143.84

195.96

271.07

186.47

50.70

45.23

50.31

68.97

102.29

103.92

111.79

126.59

115.33

153.68

247.61

174.97

27.54

30.01

36.95

35.99

50.55

67.55

86.60

105.28

74.58

78.74

109.21

102.82

Source ICO

After the crisis in coffee prices during the 2001/2002 and 2002/2003 coffee seasons, the coffee

average annual prices began to recover with the target price of the ICO composite indicator price

from 45.59 U.S cents/pounds in 2001 to 147.24 US cents/pounds in 2010 and to 210.39 U.S. cents

/pounds in 2011, an average increase of 36 percent per year between 2001 and 2011. However,

since the last quarter of 2011, there was a downward trend in the indicator of composite price

(Figure 1). Apart from Robusta, the different prices of the other origins of coffee followed a

similar trend (Figures 2, 3 and 4). This downward trend continued throughout 2012 and even

during the first six months of 2013. Coffee prices have recovered slightly in July, supported by the

possibility of a “price-freezing” in the coffee growing regions of Brazil, before declining at the

end of the month. The average of the ICO composite indicator price increased by 1.2 % compared

to the previous month but remains at its second lowest level since September 2009. As far as

Robusta is concerned, the prices were stable during the last quarter of 2011 and then began an

upward trend from February 2012 even showing heartwarming improvement. This Robusta

upward trend continued until October 2012 causing a reduction in the gap between Arabica and

Robusta. After a slight lower Robusta prices from November 2012 to January 2013, they resumed

from February to April 2013. Generally from February 2012 until August 2013, the reduction of

the gap between Arabica and Robusta continued.

Graph 1

0

50

100

150

200

250

YAER20052006200720082009201020112012

PR

ICE(

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COMPOSITE PRICE ICO

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12 | P a g e

Graph 2

Graph 3

Graph 4

Graph 5

0

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300

PR

ICE(

us

cen

t p

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lb)

COLOMBIAN MILD ARABICAS

0

50

100

150

200

250

300

PR

ICE

(us

cen

t p

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livre

)

COLUMBIAN MILDS ARABICA

0

50

100

150

200

250

300

YAER20052006200720082009201020112012

PR

ICE

(us

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OTHER ARABICA MILDS

0

50

100

150

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YAER20052006200720082009201020112012PR

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(US

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NATURAL BRAZILIAN ARABICA

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13 | P a g e

Over the 2006/2008 to 2010/2011 coffee years, the shortage of Colombian supply caused an

unprecedented increase in the price of this originated coffee. The increase noted in the prices of

the Colombian Mild had positive effects on the prices of the other groups of coffee except for

Robusta. From Table 5, the monthly average prices of all origins of coffee, with the exception of

Robusta rose steadily from January 2010, reaching their peak in April 2011. Subsequently, they

began to fall to their lowest level in December 2011. The increase in Robusta prices peaked in

May 2011 before it starts to decline. Overall, the coffee indicator price has trended downward

since the last quarter of 2011 to reach a level of 116.45 US cents / Pound in August 2013.

Price expectations vis-à-vis the Inventory Levels

Global stocks of coffee in the last decade and more constantly remained at extremely low levels,

with little or no improvement. This is because when production was low compared to the global

demand, the stocks have provided an alternative option to fill shortages in demand. Inventory

levels increased by 16 million bags in 2000 to 22 million bags in 2009, an average annual increase

of 4.3 percent.

However, the following year, the inventory levels were down by 18 percent or 18.401 million bags

in 2010. In 2011, stocks have increased again by 4 percent, or 19.118 million bags, but this level is

still lower than those achieved in 2002. In 2012 the inventory levels remained virtually unchanged

in 2011, standing at 19.091 million bags.

With an annual consumption of about 141 million bags in the 2010/2011 coffee year, the stocks

level is equivalent to less than two months of consumption. This is not enough to avoid a crisis.

Coffee Industry Outlook

The 2012/2013 coffee season was completed in October 2013. The total production was estimated

at 145.2 million bags against 134.5 million bags in 2011/2012 with an increase of 9.6%. Most of

this increase can be attributed to the successful year of the Arabica production cycle in Brazil at

the same time to Colombia which is still recovering with a total 2012/2013 harvest estimated to 10

million bags, or 30.7 % more than the previous year. Indonesia production increased from 74.7%

to 12.7 million bags, against 7.3 million in 2011/2012. The coffee production in Africa in

2012/2013 has increased in most countries, with a total production in the region increased by

16.6% to 18.4 million bags, the highest level since 1999/2000. This good performance of the

2012/2013 season has been undermined by damage caused by coffee leaf rust in Mexico and

Central America, where the total production in the region has declined to 14.7 % moving from

20.3 million bags in 2011/2012 to 17.3 million in 2012/2013. Production in Vietnam is expected

0

20

40

60

80

100

120

PR

ICE

(US

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ROBUSTA

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14 | P a g e

to remain at about 22 million bags in 2011/2012. In India the production is stable from 5.2 to 5.3

million bags. The current epidemic of leaf rust that affects Mexico and Central America and the

critical situation in Eastern and Central Africa caused by black coffee berry borer associated with

the forecasts of declining production in Brazil could cause a decline in world coffee production in

2013/2014 . As for the global consumption estimated at 139 million bags in 20111 calendar year

that rose to 142 million bags in 2012 , it is likely to further increase in 2013. Then the balance

between supply and demand would remain so tight. This should point to a future upturn in the

price of coffee. Unfortunately the downward trend that began in the last quarter of 2011 continued

during the year 2012/2013. The projected decrease in production for the 2013/ 2014 season and

the continued rise in global consumption should help reverse the prices downward trend in

2013/2014.

Lessons from the evolution of the global coffee market

The global coffee market is emerging from the crisis with a strong future. The Global

consumption in traditional markets of America and Europe increased by an average of about 2.5

percent per year the last five years, while growth in emerging markets amounted to 2.93 percent

between 2000 and 2008. Growth in new markets such as Russia, Ukraine and China during the

period was significant, averaging about 8 percent, 29 percent and 34 percent respectively. At the

same time, coffee consumption in North Africa also grew at an impressive rate. Coffee

consumption in Algeria has increased by 19 percent and that of Egypt by 59 percent while the

consumption in Tunisia reaches 45 percent during the same period. Between Algeria, Egypt,

Libya, Morocco, Niger, Sudan and Tunisia, coffee consumption has increased by an average of 3.7

percent per year between 2000 and 2008.

The African coffee producing countries should therefore try to position themselves to take

advantage of the coffee growing by integrating to their coffee revival new strategy the concept of

Chain of Values as a tool to support coffee farmers so that they obtain added value to their

primary products.