Required Report - public distribution

**Date:** 5/16/2005

**GAIN Report Number:** MX5046

MX5000

**Mexico**

**Coffee**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Suzanne E. Heinen

U.S. Embassy Mexico City

**Prepared by:**

Gabriel Hernandez

**Report Highlights:**

Beneficial weather and attractive prices are expected to lead to an
increase in Mexican coffee production for the 2005/06 marketing year. As
a result of expanded production, Mexican coffee exports are also
expected to increase.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Mexico \[MX1\]

\[MX\]

Table of Contents

[SECTION I. STATISTICAL TABLES 3](#section-i.-statistical-tables)

[PS&D, Coffee 3](#psd-coffee)

[Trade Matrix 3](#trade-matrix)

[SECTION II. NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING
4](#section-1)

[Production 4](#production)

[Yields 5](#yields)

[Consumption 5](#consumption)

[Trade 5](#section-5)

[Marketing 5](#marketing)

[Policy 5](#policy)

# SECTION I. STATISTICAL TABLES 

## 

## PS&D, Coffee

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

  **Country**          **Mexico**                                                        

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

                       **2004                    **2005                    **2006        
                       Revised**                 Estimate**                Forecast**    

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

  Market Year Begin    **10/2003**               **10/2004**               **10/2005**   

  Area Planted         730           730         730           730         0             730

  Area Harvested       600           600         600           600         0             600

  Bearing Trees        700           700         750           700         0             700

  Non-Bearing Trees    180           180         130           180         0             180

  TOTAL Tree           880           880         880           880         0             880
  Population                                                                             

  Beginning Stocks     0             0           0             0           0             0

  Arabica Production   4,365         4,298       4,365         3,850       0             4,150

  Robusta Production   135           130         135           130         0             150

  Other Production     0             0           0             0           0             0

  TOTAL Production     4,500         4,428       4,500         3,980       0             4,300

  Bean Imports         0             67          0             132         0             130

  Roast & Ground       0             14          0             15          0             10
  Imports                                                                                

  Soluble Imports      0             0           0             0           0             0

  TOTAL Imports        0             81          0             147         0             140

  TOTAL SUPPLY         4,500         **4,500**   4,500         **4,127**   0             **4,440**

  Bean Exports         3,350         3,350       3,350         2,977       0             3,240

  Roast & Ground       20            20          20            20          0             20
  Exports                                                                                

  Soluble Exports      180           180         180           180         0             180

  TOTAL Exports        3,550         3,550       3,550         3,177       0             3,440

  Rst,Ground Dom.      500           500         500           500         0             550
  Consum.                                                                                

  Soluble Dom. Consum. 450           450         450           450         0             450

  TOTAL Dom.           950           950         950           950         0             1,000
  Consumption                                                                            

  Ending Stocks        0             0           0             0           0             0

  TOTAL DISTRIBUTION   4,500         **4,500**   4,500         **4,127**   0             **4,440**
  -------------------- ------------- ----------- ------------- ----------- ------------- -----------

## Trade Matrix 

  --------------------- -------------- -------------------- --------------
  **COFFEE**                           UNITS: Metric Tons   

  Exports to:                          Imports from:        

  Destination           **CY 2004**    Origin               **CY 2004**

  U.S.                  68,580         U.S.                 588

  Other                                Other                

  Switzerland           22,971         Brazil               8,144

  Other not listed      29,240         Other not listed     285

  Grand Total           120,791        Grand Total          9,017
  --------------------- -------------- -------------------- --------------

Source: Global Trade Information Services, Inc. World Trade Atlas,

Mexico Edition, January, 2004.

Note: figures are in green bean equivalent - GBE

# 

# 

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

## Production

Mexican coffee production for MY 2005/06 (Oct-Sept) is forecast at 4.3
million 60-kilogram bags, an increase of 8.0 percent from last year's
production, due to good weather in production areas, the enforcement of
the "Productive Development and Quality Improvement of the Mexican
Coffee" program along with the timely delivery of government financial
supports. Private and official sources indicate that these factors,
coupled with a decrease in world coffee production and inventories, will
spur Mexican coffee production in the short- to medium-term. However,
this will be slightly offset by somewhat difficult producing conditions,
such as the lack of appropriate domestic infrastructure and
commercialization channels. The MY 2004/05 production estimate, which is
the lowest production in the past two decades, was revised further
downward ---approximately 12 percent--- from the initial estimate, due
to premature blooming, unsteady rainfall, and producers abandoning
orchards or shifting to other, more profitable, crops, because of low
international coffee prices. The production estimate for MY 2003/04 was
revised slightly downward to reflect the latest official data.

International coffee prices in MY 2005/06 are expected to be attractive
and could entice some producers to shift to the cultivation of organic
and gourmet coffees because of the higher prices and better profits
these coffees normally command. Unofficially, the production of organic
coffee accounts for approximately 15 percent of total nationwide coffee
production. In contrast to the MY 2005/06, in recent years, it has been
low international coffee prices, and producers' inability to recover
production costs for conventional coffee motivating the production of
organic and specialty coffee production, as organic production practices
offer additional savings to producers by limiting the use chemicals,
fertilizers, and pesticides. That said, Mexico has not yet been able to
develop, nor achieve the optimum production processes to keep pace with
consumer demand for these specialty or organic coffees. However, it is
expected that producers will be able to more effectively meet this
demand in the future with effective and targeted government support.

Due to its advantageous geographical and climatological conditions,
Mexico is ideally suited for coffee production, of which approximately
97 percent is of the *arabica* variety and 3 percent is of the *robusta*
variety. Production of the *robusta* variety is increasing, due to
greater demand from coffee processing companies, due to its lower costs
(compared to *arabica*) and higher yields. Although the *robusta*
production is increasing, it can not replace that of *arabica* based on
the fact that blends made from this variety represent a better way of
promoting Mexican coffee as a product of high quality in international
markets

The states of Chiapas, Veracruz, Puebla and Oaxaca, account for nearly
90 percent of the Mexico's coffee production. The cost of production of
a "quintal" (60 kilograms of green bean coffee) for MY 2004/05 was
around US\$ 70.00 - 75.00, and is expected to remain the same in MY
2005/06.

**[Crop Area]{.smallcaps}**

MY 2005/06 planted and harvested areas are expected to remain unchanged
from the previous year. Over the next few years, however, planted and
harvested area may increase, due the development of new coffee
nurseries, timely delivery of government financial support, and younger
trees coming into bearing. Harvested area for MY 2004/05 and MY 2003/04
remains unchanged to reflect recent official data.

## Yields

## 

Yields continue to vary widely in Mexico due to variations in crop care
and weather. For MY 2005/06 yields are forecast to increase due to good
weather and expected improvements in cultural practices. Yield figures
for MY 2004/05 were revised downward due to adverse weather conditions.
MY 2003/04 figures were revised slightly downward to reflect recent
official data.

## 

## Consumption

Total domestic coffee consumption in MY 2005/06 is expected to be 5.3
percent above the previous year's estimate. Demand from consumers with
mid- to high-level incomes has been increasing, due to their access to
fashionable value-added coffee chain stores. Despite the growing demand,
per capita domestic consumption in Mexico is calculated at less than 1
kilogram per year, which is considerably less than the world standard of
5 kilograms per year. The consumption estimates for MY 2004/05 and MY
2003/04 remain unchanged.

## 

## Trade

MY 2005/06 coffee exports are forecast to be up 8.3 percent from the
previous year, due to increased production in anticipation of attractive
international prices. For MY 2004/05, exports are revised downward from
the previous estimate, due to low domestic production and low
international prices. For MY 2003/04, coffee exports remain unchanged.
Approximately 67 percent of the total Mexican coffee production is
exported and, of that, the majority -- nearly 72 percent -- goes to the
United States.

For MY 2005/06, import levels are forecast to be slightly down from the
previous year's figure, due to increased domestic production and high
prices in foreign markets. The import estimate for MY 2004/05 was
revised upward, due to lower then expected production and an increased
domestic demand for specialty and gourmet coffees. The MY 2003/04 import
estimate was revised upward to reflect the latest official data.

## Marketing

Historically, Mexico's coffee blends have not garnered top prices in
foreign markets, due to the application of inappropriate processing
techniques, such as mixing coffee grains from different altitudes and
maturity stages, and mishandling grains during the wet milling process.
Coffee producers are reportedly being trained in the appropriate
processing and marketing techniques which would enable them to produce a
higher-quality coffee and create new commercial chains and coffee
brands.

The domestic and foreign campaigns to promote consumption of the Mexican
blend sold under the "Café de Mexico" seal --- a quality seal used to
assure the consumer of the identity, pureness, and quality of Mexican
coffee --- is a strategy designed and developed by the Mexican coffee
industry to regain foreign markets' recognition of Mexican coffee as a
product of high quality.

## Policy

In response to petitions from producers and representatives of the
Mexican coffee sector to clarify the apparent mismanagement of
government financial supports by the former Mexican Coffee Council (CMC
by its acronym in Spanish), the Secretariat of Agriculture, Livestock,
Rural Development, Fisheries and Foodstuffs (SAGARPA) recently
established and developed a National Coffee System. This system has been
designed to incorporate all sectors of the productive chain under one
entity, with government oversight and guidance, thereby allowing
domestic coffee producers to become more competitive through an improved
domestic infrastructure that is able to respond to future challenges of
the domestic and international markets.

Simultaneously, Senators from the Mexican Congress are in the process to
approve a new coffee law that, if passed, will allow the founding of a
new National Coffee Council, that would be an autonomous and
decentralized public body which would inform SAGARPA of all planned
policies and programs, especially those targeted towards the production,
commercialization, and consumption of coffee. Also it will contribute to
the implementation of a coffee price stabilization fund and the
establishment of a reference price.