Bumper harvests peg prices down.

The good news for African cash crop producers was that despite the freakish weather, they obtained healthy harvests; the bad news is that bumper crops drive down prices. Rafik Ahmed reports.

African producers of soft commodities such as sugar, cocoa, and coffee are having a hard time, with world market prices plunging to historical lows in recent weeks. Import demand is sluggish, while bumper harvests and devaluation of the Brazilian real are leading to burgeoning supplies and exports, thus undermining prices.

Markets in softs were especially affected by the Brazilian devaluation earlier in the year, which makes it cheaper to buy Brazil's main export crops of coffee and sugar. The Organisation for Economic Co-operation and Development (OECD) said in its annual report that many agricultural markets will remain depressed for the next two years, and a modest recovery is not expected before 2004. Even then farm prices would be below the levels of 1993-97, according to the OECD.

The World Bank's report, Global Commodity Markets, also warns that prices may not fully recover from their historical lows, with dire consequences for developing countries. Sub-Saharan Africa is particularly at risk from protracted weakness in commodity prices because 75% of export revenues are generated from primary commodities, of which agricultural commodities or cash crops constitute over one third.

Why prices have tumbled

The precipitous drop in prices over the past year was not only caused by cyclical factors such as falling demand in Asia-Pacific, but mainly due to other reasons. The World Bank says bearish outlook for most commodities can be put down to technological advances leading to lower production costs and higher rates of crop yields. The trend towards market liberalisation/deregulation in most producing countries have boosted supplies. And firmer prices of early 1990s encouraged increased plantings world-wide.

However, in the long-term, exceptionally low market prices should deter output growth and the huge stock build-up in most sectors may start to decline by next season. But no major rally in prices is envisaged for the next two years at least, unless adverse weather conditions create supply disruptions world-wide.

Cocoa

The weakness in cocoa prices was unexpected since the market is in its third successive year of supply-deficit. July cocoa futures fell to a six-year low of [pounds]695 a tonne - representing a decline of 23% since January. In June 1998, the average price on the London International Financial Futures and Options Exchange was [pounds]1,098.5 after peaking at [pounds]1,147 in May.

Prices have steadily weakened in the second quarter amid rising supplies and continuing flat demand, reflecting declining chocolate consumption in Russia and Asia. In Germany, Europe's biggest cocoa importer, cocoa grindings fell 22% in the first-quarter. In addition, many US and European chocolate manufacturers - the main consumers, have ample stocks and are pursuing "just-in-time" buying strategies. Manufacturers are evidently scaling down cocoa purchases in anticipation of a bearish long-term trend.

Cocoa has also encountered producer, fund and speculative selling this year. On the supply side, the International Cocoa Organisation (ICCO) projects the world's cocoa beans output for 1998-99 season ending September 30 at 2,707,000 tonnes, against a total consumption of 2,800,000 tonnes. The supply-deficit this season is expected at 120,000 tonnes - allowing for 1% weight-loss. The ICCO projects end of season stocks at 1,090,000 tonnes and a stock-to-consumption ratio of 39%. Projected stocks down from 1.2m tonnes in 1997-98, are equivalent to four and a half months of global consumption.

West Africa is home to the world's largest producing countries and is enjoying good harvesting conditions. The ICCO puts the total African crop at 1.8m tonnes - constituting 67% of world production. Crops in Cote d'Ivoire, which supplies 41% of the world's cocoa, are estimated at 1.1m tonnes, Ghana 370,000 tonnes, Nigeria 180,000 tonnes, and Cameroon 130,000 tonnes.

Supply outlook for next season is even more favourable thanks to the recent wet weather in west Africa. The Economist Intelligence Unit (EIU) predicts a global supply surplus of 36,000 tonnes in 1999-2000, and this indicates weak cocoa futures.

Sugar

The world's sugar industry is gripped by over-capacity. Global sugar production, led by Brazil, Thailand and Cuba has outstripped consumption since 1994-95. And from 1997, the over-supplied market has suffered external woes, notably subdued consumption in Asia-Pacific and Russia. Demand growth has fallen to barely 1%.

Forecasts for world production in the 1998-99 season range between a low of 126.5m tonnes, according to the US Department of Agriculture, and a record high of 131m tonnes, say commodity brokers C.Czarnikow. The mean forecast is over 128m tonnes against global consumption of 125.4m tonnes. Africa produces under 9m tonnes, equivalent to 7% of world output. Major producers are South Africa, Mauritius, Sudan, Kenya and Swaziland.

German-based F.O. Licht projects sugar surplus stocks at a high of 12.4m tonnes by the end of August 1999. A supply glut and ever increasing Brazilian exports are severely undermining prices. In late April, New York's raw sugar July futures slipped to a 13-year low of 4.09 cents a pound (lb), while in London the white sugar August contract dropped to a new low of $160.8/tonne. By contrast in 1998, prices for raw sugar averaged 9.65c/lb, and white at $255/tonne.

The Australian Bureau of Agriculture and Resource Economics does not see a recovery in sugar until the 2001-2002 season. Amid bearish technical fundamentals, some analysts envisage the raw sugar spot price dipping below 4c/lb. However, it will be disadvantageous for low-cost producers in Latin America, Asia and Africa to boost output and exports at these low market prices. Weak sugar prices will eventually slow down production.

Tea

Crop yields last year in major producing regions were substantially higher. The EIU estimates total supply at over 2,000 tonnes against a global consumption of 1,954 tonnes. Harvest in India was at a record high of 867mkg, followed by Kenya (294mkg) and Sri Lanka (280mkg). These three producers account for 70% of world's tea output.

Uganda, Tanzania, Malawi, Mozambique and Zimbabwe also harvested larger crops. Kenya, which enjoyed a record crop, shipped 264mkg of tea world-wide, slightly below Sri Lanka's 271mkg. According to tea brokers, Kenya could produce over 300mkg of processed tea per annum within five years. In fact, Kenyan tea commands a high-quality premium for good, medium and very fine grades. Its crush tear and curl (CTC) tea blend is used in tea-bags which are very popular in western Europe and north America.

The EIU projects a large supply-surplus of 157,000 tonnes this year, up from 140,000 tonnes in 1998, assuming normal growing conditions in south Asia and east Africa. It also expects a continuing downward price trend. Tea prices could average $1.59/kg this year, compared to $2.01 in 1998. The EIU's projections are based on average auction prices at three main centres, Mombasa, Colombo, and Calcutta.

Coffee World coffee production is also exceeding growth in consumption, thus undermining prices. The July contract has recently fallen to $1,397.5/tonne in London, representing a decline of 24% since January. Brazil, the world's largest producer, turned in a bumper 1998 harvest of 37m bags, and still has huge carry-over stocks.

F.O. Licht projects 1998-99 global crops at 105m bags, of which arabica coffee constitutes 73m bags and robusta 32m bags. Whilst US-based Cropcast puts the total crop at 102.26m bags.

Latin America produces over half of the world's coffee, and Africa's share is 18-20% of annual output. The EIU estimates exportable production this season at 81m bags, rising to 89m bags in 1999-2000.

Over the past two decades, Africa has lost its share to Latin America and southeast Asia because of a lack of investment and modern processing methods. The International Coffee Organisation has advised key African producers such as Uganda, Kenya, Tanzania, Ethiopia, and Cote d'Ivoire to increase regional co-operation through joint marketing and research, as well as boosting production of high-quality beans.

Africa's IT professionals to meet in Cambridge

The African Computing and Telecommunications Summit is to be held at St John's College, Cambridge, from 2527 August, drawing together computing and telecommunications users and IT specialists from all over the continent. Over 300 computing and telecommunications users, dealers, consultants, policymakers, manufacturers and distributors will gather for three days of intense lectures, discussions, workshops and social activities.

According to Sean Moroney, head of AITEC Exhibitions and Conferences, who are organising the event, "This will be the largest and most representative

gathering of Africa's IT community ever to be held. It will be an unprecedented opportunity for users and vendors to meet, exchange information and views and benefit from an extensive education programme of presentations and workshops."

With the theme 'Planning beyond the Millennium', the summit programme has attracted an impressive list of speakers and topics. Over 60 speakers, many of them leaders in their field, will be making presentations or leading workshops on a wide range of key topics. There is substantial industry support for the summit, with companies such as UUNet, Check Point Software Technologies, Codan, SCO, The Institute for the Management of Information Systems, and Systems Union sponsoring various aspects of the event.