Commodities > Coffee

Coffee may derive its name from the Arabic qahwah, but some etymologists connect it with the name Kaffa, a province in southwestern Ethiopia, reputedly its birthplace. Most of the 25 or more species of the coffee plant grow wild in the tropics of the Eastern Hemisphere. The earliest known and cultivated species is Coffea arabica, the coffee shrub of Arabia; it is now cultivated mostly in Latin America. Coffea robusta, which originated in East Africa and the Congo River basin, is now widely cultivated in Africa and Madagascar. Both species are cultivated in Asia.

In its wild state the coffee shrub is an evergreen bush 8 to 10 metres (26 to 33 feet) high. Its branches carry bouquets of small white flowers with a jasmine-like fragrance. The fruit, 15 to 18 millimetres (1/2–3/4 inch) long and red when mature, is called a cherry; it consists of a fleshy pulp and two seeds joined with even planes side by side. Each seed is protected by two coverings: a thin, hard endocarp and a fine membranous pellicle. The species C. arabica has given rise to a number of varieties, among which are maragogype, with bulky seeds; bourbon, appreciated for quality; and caturra, of exceptional quality and cultivated in Brazil and Colombia. The species C. robusta possesses greater strength and resistance to disease than C. arabica, yields more fruit, and adapts to warm, humid climates to which the C. arabica is not suited.

Mild coffees are exclusively high-quality varieties of C. arabica, principally from Central and South America, excluding Brazil. The varieties obtained from Kenya, Tanzania, Ethiopia, and Cameroon are related to this group. Brazilian coffees, known for their diversity, are also varieties of C. arabica, but they are characterized by less refined flavour and aroma than those of the mild group. Coffees of the C. robusta species are more neutral in taste and less aromatic than the C. arabica varieties, but are becoming more appreciated, particularly in the form of soluble coffee. Most coffee products are mixtures that combine the characteristics of different species and varieties, professionally blended to satisfy consumers' tastes.

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Cultivation

Climatic factors most important for coffee growth are temperature and rainfall. No variety can withstand a temperature in the vicinity of 32°F (0°C). Temperatures between 73° and 82° F (23° and 28° C) are the most favourable. Rainfall of 60 to 80 inches (1,500 to 2,000 millimetres) per year is required along with a dry period of two to three months for the Arabica. Irrigation is required where annual rainfall is less than 40 inches (1,000 millimetres).

Plantations are usually established in cleared forestland. The young shrubs are planted in rows spaced so that the density varies between 500 and 750 plants per acre (1,200 and 1,800 plants per hectare). Seedlings or cuttings raised in nurseries are carefully planted at the beginning of the rainy season; until they start producing fruit three to four years later, their care is limited largely to the trimming required to give them a robust, balanced framework and to stimulate fruiting.

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Coffee Rust

Coffee rust the most devastating disease of coffee plants, caused by the fungus Hemileia vastatrix. Long known in coffee-growing areas of Africa, the Near East, India, Asia, and Australasia, rust was discovered in 1970 to be widespread in Brazil, the first known infected area in the Western Hemisphere. Rust destroyed the once-flourishing coffee plantations of Sri Lanka and Java.

The symptoms of coffee rust include small, yellowish, oily spots on the upper leaf surface that expand into larger round spots that turn bright orange to red and finally brown with a yellow border. The rust pustules are powdery and orange-yellow on the underleaf surface. Later the pustules turn black. Rusted leaves drop so that affected trees are virtually denuded. Such trees usually die within a few years.

Coffee rust is controlled by the timely application of fungicide sprays during wet seasons. Plantations in some areas have been moved to higher and cooler altitudes, 1,800 to 2,100 m (6,000 to 7,000 feet), at which the rust fungus has difficulty reproducing. Quarantine has reduced the chances of coffee rust's long-distance spread.

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Coffee: Trade History - 1975 to present

Tariffs on green/raw coffee are usually low or non-existent. The USA is the largest single importer, although its volume of coffee purchases was overtaken in 1975 by the combined imports of the (then) nine countries of the European Community (EC, now the European UnionEU). After petroleum, coffee is the major raw material in world trade, and the single most valuable agricultural export of the tropics. Arabica coffee accounts for about two-thirds of world production. Latin America (with more than 64% of world output in 1997/98) is the leading coffee-growing region. Africa, which formerly ranked second, was overtaken in 1992/93 by Asian producers. In 1996/97 African producers accounted for 19.0% of the world coffee crop, compared with approximately 20.0% for Asian countries, and in 1997/98 Africa produced 15.4%, compared with 22.0% by the Asian region.

In every year during 1970-90, except in 1974 and 1984, Cote d'Ivoire was Africa's leading coffee producer, although since 1980 cocoa has overtaken coffee as its most important export crop. In the early 1990s more than three-quarters of the coffee trees in Cote d'Ivoire had passed their most productive age. A programme of extensive replanting was begun in the mid-1990s: the total area under coffee cultivation was projected to increase by 270,000 ha to 1.3m. ha by the year 2000. The African countries, which are most dependent on coffee as a source of foreign exchange, are Burundi and Uganda. Coffee sales generally account for 70% to 85% of Burundi's total export revenue, and in 1997 the proportion was 88%. In Uganda coffee provided 62.5% of exports in 1996. In May 1998 Uganda reported serious damage to its coffee crop, as a result of inadequate rainfall, and it was expected that coffee exports in 1997/98 could be as much as 50% lower than in the previous season. Ethiopia is a significant regional producer, challenging Cote d'Ivoire in output in each of the years 1991 to 95. However, with high domestic consumption and widespread smuggling, Ethiopia';s official exports accounted for only about one-quarter of its total production in the early 1990s. None the less, coffee accounted for 61.6% of Ethiopia's total export earnings in 1991, and for almost 66% of foreign exchange receipts in 1994/95.

The coffee sector in Rwanda, which contributed more than 60% of export revenue in 1991, has been severely affected by internal unrest, and in 1994 the bulk of that year's coffee crop was lost. Rwanda's coffee output in 1997 was the smallest since 1974. Among other African countries where coffee is a major export are Cameroon, the Central African Republic, the Democratic Republic of the Congo (DRC), Kenya, Madagascar and Tanzania. Angola was formerly the world's leading exporter of robusta coffee, but production during the period 1975 to 95 was severely disrupted by civil conflict. In 1995 the resumption of production in three provinces produced a crop of 2,300 tons, while plans were proceeding for the transfer to private-sector ownership of the country's major plantations during 1996. However, the full rehabilitation of Angola's coffee industry, following the political and military settlement pending in 1999, is expected to span many years. Plans have been announced for the initial rehabilitation of 50,000 ha of coffee estates over a five-year period to 2002, with the aim of achieving an annual coffee output of 60,000 tons. In 1997 the government commenced the transfer of the state-controlled marketing monopoly to the private sector, and with arrangements for the sale of all state-owned coffee-producing companies.

Effective international attempts to stabilise coffee prices began in 1954, when a number of producing countries made a short-term agreement to fix export quotas. After three such agreements, a five-year International Coffee Agreement (ICA), covering both producers and consumers, and introducing a quota system, was signed in 1962. This led to the establishment in 1963 of the International Coffee Organisation (ICO), with its headquarters in London. In January 1999 the ICO comprised 62 members (44 exporting countries, accounting for over 90% of world supplies, and 18 importing countries, accounting, until the withdrawal of the USA in 1993, for over 81% of world imports). Subsequent ICA were negotiated in 1968, 1976, 1983 and 1994 (see below), but the system of export quotas to stabilise prices was eventually abandoned in July 1989) During each successive ICA, contention arose over the allocation of members export quotas, the operation of price support mechanisms, and, most importantly, illicit sales by some members of surplus stocks to non-members of the ICO (notably to the USSR and to countries in Eastern Europe and the Middle East). These leaks of low-price coffee, often at less than one-half of the official ICA rate, also found their way to consumer members of the ICO through free ports, depressing the general market price and making it more difficult for exporters to fulfil their quotas.

The issue of coffee export quotas became further complicated in the 1980s, as consumer tastes in the main importing market, the USA, and, to a lesser extent, in the EC moved away from the robustas exported by Brazil and the main African producers and in favour of the milder arabica coffees grown in Central America. Disagreements over a new system of quota allocations, taking account of coffee by variety, had the effect of undermining efforts in 1989 to preserve the economic provisions of the ICA, pending the negotiation of a new agreement. The ensuing deadlock between consumers and producers, as well as among the producers themselves, led in July to the collapse of the quota system and the suspension of the economic provisions of the ICA. The administrative clauses of the agreement, however, continued to operate and were subsequently extended until October 1993, pending an eventual settlement of the quota issue and the entering into force of a successor ICA.

With the abandonment of the ICA quotas, coffee prices fell sharply in world markets, and were further depressed by a substantial accumulation of coffee stocks held by consumers. The response by some Latin American producers was to seek to revive prices by imposing temporary suspensions of exports; this strategy, however, merely increased losses of coffee revenue. By early 1992 there had been general agreement among the ICO exporting members that the export quota mechanism should be revived. However, disagreements persisted over the allocation of quotas, and in April 1993 it was announced that efforts to achieve a new ICA with economic provisions had collapsed. In the following month some Central American producers joined Brazil and Colombia, the two largest coffee producers, in a scheme to limit their coffee production and exports in the 1993/94 coffee year. Although world consumption of coffee exceeded the level of shipments, prices were severely depressed by surpluses of coffee stocks totalling 62m. bags (each of 60 kg), with an additional 21m. bags held in reserve by consumer countries. Prices, in real terms, stood at historic lows.

In September 1993 the Latin American producers and the formation of an Association of Coffee Producing Co (ACPC) to implement an export withholding, or coffee retention plan. The Inter-African Coffee Organisation (IACO, see whose membership includes Cote d'Ivoire, Kenya and Uganda agreed to join the Latin American producers in a new plan to withhold 20% of output whenever market prices fell be agreed limit. With the participation of Asian producer's member ACPC was formally established. (Angola and now the DRC, were subsequently admitted to member. The ACPC coffee retention plan came into operation October 1993 and gradually generated improved prices; b 1994 market quotations for all grades and origins of coil achieved their highest levels since 1989. In June and Jul coffee prices escalated sharply, following reports that In July 1994 both Brazil and Colombia announce temporary suspension of coffee exports. The onset of d following the Brazilian frosts further affected prospects 1994/95 harvest, and ensured the maintenance of a fir in world coffee prices during the remainder of 1994.

The intervention of speculative activity in the coffee market during early 1995 led to a series of price falls, expectations that coffee consumption in 1995/96, at a f 93.4m. bags, would exceed production by about 1m. bags attempt to restore prices, the ACPC announced in Marc that it was to modify the price ranges of the export with] scheme. In May the Brazilian authorities, holding coffee of about 14.7m. bags, introduced new arrangements under these stocks would be released for export only when the moving average of the ICO arabica coffee indicator rose to US $1.90 per lb. In July 1997 the ACPC announced that the withholding programme was to be replaced by arrange for the restriction of exports of green coffee. Total export 1997/98 were to be restricted to 52.75m. bags. Follow withdrawal of Ecuador from the export restriction (although not from the ACPC) in September 1998, their 16 countries participating in the withholding arrangements.

In June 1993 the members of the ICO agreed to a extension of the ICA, to September 1994. However, the in of the ICO, from which the USA withdrew in October 19! increasingly perceived as having been eclipsed by the A( 1994 the ICO agreed provisions for a new ICA, against primarily consultative and administrative functions, to 1m for a five-year period, until September 1999. In July year it was agreed to extend this limited ICA for a further year period. The ICO, however, continues to favour a result of quota arrangements, which it views as the most e means of preventing sharp price fluctuations. In February 1995 five African Producers (Burundi, Rwanda, Tanzania and Uganda) agreed to participate in price guarantee contract arrangements sponsored Eastern and Southern Africa Trade and Development under the auspices of the Common Market for Eastern and Southern Africa (COMESA). This plan seeks to promote producer price guarantees in place of stock retention scheme contract guarantee arrangements would identify price against reductions below an agreed contract price.

International prices for coffee beans in the early 1994 generally at very low levels, even in nominal terms (i.e. taking inflation into account). In December 1994, following forecasts of a rise in coffee production and a fall in consumption, the London quotation for January 1995 delivery stood at $2,481.5 per ton.The coffee market later revived, and in March 1995 the LCE price reached US $3,340 (2,112) per ton. However, in early July coffee traded in London at $2,400 (1,501) per ton, although later in the month, after producing countries had announced plans to limit exports, the price rose to $2,932.5 (1,837). During September the LCE spot quotation (for immediate delivery) was reduced from $2,749 (1,770) per ton to $2,227.5 (1,441), but in November it advanced from $2,370 (1,501) to $2,739.5 (f 1,786). Coffee for short-term delivery was traded in December at less than $2,000 per ton, while longer-term quotations were considerably lower.

In early January 1996 the spot; price of coffee in London stood at US $1,798 (1,159) per ton, but later in the month it reached $2,050 (1,360). The corresponding quotation rose to $2,146.5 (1,401) per ton in March, but declined to $1,844.5 (1,220) in May. The spot contract in July opened at $1,730.5 (1,112) per ton, but within four weeks the price fell to $1,487 (956), with the easing of concern about a threat of frost damage to Brazilian coffee plantations. In November the spot quotation rose to $1,571 (934) per ton, but slumped to $1,375.5 (819) within a week. By the end of the year the London price of coffee (for delivery in January 1997) had been reduced to $1,259 per ton. In early January 1997 the spot price for robusta coffee stood at only US $1,237 (734) per ton, but later in the month it reached $1,597.5 (981). The advance in the coffee market continued in February, but in March the price per ton was reduced from $1,780 (1,109) to $1,547.5 (960) within two weeks. In May coffee prices rose spectacularly, in response to concerns about the scarcity of supplies and fears of frost in Brazil.

The London spot quotation increased from $1,595 (986) per ton to $2,502.5 (1,526) by the end of the month. Meanwhile, on the New York market the price of arabica coffee for short-term delivery exceeded $3 per lb for the first time since 1977. However, the rally was short-lived, and in July 1997 the London price for robusta coffee declined to $1,490 (£889) per ton, In the first half of November the coffee price rose from $1,445 (£862) per ton to $1,658 (£972). During December the price for January 1998 delivery reached $1,841 per ton, but a week later it decreased to $1,657. The coffee market rallied in January 1998, with the London spot quotation rising from US $1,746.5 (£1,066) per ton to $1,841 (£1,124). Coffee prices for the corresponding contract in March ranged from $1,609 (£977) per ton to $1,787 (£1,065). Following reports of declines in the volume of coffee exports by producing countries (owing to inadequate rainfall), the upward trend in prices continued in April, with the price of robusta for short-term delivery reaching $1,992 per ton.

In the first half of May there was another surge in prices (partly as a result of political unrest in Indonesia, the main coffee-producing country in Asia), with the London quotation rising from $1,881.5 (£1,129) per ton to $2,202.5 (£1,351). Later in the month, however, the price was reduced to $1,882.5 (£1,155) per ton. Coffee prices subsequently fell further, and in late July the London spot contract stood at only $1,505.5 (£909) per ton, before recovering to $1,580 (£963 As before, the market for longer-term deliveries was considerably more subdued, with coffee trading mainly within a range of $1,490 to $1,590 per ton. Thereafter, a generally downward trend was evident, and in May the spot price declined to $1,376.5 (£850) per ton, although it reached $1,536.5 (£962) by the end of the month. The advance was short-lived, with prices for most coffee contracts standing at less than $1,400 per ton in late June. The spot price in July fell to only $1,255 (£805) per ton. The IACO was formed in 1960, with its headquarters at Abidjan in Cote d'Ivoire. In 1995 the LACO represented 25 producer countries, all of which, except Benin and Liberia, were also members of the ICO. The aim of the JACO is to study common problems and to encourage the harmonization of production. The ACPC, representing 29 African, Asian and Latin American producer countries, has its headquarters in London.

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Shipping Coffee

Coffee is usually carried in bags but condensation can be a real problem. Consequently, ventilated containers or flatracks are often preferred - although dry vans are used for some shipments.

The choice of container is largely down to the shippers' preference but it is also contingent on equipment availability, weather and ship type.

Ventilated containers - or vents - are popular because they help minimise the risk of condensation, allowing the beans to breathe, and enhance security.

Flatracks are popular because they optimise ventilation around the container while making loading and unloading easier. Only those lines prepared to make the necessary investment in these types of equipment become significant players in the trade. Preparation of bagged coffee prior to shipment - and cocoa for that matter - requires specialist focus.

Carriers pay great attention to the management and handling of beans. Consignments have to be tested for their water content; shipments have to be protected from the elements and contamination; and bags have to be consolidated carefully, incorporating room for ventilation and measures to counter condensation.

If the beans are too moist they may spoil as they move from the tropics to the temperates. If consolidation is poor and bags have insufficient lashing, dunnage, ventilation or end up touching the containers' sides, the beans may suffer condensation damage. Handling containerised soft commodities of this nature can be trickier than one imagines.

Times are changing though and some importers of cocoa and coffee are now asking to receive beans in bulk. A standard containers will be fitted with a liner bag and the beans are blown into the box using special equipment. On arrival at the receiver's premises, the bag is simply slit and using a tipping trailer, the beans are discharged.

For Thamesport, cocoa is a larger traffic and much of it is carried in vents or on flats from countries like Ghana, Nigeria, Cameroon and Cote d'Ivoire. Thamesport has dedicated one specific shed to cocoa and in bagged form, it is unloaded from containers and stacked onto pallets for storage pending final delivery by curtain-sided trailer. Coffee and cocoa is actively traded as a commodity and the Thamesport cocoa shed has been approved by the London International Financial Futures and Options Exchange (LIFFE) as a food grade warehouse for cocoa.

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