African softs likely to withstand economic downturn; The agricultural sector may escape the worst of the global economic crisis. There is little evidence that consumers in developed and emerging countries are cutting back on coffee, tea, cocoa, sugar, maize, rice and Soya bean consumption, or will do so in the near term.

Cocoa

In crop year 2007/08 (ended 30 September), total world production of cocoa beans was estimated by the International Cocoa Organisation (ICCO) at 3,684,000 tonnes (t), up 9% on the previous season.

Global cocoa grindings, a proxy for consumption, rose by 2% to 3,724,000t (see Tables 1&2). Therefore, for the second year running, a supply deficit (allowing for 1% bean weight loss) of 77,000t was recorded, though down from 304,000t during the 2006/07 season. End-of-season stocks fell 5% to l,493t, representing stocks/grindings ratio of 40% or five months of annual consumption.

Table 1: Production of cocoa beans (000 tonnes)

                                   2006/07  2007/08  Yr-on-yr (%) chg

World crop                          3,379    3,684          9.0

Africa                              2,336    2,644         13.2

Americas                              409      455         11.2

Asia & Oceania                        633      585         -7.6

Africa's (%) share of world total    69.1     71.7

Major SSA Producers

Cote d'lvoire                       1,229    1,365         11.0

Ghana                                 614      759         23.6

Nigeria                               190      200          5.2

Cameroon                              169      183          8.3

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Table 2: Grindings of cocoa beans (000 tonnes)

                                   2006/07  2007/08  Yr-on-yr (%) chg

World                               3,649    3,724         2.1

Europe                              1,527    1,555         1.8

Africa                                545      553         1.5

Americas                              848      853         0.6

Asia & Oceania                        729      763         4.7

Regional (%) share of world total

Europe                               41.8     41.8

Americas                             23.2     23.0

Asia & Oceania                       20.0     20.4

Africa                               14.9     14.8

Source: International Cocoa Organisation.

West Africa, led by Cote d'lvoire (the world's No.l grower) accounted for 72% of total cocoa output or 2,644,000t. The ICCO figures show Ivorian crop at 1,365,000t, Ghana (759,000t), Nigeria (200,000t) and Cameroon (183,000t). Major non-African producers were Indonesia (480,000t), Brazil (171,000t) and Ecuador (113,000t).

On the demand side, the top five grinders in 2007/08 were Netherlands, which used 465,000t, followed by the US at 400,000t, Germany 385,000t, Cote d'lvoire 365,000t and Malaysia 300,000t.

At the regional level, Europe remains the largest market--accounting for 42% of world grindings--well ahead of the Americas and Asia at 23% and 20% respectively. By contrast, Africa, which is the key cocoa-belt region, represents only 15% of world grindings, thus reflecting a lack of processing capacity.

The ICCO Secretariat warns of a supply crunch in 2008/09 because of poor Ivorian and Ghanaian harvesting. Cocoa arrivals at Ivorian ports could fall 15% (yr-yr) to between 850,000t and 900,000t, according to exporters. Abah Ofon of Standard Chartered Bank agreed by saying: "For now, the overriding concern is supply." Macquarie Bank of Australia forecasts a global deficit of 88,000t.

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However, Cote d'lvoire is pivotal to market fundamentals. Some analysts, including France's Cirad tropical agriculture institute, believe output has peaked. This season's Ivorian crop may dip to 1mt, down 26% on 2007/08, due to diseases (the so-called blackpod ailment), low farm-gate prices--farmers receive only 35-40% of world prices, compared with about 75-90% in rival producer countries--and excessive rains delaying harvesting of main crop. Fortis Bank also warns that without new investments and better husbandry, Cote d'Ivoire could struggle to sustain annual capacity of 1mt. That would support a tight supply-demand balance, thus higher bean prices in coming years.

Cocobod, Ghana's cocoa industry regulator expects this season's crop at 650,000t, down on previous estimates of 700,000t. Looking ahead, Ghana, the world's second-biggest producer, could grow 1mt by 2010/11, according to Tony Fofie, chief executive of Cocobod. Last year's bumper harvest led to increased cocoa export earnings of $1,156m. The guaranteed price paid to Ghanaian cocoa farmers in the new season was increased from cedi 1,200/t to cedi 1,632/t. While in Cameroon, preliminary forecast for 2008/09 puts output at 190,000t.

The two major West African producers will boost their processing capacity in 2009. In Cote d'Ivoire, two new factories--IVCAO (Ivoire Cacao) in Abidjan and Choco-Ivoire in San Pedro--are expected to come on stream soon. But the building of a third factory by Russia's United Confectioners was suspended.

In Ghana, the US company Cargill has completed the building of a facility last November, with annual processing capacity of 65,000t. Ghana processed 125,000t in 2007/08. The new government aspires to process 60% of cocoa output domestically. Cocobod claims Ghana's annual grinding capacity can reach 500,000t within few years due to new facilities being built by foreign companies--namely Archer Daniels Midland and Cargill--around the main ports of Takoradi and Tema.

While Nigeria, the world's fourth-biggest producer, has the capacity to process 100,000t of cocoa beans annually, equal to half of total output, most of its eight plants are said to be operating at 60% due to poor infrastructure, high running costs and excess taxation. About 90% of Nigerian cocoa output is exported to Europe. Felix Oladunjoye, secretary-general of the Cocoa Processors Association of Nigeria (Copan), explained: "Most cocoa processors are not producing and the few that are processing are doing so sporadically because there is no demand for processed products in Europe."

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Tea

The London-based International Tea Committee reported 2008 world output at 1,900,693t, led by the big three--chiefly India (974,568t), Kenya (334,658t) and Sri Lanka (332,963t). Over the past decade, they have controlled more than four fifths of the tea market. On a regional basis, Asia accounts for 75% of global tea crop against Africa's 25% market share (see Table 4).

Table 4: Production of tea--twelve-month rolling totals (tonnes)

     Country        Nov 06-Oct 07  Nov 07-Oct 08  Yr-on-yr (%) chg

India                   938,329        974,568             3.8

Kenya                   374,498        334,658           -10.6

Sri Lanka               296,636        332,963            12.2

Indonesia                80,853         79,822            -1.3

Bangladesh               58,410         57,964            -0.7

Malawi                   47,752         44,696            -6.4

Tanzania *               35,356         28,270            20.0

Zimbabwe #               14,111          9,038           -36.0

Uganda *                 43,953         38,714           -11.9

World total           1,889.898      1,900.693             0.6

African total           515,670        455,376           -12.0

Africa's (%) share         27.3          24.0
of world total

* Rolling totals are up to September 2008
# Rolling totals are up to August 2008.
Source: International Tea Committee.

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Using a different weighting system, the Tea Board of Kenya put the 2008 crop at 345m kg, down from its record 369m kg in 2007. Long dry spells led to lower harvest in Nandi, east of the Rift and East Usambaras regions.

About 95% of Kenyan tea is exported--fetching East Africa's number-one economy $779.3m in 2008--up 22% on the previous year--thanks to firmer prices. The average price at Mombasa auction for 2008 was $2.22/kg, compared to $1.66/kg in 2007. Despite record earnings, Lerionka Tiampati, managing director of the Kenya Tea Development Agency, complained that the sector was affected by higher fuel, labour and input costs, plus the shilling's depreciation over 2008.

African tea sale volumes at the Mombasa auction last year amounted to 303m kg, down from 344.3m kg in 2007, reflecting poor weather and subdued demand, according to Africa Tea Brokers Limited.

Kenya saw its sales falling 13% to 228m kg--equal to three fourths of the region's total. Uganda and Tanzania registered small increases in their sales. Kenyan black teas continued to fetch the highest prices at $2.3/kg, followed by Rwanda ($2.24/kg), Burundi ($2.14/kg) and Uganda ($1.8/kg).

At the lower scale were Zambia ($0.7/kg), Malawi ($1.2/kg), Mozambique ($1.2/kg) and DR Congo ($I.4/kg). One official from the East African Tea Traders Association told the London-based weekly journal The Public Ledger. "The quality of tea from some of the origins has suffered poor quality and is regarded lowly by most importers." Malawian crop, Africa's second-biggest, fell 10% to 36m kg in the year to October 2008.

Tanzania expects to boost 2008/09 tea output (ending June) by 13% thanks to increased plantings and good climate. Mathias Assenga, director-general of the Tea Board of Tanzania, predicts this season's crop at 37m kg, of which 29m kg (worth $41m) will be exported, compared with $37m earned during 2007/08 from shipments of 26.9m kg.

Production should rise further helped by a plantation rehabilitation project, which aims to develop 2,000 hectares of tea estates in south and northeast Tanzania, along with restoring three tea factories. It aims to harvest 44m kg by 2010/11 by raising yields to 1,500 kg/hectare for small farmers and to 2,500 kg/hectare for estate farmers. Mr Assenga said: "These are now being developed. If these things go well and the weather conditions do not change, we can achieve that production." Tanzania currently has about 22,700 hectares under tea cultivation, with 11,300 hectares owned by estates and the rest owned by some 32,000 smallholders.

Rwanda, whose 2008 tea crop totalled 19,400t, aims to boost its export revenues by one fifth to $54m in 2009 from $44m previously, by promoting its products to speciality markets. A recent survey by US consultancy OTF found that most international tea buyers would prefer blended and packaged single-origin Rwandan teas. The finding prompted the government to seek investments in better equipment, expert tasting and blending as well as marketing to test demand for a single Rwanda brand. The Rwanda Tea Authority plans to build five new factories by 2012 to process the extra output with improved quality. The country has six state-owned factories plus four private plantation operators.

Coffee

The total 2008/09 season (April-March) coffee crop is estimated at 134.2m bags, up 15% on the previous year, according to the International Coffee Organisation (ICO). It notes: "This crop year has witnessed increased production in a number of countries, notably Ethiopia, India and Vietnam."

The big five growers are Brazil (46m bags), Vietnam (19.5m bags), Colombia (12.3m bags), Indonesia (6.2m bags) and Ethiopia (6.1m bags). The IOC puts the African crop at 17.6m bags (13% of the world's total), comprising 9.6m bags of finer Arabian beans used for making higher quality 'gourmet' blends and 8m bags of robustas used for making instant coffee and lower-quality blends (see Table 3). After Ethiopia, Uganda and Cote d'Ivoire are major regional producers, with output pegged at 3.5m bags and 2.5m bags respectively, in 2008.

Table 3: Production of coffee (000 bags)

                        2006    2007    2008   (%) chg 2006-08

African crop           15,233  14,605  17,634        15.7

Of which:

Arabicas                7,415   7,386   9,626        29.8

Robustas                7,818   7,219   8,008         2.4

Africa's (%) share of    12.0    12.5    13.1
world total

Major SSA Producers

Ethiopia                4,636   4,906   6,133        32.3

Uganda                  2,700   3,250   3,500        29.6

Cote d'Ivoire           2,847   2,150   2,500       -12.2

Kenya                     826     652     950        15.0

Tanzania                  822     810     917        11.5

Cameroon                  836     602     800        -4.3

Others                  2,565   2,236   2,834        10.5

Source: International Coffee Organisation.

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Meanwhile, coffee consumption is expected at 128m bags compared to 125m bags in 2007. Major markets are the US, Brazil, Germany, Japan and Italy. Nestor Osorio, executive director of the IOC, said: "It is too early to gauge the effects of the financial crisis on consumption--early signs give some ground for optimism. Reported sales of food retailers have not shown the decline experienced in turnover of other products, such as clothing and consumer durable goods."

For 2009/10 season, the ICO anticipates a 5m bags deficit largely due to lower Brazilian harvest, which is projected by Brazil's crop supply agency Conab at 36.9m to 38.8m bags. But global consumption could reach 132m bags in 2009 and 134m bags by 2010--assuming average demand rises above 2.5% a year.

Commodities analyst F O Licht also expects tighter balance from next season and resilient demand. It remarked: "The more interesting years will be the ones from 2009/10 and counting ... there is no evidence that consumers have cut back on coffee use or will do so in the coming months." One factor capping price hikes is higher world coffee stocks--projected at 32.2m bags by the end of this season.

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Ethiopia hopes to export 224,831t of coffee worth $800m in 2009, up from $525m with 2008 shipments of 170,888t, according to the trade ministry. Moreover, it plans to double annual production by 2014, helped by private investment of $150m in new plantations and improved farming techniques.

Ashenafi Mamo, chairman of the Ethiopian Coffee Growers, Producers and Exporters Association, told Reuters: "Coffee production in these plantations covering 35,000 hectares of land in Oromia and the southern region is expected to double the country's annual coffee output to 600,000t, from the current 330,000t, by 2014," adding, "Our aim is not only to increase the volume of coffee, but also to produce some of the world's finest beans, for which Ethiopia is renowned."

Uganda, Africa's largest robusta producer, has implemented a replanting programme costing $10.2m to revive coffee seedlings in districts where farmers had destroyed their crops during the early 2000s price slump. If the campaign is effective, Ugandan exports could reach 5.5m bags within two years, up from the current 3.5m bags. Bright Rwamirama, Isingiro's state minister for animal husbandry, said: "This is possible, we are all determined to reach this target."

Table 5: Commodity price data, US cents/kg

                 2006   2007   2008   (%) chg 2006-08

Cocoa            159.2  195.2  257.7        62.0

Coffee, arabica  252.2  272.4  308.1        22.0

Coffee, robusta  148.9  190.9  232.0        56.0

Tea, auctions *  187.2  203.6  242.0        29.0

Sugar, world     32.6    22.2   28.2       -13.5

* Average for Colombo, Kolkata and Mombasa auctions.
Source: International Monetary Fund.

Smallholders dominate the sector, with some 500,000 farmers growing 90% of the country's total harvest. In 2007/08, export receipts rose 52% to $362m, according to the Uganda Coffee Development Authority. The major markets were the EU, Sudan, India, Switzerland and the US.

Kenya, the grower of high-quality arabica beans, aims to expand its output to 100,000t in four years and ultimately 150,000t by more funding for farm inputs, improving infrastructure and combating berry disease.

This season's harvest is expected at 60,000t, up from 42,000t in 2007/08. However, Kenyan output in 1997/98 was running at 128,000t. A revitalised coffee industry would boost economic activity. George Ooko, head of Coffee Development Fund, explained: "If exports double, what effect will that have on the economy? Don't be surprised if this can contribute 1% growth to the total economy." Kenya presently earns only $100m annually from coffee exports.

The Tanzania Coffee Board has set a target of 100,000t over the next five years by opening new plantations in the south and west. Yields per hectare are predicted to reach 500kg by 2014 compared to today's levels of 250kg to 300kg. Tanzanian crop has been running at between 45,000 and 50,000t for the past two decades.

Meanwhile, Rwanda's 2009 coffee harvest and earnings could rise to 28,000t and $60m respectively, due to better husbandry skills. The Central African nation seeks to boost sales of its high-grade speciality coffee to 50% of total crop this year, up from 20% in 2008. It wants to earn $120m a year in coffee exports by 2011. Alex Kanyankole, head of the Rwanda Coffee Regulatory Authority, said: "We continue to give support in the form of training to the farmers and this should give us higher yields."

Developing world farmers have not benefited from increasing production in the past decade. Coffee exporters in Africa, Asia and Latin America earned a paltry $6bn on retail sales of over $70bn a year, according to the Global Policy Forum.

Sugar

Several agencies expect dwindling supplies and higher prices this year. In its second projection for the 2008/09 world sugar balance, the International Sugar Organisation (ISO) pegged total output to reach 162.26mt in raw value terms versus global consumption of 165.88mt, giving rise to a 3.62mt deficit. By contrast, last season's supply and demand figures were 155.88mt and 162mt, respectively.

The ISO viewed near-term outlook as constructive and supportive to world market value and expects further shortfalls in 2009/10. "Assuming no significant recovery in India's output, the gap between world consumption and production remains for one more season and even increases to the level of 4.5mt to 5mt," the report noted. The US Department of Agriculture (USDA) also projects a 3.3mt deficit, with output and demand reaching 158.8mt and 162.1mt.

Market analyses of two leading private companies are markedly different. Czarnikow, the London sugar merchant, envisages a much tighter supply/demand imbalance--with deficit at 5.8mt--because of lower Asian harvests.

"While the threat of demand destruction is paramount in many commodity markets, the biggest concern facing sugar is not what happens to the demand side of the market, but the damage to the supply side," it claimed.

On the other hand, commodities analyst F O Licht thinks sugar demand will rise by just 1.8%, down steeply from 3.8% in 2007/08. However, prices could remain low due to the huge stockpiles of recent years. The end 2007/08 stocks were 78mt--representing a stocks-to-use ratio of 49.2%. The ratio is expected to ease slightly to 46.9% this season. "In other words, global sugar inventories at the end of September 2009 will be still sufficient to cover 172 days of world demand even if no gram of sugar were produced over the period," it said.