Coffee

Introduction

A dynamic model was used to make coffee projections. It covers the major exporting and importing countries of green coffee. Supply, demand and stock functions were estimated for each of the major exporting and importing countries. The model performs dynamic simulation forward in time and generates forecasts on the basis of assumptions for the future behaviour of GDP, consumer price indices and exchange rates. For each year in the future, the International Coffee Organization’s composite price is solved in order to achieve equilibrium between supply and demand for green coffee. This model was developed to provide forecasts for green coffee production, consumption and trade, assuming that coffee is treated as a homogeneous commodity with no distinction between Arabica and Robusta varieties.

Production

World coffee production is projected to grow by 0.5 percent annually from 1998 - 2000 to 2010, compared to 1.9 percent of the previous decade. Global output is expected to reach 7.0 million tonnes (117 million bags) by 2010 compared to 6.7 million tonnes (111 million bags) in 1998 - 2000.

The world's largest coffee producing region is likely to continue to be Latin America and the Caribbean, although the projected annual growth rate for the region is expected to decrease from 1.7 percent in the previous decade to 0.4 percent annually during the projection period. Its output is projected at 4.0 million tonnes (67 million bags) by 2010, compared to 4.2 million tonnes (70 million bags) in 1998 - 2000. Coffee production in Brazil in 2010 is expected to decrease to 1.3 million tonnes (22 million bags), compared to 2.1 million tonnes (35 million bags) in 1998 - 2000. In Brazil, improved prices from the mid - 1990s stimulated planting and replanting after a period of decline when growers responded to lower prices by reducing the use of agricultural inputs and uprooting plants in marginal areas. In Colombia, based on the age profile of the coffee areas, output is projected to grow at an annual rate of 0.7 percent to 2010 to reach 747 000 tonnes (13 million bags), compared to 699 000 tonnes (12 million bags) in 1998 - 2000. Some plantings took place during the 1990s in response to the surge in demand for Colombian Milds, which fetch premium prices over other Arabicas.

In Central America, output in Mexico in 2010 is expected to reach 273 000 tonnes (5 million bags), more or less the same as the base period. In Guatemala, the projected annual growth rate of 1.7 percent would take production to 348 000 tonnes (6 million bags) by 2010. A growth rate of 3.9 percent for El Salvador is likely to bring their output to 165 000 tonnes (3 million bags) by 2010, while Costa Rica should experience an increase of 4.2 percent that brings output to 194 000 tonnes (3 million bags).

In Africa, coffee production is expected to increase by 1.5 percent annually from the base period to 2010, mostly reflecting increases in yields rather than an expansion in area. Output is anticipated to increase from 961 000 tonnes (16 million bags) in 1998 - 2000 to 1.1 million tonnes (19 million bags) by the year 2010. Production in Ethiopia, the largest Arabica coffee producing country in Africa, is expected to expand by 1.6 percent annually to reach 207 000 tonnes (3 million bags) by 2010. Coffee output in Côte d'Ivoire is expected to increase by 3.8 percent per annum, which would likely bring its output to 217 000 tonnes (3.6 million bags) by 2010. The output in Uganda is projected to increase at a rate of 0.7 percent annually from 1998 - 2000 to 2010. Output may rise to 222 000 tonnes (4 million bags) by 2010 from 207 000 tonnes (3 million bags) in 1998 - 2000, through replanting and higher yields. Kenya, the African producer of Colombian Milds, is projected to expand output by 1.1 percent annually during the projection period to arrive at 88 000 tonnes (1.5 million bags).

Production in Asia is projected to grow by 2.1 percent annually to reach 1.7 million tonnes (29 million bags) by 2010. Much of the expansion is expected to occur in Indonesia, the largest producing country in the region. Its coffee production expanded rapidly during the 1970s, slowed in the 1990s and is projected to expand at a growth rate of 1.7 percent annually to 2010 when output is likely to reach 654 000 tonnes (11 million bags). Also, in India output is projected to rise at 3.1 percent annually to reach 409 000 tonnes (7 million bags) by 2010. An increase of 2.0 percent per annum is expected in Viet Nam, where output could reach 561 000 tonnes (9 million bags) by 2010. An annual increase of 0.7 percent is expected for Thailand, where output is projected to reach 59 000 tonnes (1 million bags) by 2010.

In Oceania, Papua New Guinea is the only significant producing country. Its production has been relatively stable during the 1980s and its output in 2010 is estimated at 150 000 tonnes (3 million bags).

Consumption

World consumption of coffee is projected to increase by 0.4 percent annually from 6.7 million tonnes (111 million bags) in 1998 - 2000 to 6.9 million tonnes (117 million bags) in 2010.

Coffee consumption in developing countries is projected to grow from 1.7 million tonnes (29 million bags) in 1998 - 2000 to 1.9 million tonnes (32 million bags) in 2010, at an annual rate of 1.3 percent, while their share in the world market is expected to increase from 26 percent in the base period to 28 percent in 2010. The projected higher growth rate for developing countries compared to developed countries is due mainly to higher income and population growth in developing countries, with increased coffee consumption continuing to be concentrated in the major coffee producing countries.

Developed countries, including countries in transition, are likely to continue to account for the larger, though slightly declining, share of world coffee consumption. In the base period their share of consumption was 74 percent, nearly 5 million tonnes (83 million bags), compared with 72 percent projected for 2010. Coffee consumption in developed countries is projected to grow by 0.1 percent annually to 5.0 million tonnes (83 million bags) by 2010. In Europe, demand for coffee is projected to increase by 0.4 percent per year to 3.1 million tonnes (51 million bags) by 2010. The European Community (EC) is projected to account for 2.2 million tonnes (36 million bags), or 68 percent of total consumption in Europe. Demand is expected to rise slightly in the EC, but growth in consumption in the rest of Europe, excluding the former Soviet Union/CIS, is expected to show a slight decline. Growth in the former Soviet Union/CIS is expected to be more or less the same as in the base period. In North America demand is projected to decrease by 1.0 percent per year, mainly reflecting income and population growth in the region.

Trade

In 2010, global coffee net-exports is projected to reach 5.5 million tonnes (92 million bags). Latin America and the Caribbean, with an export of 2.9 million tonnes (48 million bags), is expected to continue to be the leading exporting region, although there will be a decline in the net-exports of 0.5 percent annually. By contrast, in Africa there will be a net export increase at a rate of 1.6 percent annually, reaching 1.0 million tonnes (17 million bags) and accounting for a 18 percent share of global exports. In Asia, export availabilities are expected to grow to 1.5 million tonnes (24 million bags) in 2010, accounting for 27 percent of world coffee exports. Export availabilities from Oceania are estimated to increase by 7.3 percent, reaching 150 000 tonnes (2.5 million bags), about 3.0 percent of global export availabilities.

World coffee imports are expected to increase by 0.2 percent annually during the projection period to reach 5.5 million tonnes (92 million bags) by 2010. This compares with average imports of 5.4 million tonnes (90 million bags) in 1998 - 2000. Imports by developing countries are projected to reach 421 000 tonnes (7 million bags) in 2010, accounting for less than 8 percent of the world's total and similar to their share in 1998 - 2000. Reflecting the slower growth of consumption, import requirements of the developed countries are projected to grow at an annual rate of 0.1 percent, reaching 5.1 million tonnes (85 million bags) by 2010 and accounting for 92 percent of the global total. Import demand by North America is projected to decline moderately to 1.54 million tonnes (26 million bags) by 2010. Imports into Europe are projected to decrease marginally to 2.96 million tonnes (49 million bags) by 2010. Imports to Japan are projected to grow at 1.6 percent annually reaching 460 000 tonnes (7.7 million bags). Growth in import demand by the former Soviet Union/CIS, where consumption in soluble form has grown but no processing firm has been established in the area, is expected to remain low at less than one percent per annum during the projection period.

Issues and uncertainties

The result of the projections indicates that global green coffee demand and supply would continue to grow, although at a rate slower than in the previous decade, and be almost in balance at around 7 million tonnes by 2010. The projections indicate that several major changes would take place in the world coffee market to 2010. First, most production growth would come from Asia and Africa, instead of Latin America where most coffee had been produced. Second, the growth of consumption would be faster in developing countries than in developed countries, in contrast to the trend over the previous decade. Part of the growth in consumption in developing countries would come from the increase within the producing countries, and partially because of this, international trade would grow slower. This scenario, however, is subject to sudden and substantial changes in the world coffee economy.

Recent price crises have had an important implication for the world coffee economy. The price crisis, which has adversely and seriously affected incomes of all coffee producers, hit some producers more severely than others due to differences in various economic factors such as production cost and exchange rates. These variations may change the relative competitiveness among the exporters, and could therefore alter the pattern of the world coffee trade. In addition, various international initiatives are expected to take place as the exporters underline the importance of promoting higher quality coffee with the aim of improving prices through boosting consumption. All these factors may affect the demand and supply conditions in the world coffee markets to 2010 although the price would continue to be the primary determinant.

Table 2.26. Coffee: actual and projected production

(*) data for 1999 and 2000 partly estimated