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The performance of coffee & tea in the African, Caribbean & Pacific States.

The performance of coffee & tea in the African, Caribbean & Pacific States

Coffee and tea, together with sugar, cotton and tobacco are among the major agricultural exports from Africa, Caribbean and Pacific (ACP) States that have suffered from the effects of the fall in commodity prices during the last few years resulting in a reduction in foreign exchange earnings of these countries.

Although coffee is a major export commodity for the ACP States, their share represents only 26 percent of world market, with the European Economic Community (EEC) accounting for 70 percent of the ACP coffee exports.

The main procedures outside the ACP states are Brazil--at more than 30 percent of the world total dominating the market, Colombia and Indonesia. The significant fluctuations in Brazil's production, often caused by frost or drought, generally result in the considerable price movements of coffee from one season to another.

Apart from the price boom from 1976 to 1979, the fall in coffee prices follows the trend for all commodities. The International Coffee Organization (ICO) indicator price for "other" Mild Arabicas, in 1980 real dollar terms per ton dropped from US $4,656 in 1975-79 to $3,135 in 1980-84 and to a depressed level of $2,000 in 1987.

This collapse in coffee prices is partly due to: the considerable increase in the production capacity of Brazil which reached a record high of over 40 percent in the 1987-88 season, thus increasing world coffee stocks to 50 million bags at a time when annual consumption is 94 million bags; the slow growth in consumption; and by increasing sensitivity to quality.

From 1970 to 1983, the annual growth rate for coffee demand averaged 0.9 percent, a figure which does not reflect the enormous disparities between various groups of countries (1.3% for the USA and 2.2% for the EEC).

The large price declines in 1987 resulted in grave consequences for the ACP states who lost US $1.6 billion in 1986, with an estimated further US $3.5 billion being lost in 1988 and 1989.

By the year 2000, the ACP states share of the coffee trade is expected to decline from the current 26 to 23 percent. Before quotas were dropped, the ICO, had been unable to ensure coffee higher prices and its efforts have been particularly dogged by the parallel markets where surplus coffee is being sold to non-member countries at prices up to 40 percent cheaper.

It has recently been indicated that the demand for coffee is also becoming so sensitive to quality that the gap between the price of sweet Arabica and the price of low quality Robusta has increased to + 20 percent and - 8.0 percent.

Proposals discussed at the recent negotiations, if accepted, could be disadvantagous to ACP producers, in that they call for a reallocation of quotas based on producers recent exports, exportable production, stocks and demand estimates based on orders from consumers.

TEA

In 1986, the ACP states share of the world tea market was 26.4 percent, with the EEC being their principal market in taking 55 percent of their exports.

The main producers outside the ACP States are India, with more than 42 percent of world production dominating the market, Sri Lanka and Indonesia.

Tea prices were relatively stable in the 70's. In terms of 1980 constant dollars, the London price of all teas averaged US $2,682 per ton from 1970 to 1974 and US $2,708 per ton from 1975 to 1979, fell to US $1,700 in 1986 and to US $1,360 in 1987.

This considerable price decline was a result of sustained production increases from 1983 to 1987 in the face of virtually stagnant demand in the developed economies. The slowing down in the growth of many consumer developing countries like Pakistan and the import restrictions imposed by that country on imports from Kenya contributed to the price fall in 1987.

The dramatic price falls in 1986 and 1987 led to a decline of EUC 368 million in the ACP State's exports in relation to 1985, with a similar amount estimated for 1988 and 1989.

If domestic demand in the two main consumers, the Soviet Union and India, recovers and the projected annual increases of 3.3 percent in other developing countries as well as the expected annual growth of 0.3 percent in the developed countries materialises, the ACP states should be able to increase their share of their world market from 25.5 percent in 1985 to 34 percent by 2000.
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Author:Kille, Turville
Publication:Tea & Coffee Trade Journal
Date:Oct 1, 1989
Words:755
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