Required Report - public distribution

**Date:** 5/14/2004

**GAIN Report Number:** EC4006

EC4006

**Ecuador**

**Coffee**

**Annual Report**

**2004**

**Approved by:**

![](media/image1.wmf)Melinda D. Sallyards

U.S. Embassy Lima

**Prepared by:**

Carlos M. Yugcha

**Report Highlights:**

Ecuador\'s coffee production will decrease for MY 2004/2005 due to lack
of incentives to harvest all available beans and lack of investments in
fields. Ecuador exports more coffee products than coffee beans. The
coffee industry, in order to comply with their commitments, will import
200,000 60 kgs. bag of coffee beans under a temporary admission regime

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Quito \[EC1\]

\[EC\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Production 4](#production)

[Consumption 5](#consumption)

[Trade 5](#trade)

[Policy 6](#policy)

# 

# Executive Summary

Coffee production for Marketing Year 2004/2005 (April/March) is expected
to decrease to 750 thousand 60 kg bags, down from the already depressed
production of 796,000 60 kg. bags produced in the previous MY 2003/2004.
The harvest in MY2003/2004 was worse than expected mainly due to the bad
weather conditions and also due to the fact that farmers were
discouraged from harvesting because of depressed international prices
for coffee beans. In order to meet domestic demand of coffee beans for
the industry, Ecuador imported under a temporary admission regime
140,000 60 kg bags in 2003 from Vietnam. The upcoming market year is
forecasted to import 200,000 60 kg bags from Vietnam, Indonesia or
Brazil. These importations are due to the expected depressed production
of beans both of Arabica and Robusta varieties.

  ---------------- ------------- ---------- ---------- ---------- ------------- ---------- -------------
  **PSD Table**                                                                            

  **Country**      **Ecuador**                                                             

  **Commodity**    **Coffee,                                      (1000                    
                   Green**                                        HA)(MILLION              
                                                                  TREES)(1000              
                                                                  60 KG BAGS)              

                   2003          Revised    2004       Estimate   2005          Forecast   UOM

                   USDA Official Post       USDA       Post       USDA Official Post       
                   \[Old\]       Estimate   Official   Estimate   \[Old\]       Estimate   
                                 \[New\]    \[Old\]    \[New\]                  \[New\]    

  **Market Year                  04/2002               04/2003                  04/2004    MM/YYYY
  Begin**                                                                                  

  Area Planted     232           225        235        221        0             215        (1000 HA)

  Area Harvested   200           200        220        195        0             193        (1000 HA)

  Bearing Trees    195           190        200        188        0             185        (MILLION
                                                                                           TREES)

  Non-Bearing      10            8          10         7          0             5          (MILLION
  Trees                                                                                    TREES)

  TOTAL Tree       205           198        210        195        0             190        (MILLION
  Population                                                                               TREES)

  Beginning Stocks 9             9          19         29         13            38         (1000 60 KG
                                                                                           BAGS)

  Arabica          410           410        470        430        0             400        (1000 60 KG
  Production                                                                               BAGS)

  Robusta          370           380        410        358        0             350        (1000 60 KG
  Production                                                                               BAGS)

  Other Production 0             0          0          8          0             0          (1000 60 KG
                                                                                           BAGS)

  TOTAL Production 780           790        880        796        0             750        (1000 60 KG
                                                                                           BAGS)

  Bean Imports     130           130        100        140        0             200        (1000 60 KG
                                                                                           BAGS)

  Roast & Ground   0             0          0          0          0             0          (1000 60 KG
  Imports                                                                                  BAGS)

  Soluble Imports  0             0          0          0          0             0          (1000 60 KG
                                                                                           BAGS)

  TOTAL Imports    130           130        100        140        0             200        (1000 60 KG
                                                                                           BAGS)

  TOTAL SUPPLY     919           929        999        965        13            988        (1000 60 KG
                                                                                           BAGS)

  Bean Exports     220           222        300        207        0             200        (1000 60 KG
                                                                                           BAGS)

  Roast & Ground   2             1          6          1          0             1          (1000 60 KG
  Exports                                                                                  BAGS)

  Soluble Exports  378           377        380        419        0             450        (1000 60 KG
                                                                                           BAGS)

  TOTAL Exports    600           600        686        627        0             651        (1000 60 KG
                                                                                           BAGS)

  Rst,Ground Dom.  240           240        240        235        0             230        (1000 60 KG
  Consum                                                                                   BAGS)

  Soluble Dom.     60            60         60         65         0             70         (1000 60 KG
  Consum.                                                                                  BAGS)

  TOTAL Dom.       300           300        300        300        0             300        (1000 60 KG
  Consumption                                                                              BAGS)

  Ending Stocks    19            29         13         38         0             37         (1000 60 KG
                                                                                           BAGS)

  TOTAL            919           929        999        965        0             988        (1000 60 KG
  DISTRIBUTION                                                                             BAGS)
  ---------------- ------------- ---------- ---------- ---------- ------------- ---------- -------------

# Production

Coffee production for the Marketing Year 2004/2005 (April/March) is
expected to decrease to 750 thousand 60 kg. bags, down from the
depressed production of 796,000 60 kilogram bags produced in the
previous MY 2003/2004. The harvest in MY2004/2005 will be worse than
current MY 2003/2004 mainly due to the bad weather conditions and also
due to the fact that farmers are discouraged from harvesting because of
depressed international prices for coffee beans. Since, farmers are
abandoning some plantations with beans both in the plants and on the
ground, coming production is predicted to be more infested by coffee
borer. The most notable change from the recent past is the greater
production of Arabica coffee of 430,000 60 kg. bag compared with Robusta
coffee of 358,000 60 kg bag.

The area planted and harvested is forecasted to decrease to 215,000
hectares and 193,00 hectares respectively. Farmers are replacing their
coffee plantation with more profitable crops such as corn, cassava, and
cotton.

Coffee prices have also played a major role in the decreased production
in MY 2003/2004. Prices for Arabica and Robusta coffee in the
international market have dropped consistently since 1989, when quota
system was cancelled. Prices paid to coffee growers many times do not
cover the cost of production; however, some farmers have continued with
the business. This is explained by the fact that farmers have
diversified their production, i.e., producing other products than coffee
such as corn, fruits, cassava, which have offset losses in coffee.
Farmers, that could not diversify production, prefer to abandon coffee
plantations rather than harvest coffee beans. Prices paid to growers in
Ecuador for washed Arabica beans were placed at US\$57.19 in December
2003 for 45.36 Kg bag. The average price for washed Arabica in calendar
year 2003 went up to US\$52.01 for 45.36 kg from US\$46.98 in the year
2002. Improved coffee prices for the calendar year 2003 to a certain
extent have encouraged producers to harvest available Arabica beans,
rather than Robusta varieties. Average prices for Robusta coffee ranged
between US\$24.0 to US\$29.0 per 45.36 kg bag.

## 

# Consumption

Local consumption is forecasted at 300,000 60 kg bags for the upcoming
market year 2004/2005. The tendency of Ecuadorians is to consume more
instant coffee than to use as roasted and ground coffee. This is
explained by changes in habits of consumers and the short time to
prepare the cup of coffee instead of using roasted and ground coffee.
There are many popular local and some imported brands in the market,
being Press café 2, Si café, Montecristi, Dolca, Nescafe.

## 

# Trade

Exports of coffee and coffee products for MY 2004/2005 are forecasted to
increase to

651,000 60 Kg bags from the revised figure of 627,000 in the previous
marketing year. This increment in exports is mainly due to the dramatic
increment of coffee products rather than the increase of coffee beans,
which will decrease from 207,000 60 kg bags to 200,000 60 kg bags.
However, soluble coffee exports are foreseen to increase to 450,000 60
kg bags green bean equivalent (GBE) from an increased quantity of
previous MY of 419,000 60 kg bags GBE year 60 kg bag GBE. The increment
of coffee products rather than beans is explained by the low prices of
coffee beans in the domestic market which, in turn becomes more
competitive coffee products in the international markets. In addition to
that, the coffee industry has gained markets for coffee extract; freeze
dried coffee, agglomerated, spry dried coffee, and flavored coffee.
Ecuador will be producing 300 MT of freeze dried coffee (lyophilic
coffeee) per month and exporting similar quantities to the international
market.

As it occurred last year, the coffee industry, in order to comply with
their export commitments, had to import coffee beans, mainly Robusta
variety. For the MY 2003, Ecuador imported 140,000 60 kg bags of coffee
beans from Vietnam and a small quantity from Brazil, and for MY
2004/2005 to meet the demand from the Ecuadorian coffee industry it is
forecasted to import 200,000 60 kg bags of Robusta coffee from Vietnam
and Brazil. These importations were made under the special regime of
temporary admission as a condition to export once the coffee is
industrialized. The coffee that entered Ecuador under the temporary
admission regime does not appear in the official data, but post has
included it in the PS&D table as bean imports.

Ecuador's main markets for coffee beans for calendar year 2003 are the
United States with 58 percent, Chile with 9 percent, Germany with 20
percent, Spain 4 percent. Germany and England are the main markets for
Ecuador's industrialized coffee with 33 and 17 percent respectively, as
well as Japan with 12 percent and Poland with 11 percent of market
share. The US market for industrialized coffee is low with 1.5 percent.

# Policy

The current focus of national coffee policy is the established
private/governmental institution called the National Council for Coffee
(COFENAC). According to the law, COFENAC is the institution, which is in
charge of implementing the Law for the Coffee Industry.

This new law basically provides a framework to promote and organize a
modern coffee industry to deal with the fluctuations of international
coffee prices and to provide loans through private banks at preferential
interest rates to producers for the rehabilitation, renovation, and
maintenance of coffee plantations. The primary goal of the loans
provided by COFENAC is not to increase the planted and harvested area,
but to provide small and medium producers access to better coffee
seedlings, to improve quality, and increase yields. The Ecuadorian
coffee industry realizes that this is the only way to create a more
market‑oriented industry in the coming years. However, COFENAC is
concerned because these goals may not be reached since coffee farmers do
not have incentives to replant coffee or make investments in the farms
because current coffee prices for beans do not justify such investments.
On the other hand, farmers started replacing coffee plants with
remunerative crops such as corn, cassava, and cotton. But, in case
farmers decide to maintain coffee plantations, due to the depressed
price for coffee beans, most of time they do not decide to harvest the
beans and leave them on the plant. Beans on the plants and beans on the
ground can be infested by coffee borer, deteriorating the quality of
coffee. COFENAC has led a project, which is aimed at identifying gourmet
coffee and encouraging this type of coffee. Some farmers started
producing organic coffee and have exported 9,000 MT of organic coffee.
Europe is the main client for this kind of coffee.

Coffee bean producers and coffee bean exporters think that the return to
the quota system for exportation can encourage the coffee farmers to
make investments in the sector both in planting and in harvesting.
However, the coffee industry sector thinks that the return to the quota
system will increase the prices of beans making the industry less
competitive in the international market.

  --------------------- ------------------------ ----------- ------------
  **Export Trade                                             
  Matrix**                                                   

  **Country**           Ecuador                              

  **Commodity**         Coffee, Green                        

  Time Period           Jan-Dec                  Units:      60 Kg bag

  Exports for:          2002                                 **2003**

  U.S.                  135601                   U.S.        127104

  Others                                         Others      

  Germany               135183                   Germany     166756

  England               70612                    England     73161

  Japan                 42361                    Japan       45942

  Holland               21392                    Chile       19550

  Polland               31040                    Polland     49422

  Belgium               24028                    Belgium     19807

  Rusia                 19197                    Rusia       30514

                                                              

  Total for Others      343813                               405152

  Others not Listed     99127                                92134

  Grand Total           578541                               624390

                                                             

  Total exports GBE                                          
  --------------------- ------------------------ ----------- ------------

  ------------------- --------------- ----------------------- ------------
  **Prices Table**                                            

  **Country**         Ecuador                                 

  **Commodity**       Coffee, Green                           

  Prices in           USDollars       per uom                 45.36 kg

                                                              

  Year                2002            2003                    \% Change

  Jan                 39.02           51.65                   32%

  Feb                 38.76           54.65                   41%

  Mar                 50.99           49.27                   -3%

  Apr                 52.92           49.02                   -7%

  May                 44.07           55.54                   26%

  Jun                 44.07           50.12                   14%

  Jul                 41.35           50.18                   21%

  Aug                 38.62           51.86                   34%

  Sep                 44.81           55.62                   24%

  Oct                 47.59           52.55                   10%

  Nov                 64.44           50.93                   -21%

  Dec                 57.19           52.79                   -8%

  Exchange Rate                       Local Currency/US \$    

  Date of Quote       5/5/2004        MM/DD/YYYY              
  ------------------- --------------- ----------------------- ------------