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Coffee is one of the largest traded commodities in the world. Coffee is broadly divided into two Arabica and Robusta. Coffee is produced in many countries across in South America, Asia and Africa. The United States and Europe are the main consumers of coffee.
According to International Coffee Organisation, the downward pressures affecting the prices of coffee and other commodities, arising from the turbulence in the financial markets and the world economic crisis, continues unabated.
The resistance to downward pressure was noticeable in the case of Robusta prices. These were up by 2.25% in relation to their October level, probably on account of the climatic difficulties delaying the harvesting of the 2008/09 crop in Vietnam, the leading exporter of this type of coffee.
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Faced with this world economic crisis, a number of coffee exporting countries are taking measures to support their coffee growers. The Colombian Government and the National Federation have just signed an agreement guaranteeing a minimum price to coffee growers.
Recent developments in the exchange rates of the currencies of most exporting countries reflect a marked appreciation of the US dollar. In some countries, a strong dollar allows an improvement in the competitiveness of the export sector and producer income.
However, it also contributes to an increase in the costs of the inputs and agricultural equipment needed by the coffee industry, possibly reducing investment and having a negative effect on the volume and quality of future production. The recent fall in oil prices has put pressure on fertilizer prices, but so far the decrease has been insufficient to off-set the impact of the appreciation of the US dollar.
In regard to market fundamentals, it is expected that there will be a reduction in Brazilian production in crop year 2009/10 given the biennial cycle to which Arabica production is subject. Moreover, recent climatic disturbances in Central America and Colombia will have a negative impact on production in crop year 2008/09, particularly in Colombia, which has been seriously afflicted. Overall, world supply will be lower while world demand continues to expand.
Exports by all exporting countries in October totalled 7 million bags, bringing the total for the first ten months of calendar year 2008 (January – October 2008) to 80.5 million bags compared with 81.8 million bags for the same period in the previous year, a fall of 1.6%.
The balance between supply and demand prevalent in 2008/09 has underpinned some resistance to the sustained downward pressure on prices, attributable first and foremost to widespread liquidation of financial securities in an unstable macroeconomic climate. Despite increased production in crop year 2008/09, no significant surplus on the market is likely to be created, since it will be used to reconstitute stocks as well as to respond to requirements for domestic consumption and exports.
Exports in the 12 months (Nov-07 to Oct-08) have decreased by 2.9% to 95.11 million bags compared to 97.96 million bags in the same period in the last year. In the twelve months ending October 2008, exports of Arabica totalled 62.5 million bags compared to 63.4 million bags last year; whereas Robusta exports amounted to 32.6 million bags compared to 34.6 million bags
Highlights of Prices
Coffee prices have recovered from the low levels recorded during the coffee crisis (2000-2004). However, since September 2008 they have fallen to the levels recorded in mid-2007.
Highlights of Consumption
Consumption has continuously increased at a growth rate of 2% per annum.
It increased from 104.6 million bags in 2000 to 128 million bags in 2008.
This growth rate is not evenly distributed. Growth rates are more vigorous in emerging
markets (such as the Russian Federation and Ukraine) and in producing countries, particularly in Brazil.
Demand by type of coffee is also changing considerably.
The participation of Robustas and Brazilian Naturals in world trade has increased from 54% in 1990 to 63% in 2008, at the expense of the participation of Washed Arabicas which was reduced from 46% to 37% in the same period.
There have also been significant changes in relation to the type of coffee by origin.
This is particularly observed in the case of Robustas, mainly due to an increase demand for Vietnam coffee (from 2% in 1990 to 16% in 2008), whereas the demand for African coffees has decreased considerably (from 21% to 12 % in the same period).
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India accounts for less than 5 percent of total global coffee production. However, the fortunes of Indian coffee growers are closely linked with global markets as the country export more than 80 percent of its output. The crop year of Indian coffee lies between October to September. Coffee growing regions in India can be grouped under three distinct categories - Traditional areas representing the southern states of Karnataka, Kerala and Tamil Nadu and Non-traditional areas comprising Andhra Pradesh and Orissa in the Eastern Ghats of the country.
The Northeastern region comprising the 'Seven Sister' states of Assam, Manipur, Meghalaya, Mizoram, Tripura, Nagaland and Arunachal Pradesh In Karnataka, Chikmagalur, Coorg and Hassan are the major coffee producing districts producing around 76,300 tons and 1,19,975 tons annually of Arabica and Robusta coffee respectively In Kerala, Wyanad, Travancore and Nelliampathy are the major coffee producing districts producing around 1,375 tons and 55,450 tons annually of Arabica and Robusta coffee respectively In Tamil Nadu, Pulney, Nilgiris, Shevroy (Salem) and Anamalais (Coimbatore) are the major coffee producing districts producing around 14,375 tons and 4,450 tons annually of Arabica and Robusta coffee respectively.
Among non-traditional areas, Andhra Pradesh, Orissa and North Eastern Region produce around 1,950 tons and 125 tons annually of Arabica and Robusta coffee respectively.