Required Report - public distribution

**Date:** 5/11/2004

**GAIN Report Number:** MX4061

MX4000

**Mexico**

**Coffee**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)David Williams

U.S. Embassy Mexico City

**Prepared by:**

Gabriel Hernandez

**Report Highlights:**

Mexican coffee production for MY 2004/05 is not expected to increase
from the current year, due to large global supplies, low international
prices, and insufficient government financial support. However, Mexican
producers are increasingly turning away from conventional coffee
production to organic production as a way of closing the large gap
between productions costs and market prices. The Government of Mexico
(GOM) is providing limited support to coffee producers to help them
through the current crisis.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Mexico \[MX1\]

\[MX\]

TABLE OF CONTENTS

[SITUATION I. SITUATION AND OUTLOOK
3](#situation-i.-situation-and-outlook)

[SECTION II. STATISTICAL TABLES 4](#section-ii.-statistical-tables)

[PS&D, Coffee, Green 4](#psd-coffee-green)

[Trade Matrix 5](#trade-matrix)

[SECTION III. NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING
6](#section-iii.-narrative-on-supply-and-demand-policy-marketing)

[PRODUCTION 6](#production)

[CROP AREA 6](#crop-area)

[YIELDS 6](#yields)

[CONSUMPTION 6](#consumption)

[TRADE 7](#trade)

[MARKETING 7](#marketing)

[POLICY 7](#policy)

#  

#  

# SITUATION I. SITUATION AND OUTLOOK

**Coffee Situation and Outlook:** Mexican coffee production for
MY2004/05 is expected to remain at the same levels as MY 2003/04, due to
large supplies, historically low coffee prices, and insufficient
government support programs. Mexican growers are turning away from
conventional coffee production to organic and specialty coffee to reduce
their production costs and recoup the higher prices these types of
coffees normally command. MY 2004/05 planted and harvested areas are
expected to remain the same as MY 2003/04 acreage. Government
authorities are supporting domestic coffee producers in facing the
current crisis through the implementation of financial and marketing
strategies.

# SECTION II. STATISTICAL TABLES 

## 

## PS&D, Coffee, Green

  ------------------- ------------- --------- ------------- --------- ------------- --------- --------
  **PSD Table**       **Mexico**                                                              
                      (1000 60-Kg.                                                            
                      Bags)                                                                   
                      (Million                                                                
                      Trees) (1000                                                            
                      hectares)                                                               

  **Country:**                                                                                

  **Commodity:**      **Coffee,                                                               
                      Green**                                                                 

                      **2003**                **2004**                **2005**                

                      **Old**       **New**   **Old**       **New**   **Old**       **New**   

  Market Year Begin   **10/2002**             **10/2003**             **10/2004**             

  Area Planted        730           730       730           730       0                       730

  Area Harvested      600           600       600           600       0                       600

  Bearing Trees       700           700       700           700       0                       700

  Non-Bearing Trees   180           180       180           180       0                       180

  TOTAL Tree          880           880       880           880       0                       880
  Population                                                                                  

  Beginning Stocks    0             0         0             0         0                       0

  Arabica Production  4200          4200      4500          4365      0                       4365

  Robusta Production  150           150       150           135       0                       135

  Other Production    0             0         0             0         0                       0

  TOTAL Production    4350          4350      4650          4500      0                       4500

  Bean Imports        0             0         0             0         0                       0

  Roast & Ground      0             0         0             0         0                       0
  Imports                                                                                     

  Soluble Imports     0             0         0             0         0                       0

  TOTAL Imports       0             0         0             0         0                       0

  TOTAL SUPPLY        4350          4350      4650          4500      0                       4500

  Bean Exports        3200          3200      3500          3350      0                       3350

  Roast & Ground      20            20        20            20        0                       20
  Exports                                                                                     

  Soluble Exports     180           180       180           180       0                       180

  TOTAL Exports       3400          3400      3700          3550      0                       3550

  Rst, Ground Dom.    500           500       500           500       0                       500
  Consum                                                                                      

  Soluble Dom.        450           450       450           450       0                       450
  Consum.                                                                                     

  TOTAL Dom. Consum.  950           950       950           950       0                       950

  Ending Stocks       0             0         0             0         0                       0

  TOTAL DISTRIBUTION  4350          4350      4650          4500      0                       4500
  ------------------- ------------- --------- ------------- --------- ------------- --------- --------

## Trade Matrix 

  ----------------- ---------- --------- -------------- ---------- ----------
  **COFFE BEAN,                          **UNITS:                  
  GREEN**                                Metric Tons**             

  Exports to:                            Imports from:             

  **Destination**   **CY       **CY      **Origin**     **CY       **CY
                    2002**     2003**                   2002**     2003**

  U.S.              95,873     64,689    U.S.           2,323      334

  Other                                  Other                     

  Switzerland       10,658     24,487    Brazil         7,174      13,688

  Total of Others   10,658     24,487    Total of       7,250      13,668
                                         Others                    

  Other not listed  39,866     36,975    Other not      51         0
                                         listed                    

  Grand Total       146,397    126,151   Grand Total    9,624      14,002
  ----------------- ---------- --------- -------------- ---------- ----------

Source: Global Trade Information Services, Inc. World Trade Atlas,
Mexico Edition, January, 2004.

Note: Figures are in green bean equivalents.

# SECTION III. NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING

## PRODUCTION

Mexican coffee production for MY 2004/05 (Oct-Sept) is forecast to
remain at the same production levels as in MY 2003/04, due to large
global coffee supplies, extremely low international prices, and
insufficient federal government financial support. The MY 2003/04
production estimate was revised downward 3.2 percent from the initial
estimate, due to these same reasons. The production estimate for MY
2002/03 remains unchanged.

Due to its advantageous geographical and climatological conditions,
Mexico has been able to produce various types of coffee. The states of
Chiapas, Veracruz, Puebla and Oaxaca, account for nearly 90 percent of
the Mexico's high-quality coffee production. Moreover, 70 percent of the
state of Chiapas is capable of producing specialty and organic coffee
and is the main national producer of both of these types of coffee. The
inability to recover production costs for conventional coffee with the
prevailing low international prices was the motivating factor for many
Chiapas coffee producers to switch to organic and specialty coffee
production, since organic production practices do not allow the use of
chemicals, fertilizers, and pesticides. The cost of production of a
"quintal" (46 kilograms of dry unroasted "gold" coffee) of the Mexican
blend on international markets is between \$500.00 to \$550.00 pesos
(US\$ 43.82-US\$ 48.20) for conventional coffee, while the international
market sets the price for this at US\$ 350.00 pesos (US\$ 30.67).

In Chiapas, state authorities have supported farmers in surmounting the
current crisis brought on by extremely low international prices by
implementing certain financial and marketing strategies (see marketing
section) and by providing technical support and advice on crop
diversification and land-use strategies (i.e., exotic flowers and forest
products).

## CROP AREA

Planted area for MY 2004/05 is forecast to remain unchanged from the
previous year's estimate. Mexico is proposing to the International
Coffee Organization (ICO) that member countries not increase their
planted area until the coffee global supply and demand situation
improves for producers. Harvested area for MY 2002/03 and MY 2003/04
remain unchanged to reflect recent official data.

## YIELDS

## 

Yields continue to vary widely in Mexico due to variations in crop care.
However, due to expected improvements in cultural practices, good
weather, an ample water supply, and more young trees coming into
production, producers are expecting a slight increase in yields.
Although there are projects to promote the cultivation of the more
pest-resistant *robusta* variety, Mexico's production continues to be
mainly of the *arabica* variety; approximately 90 percent of bearing
trees are of the *arabica* variety. For MY 2004/05, this situation is
expected to prevail.

## CONSUMPTION

Total domestic coffee consumption in MY 2004/05 is expected to be
similar to the previous year's estimate despite the fact that producer
associations are confident that by the end of this year the world
supply-demand scheme will improve, overcoming the current coffee global
crisis thereby increasing exports. Consumption for MY 2003/04 is kept
unchanged as well as figures for MY 2002/03.

## TRADE

MY 2004/05 coffee exports are expected to be similar to MY 2003/04
levels, due to the aforementioned factors, such as low international
prices. For MY 2003/04, exports are revised downward from the previous
estimate as production has decreased, due to low international prices
which growers claim to be below Mexico's cost of production. For MY
2002/03, coffee exports remain unchanged to reflect updated data from
the Mexican Coffee Council (CMC) and final government data. About 78
percent of total Mexican coffee production is exported and, of that, the
majority -- approximately 65 percent -- goes to the United States.

## MARKETING

Among the strategies that have been implemented to increase the value
added to coffee, the most important are related to quality improvement
and conservation of the environment. Currently, coffee producers are
being trained in processing techniques, such as the correct use and
handling of coffee during the wet milling process, which enables them to
produce a higher-quality coffee, create new commercial chains and new
coffee brands. Traditionally, Mexican producers sell their coffee in the
green bean stage.

The "Fund for the Stabilization and Reordering of the Coffee Sector" is
a program under the GOM's "*Alianza para el Campo*" (Alliance for the
Countryside) is a support mechanism which guarantees the producer a
certain income via a pre-established target price for coffee when
international coffee prices are below determined levels. Following ICO
Resolution 407 directives, Mexico implemented the "Low Quality Coffee
Withdrawal Program" to avoid exporting low-quality coffee. Also, the
Mexican Coffee Council recently initiated a campaign to promote
increased domestic coffee consumption and to change the international
perception of Mexican coffee to one of high quality. For example, it has
introduced the "Café de Mexico" seal, which is now being used as a
symbol to assure the consumer of the identity, pureness and quality of
Mexican coffee.

## POLICY

Reportedly, the Secretariat of Agriculture, Livestock, Rural
Development, Fisheries and Foodstuffs (SAGARPA) along with state
governments, implemented the support program called "Rules of Operation
of the Coffee Stabilization Fund\" for coffee growers in 12 states.
Although the financial support received by producers through this
program is insufficient, producers have been able to benefit from the
technical support provided in order to learn how to classify the
different Mexican coffee varieties so as to obtain the best quality and
price for their coffee.

Currently, the Chiapas state authorities are proposing the
implementation of a Mexican Official Standard (NOM) for the denomination
of origin of coffee from Chiapas. This NOM establishes the
characteristics, specifications, and test methods that authorized users
must comply with in order to produce, process, and trade produce under
the "Café Chiapas" denomination. The objective is to ensure the quality
of Chiapas coffee to the final consumer, thereby repositioning the image
of Chiapas coffee in the domestic and international markets.