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Thailand: coffee production down, prices low, but farmers will persevere.

Thailand is a completely free market on coffee production and exports. Farmers are free to produce coffee and are equally free to cease production, depending on the return they make. The government only advises on production techniques and provides no subsidies for continued production. With the depressed value of coffees all over the world, it is no surprise that Thai Robustas are delivered at below the cost of production. The remaining farmers that can temporarily survive are betting that green coffee prices will recover shortly.

With the exception of essentially experimental Arabica production in the North, the nation's entire crop is Robusta. Production is small, but trade sources tell us that it is probably the highest quality of all Asian production. Coffee is grown between 500-600 km south of Bangkok in the provinces of: Chun Pon, Suwatatani, and Nakoin Sai Thamart. All crops are grown by smallholders who deliver 75% of the production to the local wholesalers who in turn sell to the exporters and the local roasters. The remaining 25% is sold either to a collecting station maintained by a Bangkok exporter or directly to the trading house in Bangkok.

The Thai coffee industry is quite proud of their Robusta quality. They easily boast of their close collaboration with different parts of the trade, the high education level of the Thai farmer, and on one of the best infrastructures in all Asia. They also proudly tell us their efforts result in a cleaner coffee with no off-taste.

With the current lack of demand for Robustas, the Thai market is remarkably stable. Production has fallen somewhat where it should have actually gone to zero. In the 88/89 and 89/90 seasons, the producing area suffered several natural disasters. Farmers received general relief funds to tide them over the effects of a typhoon in the first year and a flood in the second. No additional relief is planned for this year and it is expected that production will most likely drop further unless prices recover.

The production in the 89/90 coffee year was 1.2 million bags. The 90/91 production is expected to a maximum of 850,000 bags. This is expected to bring in approximately $850-950 FOB MT. The cost to the farmer alone is approximately $1200 FOB MT. This is a 30% spread.

Why should it continue? The trade says there is no reason not to continue unless the price rises. The exporters say that they could always sell more if the prices were the same as Conillon from Brazil. This will never be possible due to the relative high cost of production in Thailand.

Thailand's principle market is the United States which takes about 50% of the crop. In the 89/90 season, the U.S. accounted for 70% of exports and Japan, Spain and Korea account for the balance. Thai coffee is almost always excluded from Europe due to the 5% tax imposed on Thai coffees into the EEC.

Coffee imports are not allowed into Thailand. The domestic market is protected for several reasons. First is the governmental desire to protect the local industry, and second is the desire to illustrate that the figures given to the ICO over the years were valid.

The domestic demand is increasing at a 5% rate from the current base of 12,000 tons. This is mostly soluble coffee with Nestle being the market leader. However, roasted coffee is also on the rise in restaurants and hotels. This latter fact is a reflection of higher local incomes but also a drastic increase in tourism. The quality of the domestic blends is certainly not the same as the European or Americans. Unless the Thai hotels want a rapid increase in the consumption of tea or bottled water, they would be advised to study the coffee served in other areas. This is not meant to be unkind but is only a comment on the continuing worldwide trend of consumers refusing to drink a lousy cup of coffee. Quality is a subjective area with coffee as well as everything else but no one takes home a pound of 500 grams of Thai coffee like they do with the popularized Thai products. For a Westener, Thai coffee is not a delightful memorable experience.

The Thai industry is a viable one with 10-15 well established exporters taking delivery from first class producers based in a country with an export mentality. From this standpoint, the future looks good.

From the viewpoint of demand for the product, the future is not so good, but the relatively quality of the crop implies that Thai Robusta will be around when other sources switch to alternate crops.
COPYRIGHT 1991 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Lockwood, George
Publication:Tea & Coffee Trade Journal
Date:Aug 1, 1991
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