COFFEE INDUSTRY Glutted market stirs up turmoil

Middlemen, not coffee farmers, are making money as large supply forces down coffee prices.
KNIGHT RIDDER NEWSPAPERS
MIAMI -- Talk about a jolt from java.
World supplies of coffee exceed demand. Quality is deteriorating. Prices paid to growers are in a slump, while prices of some supermarket brands are going up. Colombia is opening a string of coffee shops to shore up its market. And Starbucks is pushing into Latin America.
"Coffee is in turmoil," said Roberto Olmedo, general manager of Colmar Storage, one of a handful of South Florida warehouses officially designated by the New York Board of Trade as delivery points for green coffee destined for futures trading. Only two other ports -- New Orleans and New York -- share the coveted designation.
But trouble is brewing in that pot, too. The Port of Houston wants similar status, which likely would cut into everyone's business. Houston is confident its petition will be dealt with early this year.
Production
Today's critical situation has been in the making for years but came to a head with higher production by several countries. Most notably, industry experts say, Vietnam came out of nowhere last year to eclipse Colombia as the world's No. 2 producer. Then Colombia moved ahead again.
Brazil is the runaway leader, which is why everyone keeps a weather eye on that country. Rain or drought or frost can really move the market. So can speculators, who dabble in the world's second-most-traded commodity behind oil.
"The turmoil in the market has been created by the participants in the market," said Stephen Smith, president of South Futures, a Miami coffee-trading firm. "Coffee has the most passionate players."
"It's a very romantic product to handle," said Carlos Buqueras, director of trade development at Port Everglades. Coffee still comes bundled in burlap bags. And the aroma conjures up distant hillsides and fictional characters like Colombia's Juan Valdez.
The romanticism, however, doesn't mask the reality.
Low prices to growers
The huge supplies have meant prices to growers are at 30-year lows, dipping at one point last year to 42 cents. Prices have been rising slowly; coffee for March delivery hit 61.1 cents last week.
No one expects it to go over $1 any time soon.
Rafael Acevedo, president of Colonial Coffee Roasters in Miami, said prices between $1 and $1.20 a pound would be fair for growers and for consumers.
Low prices and high production are threatening the livelihood of many small producers, whose cause has been taken up by Oxfam, an international relief agency. It is campaigning for destruction of surplus stocks and higher producer prices.
In the early 1990s, earnings by coffee-producing countries were between $10 billion and $12 billion and the value of retail sales of coffee was about $30 billion, said Nestor Osorio, executive director of the London-based group.
The current value of retail sales is $70 billion; and coffee-producing countries receive $5.5 billion, he told the recent World Summit on Sustainable Development.
As with many other commodities, it's the middlemen making the money. In coffee's case, it's often the national and multinational companies like Procter & amp; Gamble, maker of Folgers, which raised the price of a 13-ounce can by 25 cents to $2 in November on worries over dry weather in Brazil.
Taking action
Through a global Coffee Quality Improvement Program, the ICO just started trying to set minimum quality standards and maximum moisture content for exports. It's also trying to encourage more coffee consumption, especially in new markets such as China and Russia.
Worldwide supply has been growing at more than 2 percent annually, while demand is up slightly or stagnant, according to several reports.
World coffee production this season will be a record 122.1 million bags, up 10 percent from last year, the U.S. Department of Agriculture estimates. Brazil's crop could be 46.9 million bags, up 13.2 million bags from the prior year.
Attempts to control supply have been spotty. Earlier this month, Mexican coffee growers ground 63,000 sacks of low-quality beans into fertilizer as part of an ICO effort to boost prices.
The more junk taken off the market, the better, many say.
For roasters especially, the problem is quality not quantity. "It's becoming more difficult, and you have to be a little more careful when you buy," said Jose Enrique Souto, vice president of sales and marketing for Rowland Coffee Roasters in Miami.
The lower the price goes, the less care growers take with the crop. The coffee is full of debris.