Required Report - public distribution

**Date:** 5/23/2005

**GAIN Report Number:** VE5011

VE5011

**Venezuela**

**Coffee**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Bonnie Borris

U.S. Embassy VENEZUELA

**Prepared by:**

Clara Nuñez

**Report Highlights:**

Venezuelan coffee production for the last three years has been falling.
A combination of bad economic conditions, poor market prospects and bad
weather led to a drop in production in 2003/04. Exports for 2003/04 only
accounted for 150,000 bags. For 2004/05 production is expected to
decline to 820,000 bags and no official exports of green coffee have
been yet registered. Exports for 2005/06 are forecasted to 120,000 bags
depending on the implementation of the Government Coffee Plan to boost
production and the lifting of the restrictions to export coffee.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Caracas \[VE1\]

\[VE\]

# Production 

Venezuela produces coffee of very high quality, almost entirely of
Arabica variety. From colonial days until the discovery of the first oil
well more than a century ago, Venezuela's main source of income came
mostly from coffee and cocoa. Currently, only about 200,000 hectares are
under cultivation, which barely covers the huge domestic demand.

As the coffee plantations are distributed throughout different
altitudes, coffee can be harvested ten months of the year. In the low
zones (600 to 800 m.) the harvest starts in September and ends in
November. In the medium level zone (900 to 1,200 m.) the harvest starts
in November and lasts until the end of January. Eighty percent of the
coffee plantations are in the medium zone; therefore by the month of
February about 80 percent of the domestic crop has been harvested. The
harvest in the high zones (up to 1,800 m) starts in March and concludes
in June. The work in the coffee fields is basically artisan as holdings
are small with day laborers hired for harvest.

Venezuelan coffee production has been falling, as there have been no
market incentives, including prices, to keep growers on the land. A
combination of bad economic conditions and poor market prospects led to
a drop in production of the 2003/04 harvest. For 2004/05 production is
expected to decline to 820,000 bags due to bad weather conditions.
Torrential rains last February caused severe damage in some plantations
in the state of Mérida and also affected the transportation logistics
for this crop. The floods also disrupted harvesting operations in the
neighbor state of Táchira.

Production is forecast to show a slight increase to 825,000 bags in
2005/06 assuming that prices to producers remain at acceptable levels
and that a Government plan to boost coffee production as a part of its
"endogenous" growth program starts this year (See VE4008 for more
details).

# Consumption

Per capita coffee consumption is estimated at 1.8 kilograms/year. Coffee
consumption in 2003/04 was 700,000 bags and is expected to show a slight
increase over the next two years. This increase could be linked to a
better access of the low-income people to the food basket products,
including coffee, due to the operation of MERCAL, a government company
created for the commercialization and marketing of food products at
lower prices.

# Prices

Coffee and many other basic products have been placed on a price control
list since January 2003. Those prices controls immediately forced down
the price of domestic coffee, and it has only recently regained its
January 2003 level.

Retail coffee prices were reviewed and increased in November 2004 since
the shift in the relative exchange rates between Venezuela and Colombia
led to a reversal in the traditional flow of coffee between the two
countries, with more coffee leaving Venezuela either through official
export channels, or unofficially by land to Colombia. The price increase
improved the situation for Venezuelan growers and roasters, but many in
the sector believe it was not enough to prevent future coffee shortages.
A further price increase is under discussion.

While there has been a cap on the retail price of coffee, bean prices
have gone through the roof. The coffee sector has been in a crisis for
the last two years due to a price battle between the producers and the
roasters. The roasting industry, which included 34 coffee processing
plants in Venezuela a decade ago has dwindled to seven after the crisis
due to high raw material costs. The high raw material costs gave rise to
smuggling of raw materials and led to supply shortages that continued
despite later coffee price hikes that lifted the quintal to Bs. 222,000
and managed to keep the remaining processors from going under.

Price disparity has caused some friction in the industry, since only a
few large companies have been able to pay the higher prices and acquire
coffee supplies. During the 2004/05 harvest, the farm gate price of
green coffee reached Bs. 350,000/ quintal, when the official market
price for green coffee was between Bs. 162,000 and Bs. 222,000/ quintal.

  ------------ ----------------------- ------------------ ----------------
  **CONSUMER                                              
  PRICES/                                                 
  Ground &                                                
  Roasted                                                 
  Coffee**                                                

  **In Bolivar                                            
  Terms**                                                 

  Date         Exchange Rate           Price              

                                       Bolivars/ Kg       Dollars/ Kg

  **Dec-02**   **1700**                3,865.40           2.28

  **Jan-03**   **1800**                3,916.84           2.16

  **Feb-03**   **1600**                3,904.08           2.44

  **Mar-03**   **1600**                3,192.36           2

  **Apr-03**   **1600**                3,064.32           1.92

  **May-03**   **1600**                3,015.60           1.88

  **Jun-03**   **1600**                2,972.96           1.84

  **Jul-03**   **1600**                2,963.28           1.84

  **Aug-03**   **1600**                2,989.16           1.88

  **Sep-03**   **1600**                2,954.32           1.84

  **Oct-03**   **1600**                2,896.96           1.8

  **Nov-03**   **1600**                2,881.56           1.8

  **Dec-03**   **1600**                2,889.36           1.8

  **Jan-04**   **1600**                2,987.16           1.88

  **Feb-04**   **1920**                3,668.84           1.92

  **Mar-04**   **1920**                3,865.68           2.01

  **Apr-04**   **1920**                4,112.00           2.14

  **May-04**   **1920**                4,099.64           2.13

  **Jun-04**   **1920**                4,512.64           2.35

  **Jul-04**   **1920**                4,950.48           2.57

  **Aug-04**   **1920**                5,153.96           2.68

  **Sep-04**   **1920**                5,258.75           2.73

  **Oct-04**   **1920**                5,618.32           2.92

  **Nov-04**   **1920**                6,066.68           3.15

  **Dec-04**   **1920**                6,755.72           3.51

  **Jan-05**   **1920**                7,008.80           3.65

  **Feb-05**   **1920**                7,097.76           3.69

  **Mar-05**   **2150**                7,252.60           3.37

  Source: INE                                             
  & BCV                                                   
  ------------ ----------------------- ------------------ ----------------

# Trade

Venezuela's coffee is mainly produced for the domestic market. Exports
for 2003/2004 only accounted for 150,000 bags. Since some small local
roasters were claiming scarcity, they raised the Venezuelan Government's
concerns about domestic availability and coffee exports were banned in
February 2004.

For the period 2004/05 no official exports of green coffee have been
registered to date, and unofficial exports to Colombia are forecasted to
slow down due to high domestic coffee prices. Exports for 2005/06 are
forecasted to 120,000 bags depending on the implementation of the
Government Coffee Plan and the lifting of the restrictions to export
coffee.

Depending on its quality, Venezuelan coffee is classified on a scale
ranging from "well-washed type A, B and C" to "natural good and natural
regular."

+---------------+------+------+------+------+------+------+------+
| ######        |      |      |      |      |      |      |      |
| **Venezuela** |      |      |      |      |      |      |      |
|               |      |      |      |      |      |      |      |
| ########      |      |      |      |      |      |      |      |
| Coffee, Green |      |      |      |      |      |      |      |
+---------------+------+------+------+------+------+------+------+
|               | 2004 | Rev  | 2005 | Esti | 2006 | Fore | UOM  |
|               |      | ised |      | mate |      | cast |      |
+---------------+------+------+------+------+------+------+------+
|               | USDA | Post | USDA | Post | USDA | Post |      |
|               | Offi | Esti | Offi | Esti | Offi | Esti |      |
|               | cial | mate | cial | mate | cial | mate |      |
|               | \[O  | \[N  | \[O  | \[N  | \[O  | \[N  |      |
|               | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |      |
+---------------+------+------+------+------+------+------+------+
| Market Year   |      | 10/  |      | 10/  |      | 10/  | MM/  |
| Begin         |      | 2003 |      | 2004 |      | 2005 | YYYY |
+---------------+------+------+------+------+------+------+------+
| Area Planted  | 310  | 310  | 310  | 300  | 0    | 300  | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | HA)  |
+---------------+------+------+------+------+------+------+------+
| Area          | 210  | 210  | 220  | 200  | 0    | 200  | (    |
| Harvested     |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | HA)  |
+---------------+------+------+------+------+------+------+------+
| Bearing Trees | 580  | 580  | 580  | 560  | 0    | 560  | (MIL |
|               |      |      |      |      |      |      | LION |
|               |      |      |      |      |      |      | TR   |
|               |      |      |      |      |      |      | EES) |
+---------------+------+------+------+------+------+------+------+
| Non-Bearing   | 25   | 25   | 25   | 30   | 0    | 30   | (MIL |
| Trees         |      |      |      |      |      |      | LION |
|               |      |      |      |      |      |      | TR   |
|               |      |      |      |      |      |      | EES) |
+---------------+------+------+------+------+------+------+------+
| TOTAL Tree    | 605  | 605  | 605  | 590  | 0    | 590  | (MIL |
| Population    |      |      |      |      |      |      | LION |
|               |      |      |      |      |      |      | TR   |
|               |      |      |      |      |      |      | EES) |
+---------------+------+------+------+------+------+------+------+
| Beginning     | 528  | 528  | 375  | 475  | 0    | 553  | (    |
| Stocks        |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Arabica       | 825  | 825  | 840  | 820  | 0    | 825  | (    |
| Production    |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Robusta       | 0    | 0    | 0    | 0    | 0    | 0    | (    |
| Production    |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Other         | 0    | 0    | 0    | 0    | 0    | 0    | (    |
| Production    |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| TOTAL         | 825  | 825  | 840  | 820  | 0    | 825  | (    |
| Production    |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Bean Imports  | 5    | 5    | 10   | 0    | 0    | 10   | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Roast &       | 2    | 2    | 3    | 3    | 0    | 3    | (    |
| Ground        |      |      |      |      |      |      | 1000 |
| Imports       |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Soluble       | 0    | 0    | 0    | 0    | 0    | 0    | (    |
| Imports       |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| TOTAL Imports | 7    | 7    | 13   | 3    | 0    | 13   | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| TOTAL SUPPLY  | 1360 | 1360 | 1228 | 1298 | 0    | 1391 | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Bean Exports  | 300  | 150  | 250  | 0    | 0    | 120  | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Roast &       | 35   | 35   | 35   | 35   | 0    | 35   | (    |
| Ground        |      |      |      |      |      |      | 1000 |
| Exports       |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Soluble       | 0    | 0    | 0    | 0    | 0    | 0    | (    |
| Exports       |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| TOTAL Exports | 335  | 185  | 285  | 35   | 0    | 155  | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Rst,Ground    | 640  | 690  | 650  | 700  | 0    | 710  | (    |
| Dom. Consum   |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Soluble Dom.  | 10   | 10   | 10   | 10   | 0    | 10   | (    |
| Consum.       |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| TOTAL Dom.    | 650  | 700  | 660  | 710  | 0    | 720  | (    |
| Consumption   |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| Ending Stocks | 375  | 475  | 283  | 553  | 0    | 516  | (    |
|               |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+
| TOTAL         | 1360 | 1360 | 1228 | 1298 | 0    | 1391 | (    |
| DISTRIBUTION  |      |      |      |      |      |      | 1000 |
|               |      |      |      |      |      |      | 60   |
|               |      |      |      |      |      |      | KG   |
|               |      |      |      |      |      |      | B    |
|               |      |      |      |      |      |      | AGS) |
+---------------+------+------+------+------+------+------+------+