Required Report - public distribution

**Date:** 5/5/2005

**GAIN Report Number:** EC5005

EC5005

**Ecuador**

**Coffee**

**Annual Report**

**2005**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Rene A. Alarcon

**Report Highlights:**

Ecuador\'s coffee production is forecasted to increase to 750,000
60-kilo bags GBE in MY 2005/2006 due to increased prices in the
international markets. Besides exporting coffee and coffee products,
Ecuador has become a coffee bean importer, mainly of Robusta varieties.
Coffee exports for MY 2006 are forecasted at 716,000 bags and imports at
265,000 bags.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Quito \[EC1\]

\[EC\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 6](#production)

[Consumption 7](#consumption)

[Trade 7](#trade)

[Policy 9](#policy)

# Executive Summary

Coffee production for Marketing Year 2005/2006 (April/March) is expected
to increase to 750,000 60-Kg bags, up from a revised production of
733,000 bags in MY 2005. Increased world demand and better international
prices will encourage coffee farmers to harvest more coffee this year,
being Arabica production higher than Robusta because of its higher
price.

Ecuador's local consumption is estimated at 304,000 bags per year, 80%
of which is consumed as soluble or instant coffee. Coffee exports for MY
2006 are forecasted at 716,000 bags, 68 percent of which are soluble and
instant coffee products. In order to meet the industry's demand of
Robusta coffee beans in 2004, Ecuador imported, under a temporary
admission regime, 162,000 bags from Vietnam, Indonesia and Brazil. For
the upcoming MY 2006, Ecuador is forecasted to import additional 170,000
bags.

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

  **Country**       **Ecuador**                                                             

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

                    2004          Revised    2005          Estimate   2006       Forecast   UOM

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

  **Market Year                   04/2003                  04/2004               04/2005    MM/YYYY
  Begin**                                                                                   

  Area Planted      221           221        215           215        0          210        (1000 HA)

  Area Harvested    195           183        193           193        0          198        (1000 HA)

  Bearing Trees     188           188        185           185        0          184        (MILLION TREES)

  Non-Bearing Trees 7             7          5             5          0          6          (MILLION TREES)

  TOTAL Tree        195           195        190           190        0          190        (MILLION TREES)
  Populat.                                                                                  

  Beginning Stocks  29            29         38            34         37         29         (1000 60 KG
                                                                                            BAGS)

  Arabica           430           387        400           398        0          405        (1000 60 KG
  Production                                                                                BAGS)

  Robusta           358           305        350           335        0          345        (1000 60 KG
  Production                                                                                BAGS)

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

  TOTAL Production  796           692        750           733        0          750        (1000 60 KG
                                                                                            BAGS)

  Bean Imports      140           167        200           162        0          170        (1000 60 KG
                                                                                            BAGS)

  Roast & Ground    0             0          0             0          0          0          (1000 60 KG
  Imp.                                                                                      BAGS)

  Soluble Imports   0             71         0             90         0          95         (1000 60 KG
                                                                                            BAGS)

  TOTAL Imports     140           238        200           252        0          265        (1000 60 KG
                                                                                            BAGS)

  TOTAL SUPPLY      965           959        988           1019       37         1044       (1000 60 KG
                                                                                            BAGS)

  Bean Exports      207           208        200           216        0          230        (1000 60 KG
                                                                                            BAGS)

  Roast & Ground    1             1          1             1          0          1          (1000 60 KG
  Exp                                                                                       BAGS)

  Soluble Exports   419           419        450           475        0          485        (1000 60 KG
                                                                                            BAGS)

  TOTAL Exports     627           628        651           692        0          716        (1000 60 KG
                                                                                            BAGS)

  Rst,Ground Dom.   235           66         230           66         0          69         (1000 60 KG
  Cons                                                                                      BAGS)

  Soluble Dom.      65            231        70            232        0          235        (1000 60 KG
  Consu.                                                                                    BAGS)

  TOTAL Dom. Consu. 300           297        300           298        0          304        (1000 60 KG
                                                                                            BAGS)

  Ending Stocks     38            34         37            29         0          24         (1000 60 KG
                                                                                            BAGS)

  TOTAL             965           959        988           1019       0          1044       (1000 60 KG
  DISTRIBUTION                                                                              BAGS)
  ----------------- ------------- ---------- ------------- ---------- ---------- ---------- ---------------

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

  **Country**     Ecuador                           **Country**     Ecuador                

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

  Time Period     Apr-Mar   Units:    60-kg Bag     Time Period     Apr-Mar   Units:      60-Kg Bag

  Exports for:    2003                **2004**      Imports for:    2003                  **2004**

  U.S.            127104    U.S.      155814        U.S.            0         U.S.        4480

  Others                    Others                  Others                    Others       

  Germany         166756    Germany   166415        Vietnam         95129     Vietnam     151180

  England         73161     England   101543        Brazil          66430     Colombia    59500

  Poland          49422     Poland    69993         Colombia        58956     Indonesia   19750

  Japan           45942     Japan     38050         Venezuela       12453     Brazil      14214

  Rusia           30514     Belgium   36012         Kenya           3213      Rwanda      2880

  Belgium         19807     Rusia     25483         Tanzania        2560                   

  Chile           19550                                                                    

  Total for       405152              437496        Total for       238741                247524
  Others                                            Others                                

  Others not      94997               98690         Others not      0                     0
  Listed                                            Listed                                

  Grand Total     627253              692000        Grand Total     238741                252004
  --------------- --------- --------- ---------- -- --------------- --------- ----------- ----------

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

  **Country**         Ecuador                                 

  **Commodity**       Coffee,                                 
                      Green                                  

  Prices in           US\$         per uom                   60-Kg Bag

  Year                2003         2004                      \% Change

  Jan                 42.33        42.33                     0%

  Feb                 42.33        46.30                     9%

  Mar                 39.68        50.26                     27%

  Apr                 43.65        56.88                     30%

  May                 41.01        58.20                     42%

  Jun                 41.01        67.46                     65%

  Jul                 42.33        79.37                     88%

  Aug                 43.65        66.14                     52%

  Sep                 42.33        79.37                     88%

  Oct                 41.01        79.37                     94%

  Nov                 42.33        79.37                     88%

  Dec                 41.80        93.92                     125%

                                                             

  Exchange Rate       1 US\$       Local Currency/US \$       

  Date of Quote       3/31/2005    MM/DD/YYYY                 
  ------------------- ------------ ------------------------- -------------

# Production

Coffee production is expected to increase to 750,000 60-kilogram bags
(Bags) on 198,000 Ha during Marketing Year 2005/2006 (April/March). This
represents a timid 2.3% increase from a revised production figure of
733,000 Bags in MY 2005. Production growth is explained by important
price increases during MY 2005, and a foreseen price-growth tendency for
this year given reduced production in Brazil and Colombia. However, as
many farmers had abandoned their plantations due to depressed prices in
MY 2004 (revised to 183,000 Ha), coffee plantations are in bad shape and
their capacity to respond to this opportunity is very limited. This
explains the small projected growth for MY 2006.

Another factor affecting production is that some 60% of the existent
bearing trees are older than 25 years, and their productive capacity
continues to decline. Approximately 100 million trees need to be
replaced, but Ecuadorian farmers are not in capacity to do it. Many
farmers prefer to abandon their plantations or to simply replace them
with other crops. It is estimated that some 50,000 farmers have
abandoned their coffee plantations with beans both in the plants and in
the ground, which has caused infestation with coffee borer.

![](media/image2.wmf)

Given the aforementioned factors, planted areas are also forecasted to
decrease to 210,000 Ha during MY 2006, with a tendency to stabilize if
international prices continue with their current growth tendency.
Another notable change is a greater production of Arabica coffee over
Robusta in the recent past. For MY 2006, Ecuador is expected to produce
405,000 Bags of Arabica and 345,000 Bags of Robusta. These and other
factors have lead to increased imports of Robusta coffee.

Production figures for MY 2004 and MY 2005 have been revised to reflect
actual events; coffee prices being the key issue for lower or higher
production during those two periods. Prices for Arabica and Robusta
coffee in the international markets have dropped consistently since
1989, when the quota system was eliminated. Prices paid to coffee
growers usually do not cover their cost of production; however, some
farmers have continued with the business. This is explained by the fact
that farmers have diversified their production, by associating other
crops such as corn, fruits, cassava, which have offset losses in coffee.
Prices paid to coffee growers per 60-kilo bag of green Arabica were US\$
41.95 in CY 2003, and US\$ 66.58 in CY 2004, on average. Better prices
for the calendar year 2004 have encouraged producers to harvest
available Arabica beans, but not as much Robusta. Average prices for
Robusta coffee were US\$ 30.5 and US\$ 39.9 per 60-kg bag in 2003 and
2004 respectively.

![](media/image3.wmf)

## 

# Consumption

Local consumption is estimated at 304,000 Bags for the upcoming market
year 2005/2006. The tendency of Ecuadorians is to consume more soluble
coffee than roasted and ground coffee in approximate proportions of 80
percent instant to 20 percent roasted/ground. This consumption pattern
is explained by changes in habits of consumers in the past 20 years
towards economy and ease of use. Thus, a shorter preparation time has
replaced the need for good taste and body in hot coffee drinks. Instant
coffee is very popular in Ecuador, and several national and imported
brands are represented in the market: Café Press 2, Si café and Expresso
from Ecuador, and Dolca and Nescafe from Colombia.

# Trade

Exports of coffee and coffee products for MY 2005/2006 are forecasted to
increase to

716,000 Bags, 3.4 percent up from the revised figure of 692,000 Bags in
MY 2005. Both coffee beans and soluble coffee exports are expected to
increase, due mainly to higher prices in the international markets. It
is important to notice that most of Ecuador's 230,000-Bag bean exports
in MY 2006 will be Arabica because of its higher price. As Robusta has
lower prices and is mainly used for soluble coffees, the majority of
this variety will be directed to manufacture instant coffee and such
products for local consumption and export.

Soluble exports, currently at 475,000 Bags GBE are expected to maintain
a growth tendency despite lower production and prices of Robusta
varieties in Ecuador. In addition to that, the coffee industry has
gained markets for coffee extract; freeze dried coffee, agglomerated,
spray dried coffee, and flavored coffee. Thus, Ecuador exported 37,000
Bags GBE equivalent of spray dry coffee (lyophilic coffee) in 2004. PSD
tables have been changed to show actual export data for marketing years
2004 and 2005.

![](media/image4.wmf)

Given low prices and poor production or Robusta, accompanied by higher
local and international demand for soluble coffee products, Ecuador's
coffee industry has increased its Robusta imports. Ecuador imported
162,000 Bags of Robusta beans in MY 2005, mainly from Vietnam, Brazil
and Indonesia. Imports for MY 2006 are forecasted at 170,000 Bags to
meet the demand of the coffee industry. The majority of these imports
are made under temporary admission regimes as a condition to export once
the coffee is industrialized. Imports under temporary admission regime
do not show in the official data, but post has included them in the PSD
table as bean imports. Import data in the PSD table has been changed to
reflect actual data for marketing years 2004 and 2005.

Ecuador's main markets for coffee beans in calendar year 2004 were the
United States, Germany and Colombia. Germany, England, Poland and Japan
are the main markets for Ecuador's industrialized coffee. The US market
for industrialized Ecuadorian coffee is only 1.5 percent.

![](media/image5.wmf)

![](media/image6.wmf)

# 

# 

# Policy

The current focus of Ecuador's coffee policy is the established by a
private institution, the National Coffee Council (COFENAC). According to
the law, COFENAC is the institution in charge of implementing the Law
for the Coffee Industry.

This new law 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 for the rehabilitation, renovation, and maintenance of
coffee plantations. The primary goal of the loans provided by COFENAC is
not to increase planted and harvested areas, but to provide access to
better coffee seedlings in order to improve quality and increase yields.
Currently, COFENAC is in search of financial assistance to implement a
project through with some 200,000 coffee trees would be replaced.

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 been exporting some 9,000 MT/year of organic
roasted coffee. Europe is the main destination of these exports.

Coffee bean producers and coffee bean exporters think that the return to
the quota system for exportation will encourage 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.