Required Report - public distribution

**Date:** 5/15/2004

**GAIN Report Number:** CO4006

CO4006

**Colombia**

**Coffee**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)David J. Mergen

U.S Embassy

**Prepared by:**

Leonardo Pinzon

**Report Highlights:**

Colombian coffee production is estimated to fall slightly to 11.3
million (60 kilogram) bags in the 2003/2004 marketing year due to excess
rainfall during the flowering stage. Production is forecast to grow to
11.6 million in 2004/2005. The GOC increased the minimum guaranteed
price paid to growers to 320.000 pesos (\$118.16) per 125 Kg bag.
Carryover is expected to fall to around 1.2 million bags for the next
two years. The Colombian Government continues lobbying for the U.S. to
join ICO.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Bogota \[CO1\]

\[CO\]

Table of Contents

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

[Production 3](#production)

[Consumption 4](#consumption)

[Trade 4](#trade)

[Stocks 4](#stocks)

[Policy 4](#policy)

[Prices 5](#prices)

[Tables 6](#tables)

[Colombia: Green Coffee Supply and Demand 2002/03 -- 2004/05
6](#colombia-green-coffee-supply-and-demand-200203-200405)

[Colombia: Green Coffee Price to Growers CY 2003 -- 2004
7](#colombia-green-coffee-price-to-growers-cy-2003-2004)

[Colombia: Green Coffee Exports CY 2003
8](#colombia-green-coffee-exports-cy-2003)

# Executive Summary

Colombian coffee production is expected to decline to 11.3 million bags
in marketing year 2003/04 from 11.7 million bags in 2002/2003. This
lower production will last up to August 2004 and is due to bad weather
conditions during the flowering stage. Post forecasts a return to normal
production levels in 2004/05. Based on data from Fedecafe, Post has
increased the estimate of beginning stocks for 2003/04 by 200,000 bags
(largely reflecting a lower estimate of domestic consumption). The
Colombian government increased the minimum guaranteed price paid to
growers from 310,000 pesos to 320,000 pesos on April 28. Although the
market price is currently well above this price (360,000 pesos), the
higher price is important politically. The Colombian Government and the
Coffee Growers Federation hope the U.S. will joint to International
Coffee Organization.

# Production

Production is expected to fall slightly this year, due to dry weather
during the flowering period, and then return to a more normal production
level of 11.6 million bags in 2004/2005. Reportedly, production reached
7,0 million bags during the first seven months of the marketing year
(October 2003 -- April 2004), which was 76,000 thousand bags below the
same period a year before. The output started declining in April and the
lower production level will continue for the following four to five
months. Production for the next marketing year will increase since the
weather during the first months of 2004 returned to a more normal
pattern. Over the longer run, production under normal weather conditions
is expected to be between 11.0 and 12.0 million bags.

Marginal production areas are leaving coffee production and the more
traditional coffee producing areas are expected to intensify production
under the tree renewal program. The total area planted is expected to
continue to fall mainly in marginal production areas that have old
plants of low quality and production. These marginal areas for coffee
production are located mainly in the lower altitudes of the coffee
farms.

The coffee renovation program ended in 2003 after covering 340,000
hectares (approximately half the current harvested area). The program
received five years of continuous support from the Coffee Growers
Federation (FEDECAFE). FEDECAFE started supporting renovation plant
through distributing fertilizers to growers in such a way to assure
improving quality.

The coffee renovation program was only conducted and supported for the
main coffee areas (located between 1,500 meters and 1,800 meters).
Growers in these areas increased the density planted, which is currently
calculated at 5,700 trees per hectare, up from 4,800 trees per hectare
previously. Coffee plantations now have an average age of 5.5 years,
down from the 7.5 years before the renovation program.

The government has provided direct payments to growers since 2001 of up
to 30,000 pesos per 125 kilograms bag when the local price falls below
300,000 pesos. The government has been cutting the amount of the payment
due to higher world prices (and budget constraints), and the program was
temporarily stopped on February 28, 2004 when international prices were
close to 80 cents. The rising value of the peso and higher production
costs have, however, partially offset the impact of the higher
international price and the Government re-instituted the support program
on April 28, 2004. The GOC will pay 10,000 pesos (\$3.69) per 125 kg bag
when the price paid to growers falls below 320,000 pesos. The amount
approved for the 2004 program is 45,000 million pesos (\$16.6 million).

## 

# Consumption

Local coffee consumption is considered low when compared with other
producing countries. A strong campaign to promote coffee consumption was
conducted last year along with a 10 percent price discount for soluble
branded coffee. The preliminary findings show a low response from
consumers to the lower price and Fedecafe has reduced its estimate of
domestic consumption to reflect this.

The National Growers Federation opened new "Juan Valdez" branded stores
in 2003 to take advantage of the brand name. The purpose of these stores
is mainly to give consumers the opportunity of tasting 100 percent
Colombian coffee, as a part of marketing higher quality Colombian
coffee. The Federation is also promoting domestic consumption of the
soluble coffee brand "Buendia". This brand is manufactured by the
National Growers Federation (FEDECAFE) and was previously sold only to
external markets.

## 

# Trade

Colombia's coffee is mainly produced for the export market. 84 percent
of coffee exports were green coffee beans, while the remaining exports
were roasted and soluble coffee. Colombia is expected to export 10.4
million bags in the commercial 2003/2004 year (78,000 bags below a year
before).

In 2002/03, the producer organization Fedecafe accounted for about 24
percent of all Colombian coffee exports, with the remainder handled by
private exporters. Coffee exports earned \$907 million in 2002/03 year,
five percent above a year earlier because of the increase in
international prices. Thirty-five percent of all coffee exports went to
the U.S. market in 2003. Germany and Japan were the second and third
market for Colombian coffee, with market shares of 16 percent and 13.5
percent respectively. Although the relative importance of coffee in
total Colombian exports is falling, coffee continues to be extremely
important for generating employment and welfare in the coffee region.

Small coffee exporters are focusing on the market for high quality
coffee in the US and Europe due to the high price premium for these
coffees. Coffee sold in this category is not, however, a significant
amount of the total coffee exported.

# Stocks

Colombia's coffee stocks have fallen steadily since their peak in the
mid-1980\'s, when they reached about 9 million bags. The Coffee
Producers Federation (Fedecafe) has, however, increased its estimate of
carryover stocks at the beginning of 2003/04 to 1.4 million bags from an
initial estimate of 1.2 million bags. The higher carryover is due to
lower domestic consumption than expected. Stocks are expected to fall to
1.2 million bags over the longer run and stay at that level since
production of export quality coffee is projected to grow at the same
pace as exports.

# Policy

Colombia is pushing for the U.S. to join the International Coffee
Organization (ICO). Colombian coffee representatives and leaders
generally accept that the ICO will not be able to return to the previous
system of international quotas, but they do hope that having the U.S. in
the organization will help in marketing coffee, establishing minimum
standards and improve the international rules covering coffee trade.
Colombia is also working with the Association of Coffee Producing
Countries (ACPC) to reduce the supply of lower quality coffee. While
some low quality coffee has been removed from the market, this has not
had a significant impact on prices.

The coffee sector is considered to be strategic for Colombia due to the
large number of families that depend on coffee production (an estimated
500,000 families). The Colombian Government currently provides
supplemental payments when the price paid to growers falls below 320,000
pesos (\$118.20) per 125-kg bag. The payment is not currently paid due
to relatively high international coffee prices (producer prices are
around 360,000 pesos).

Coffee exporters pay a compulsory check-off for each pound of coffee
exported of 5 cents (135.4 pesos). This payment is shared between
FEDECAFE (3 cents), which invests the funds in programs such as
scientific research through CENICAFE (the center for research on coffee)
and educational, social and infrastructure programs. The remaining 2
cents are given to the National Coffee Fund (FNC). The FNC is managed by
FEDECAFE with the goal of stabilizing prices paid to producers and to
support programs such as the plant renovation program.

# Prices

During 2003 and so far in 2004, the international price for Colombian
coffee has on average remained over 67 cents, which includes a quality
primium of 3 cents. The higher international price has resulted in
higher prices paid to producers. Currently, the prices paid to growers
in some cases exceed the international price due to lower production and
the need for exporters to cover commitments in the future market. The
appreciation of peso during the first months of 2004 has partially
offset the gains in international prices.

# Tables

## Colombia: Green Coffee Supply and Demand 2002/03 -- 2004/05

  ----------------- ----------- ------------- ----------- -------------- ----------- -------------- -------------
  **Colombia**                                                                                      

  **Coffee**                                                                                        

  (1000 HA)                                                                                         
  (MILLION TREES )                                                                                  
  (1000 60 KG BAGS)                                                                                 

  ** **             **2003**    **Revised**   **2004**    **Estimate**   **2005**    **Forecast**   **UOM**

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

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

  **Area Planted**  775         775           760         770            0           765            (1000 HA)

  **Area            630         630           620         630            0           630            (1000 HA)
  Harvested**                                                                                       

  **Bearing Trees** 2850        2850          2800        2800           0           2800           (MILLION
                                                                                                    TREES)

  **Non-Bearing     1030        1030          1030        1030           0           1030           (MILLION
  Trees**                                                                                           TREES)

  **TOTAL Tree      3880        3880          3830        3830           0           3830           (MILLION
  Population**                                                                                      TREES)

  **Beginning       1393        1393          1207        1437           1072        1192           (1000 60 KG
  Stocks**                                                                                          BAGS)

  **Arabica         11712       11712         11800       11300          0           11600          (1000 60 KG
  Production**                                                                                      BAGS)

  **Robusta         0           0             0           0              0           0              (1000 60 KG
  Production**                                                                                      BAGS)

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

  **TOTAL           11712       11712         11800       11300          0           11600          (1000 60 KG
  Production**                                                                                      BAGS)

  **Bean Imports**  0           0             0           0              0           0              (1000 60 KG
                                                                                                    BAGS)

  **Roast & Ground  70          70            80          50             0           55             (1000 60 KG
  Imports**                                                                                         BAGS)

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

  **TOTAL Imports** 70          70            80          50             0           55             (1000 60 KG
                                                                                                    BAGS)

  **TOTAL SUPPLY**  13175       13175         13087       12787          1072        12847          (1000 60 KG
                                                                                                    BAGS)

  **Bean Exports**  9808        9808          9820        9670           0           9720           (1000 60 KG
                                                                                                    BAGS)

  **Roast & Ground  120         120           130         120            0           120            (1000 60 KG
  Exports**                                                                                         BAGS)

  **Soluble         550         550           560         550            0           550            (1000 60 KG
  Exports**                                                                                         BAGS)

  **TOTAL Exports** 10478       10478         10510       10340          0           10390          (1000 60 KG
                                                                                                    BAGS)

  **Rst,Ground Dom. 1240        1010          1250        1000           0           1000           (1000 60 KG
  Consum**                                                                                          BAGS)

  **Soluble Dom.    250         250           255         255            0           260            (1000 60 KG
  Consum.**                                                                                         BAGS)

  **TOTAL Dom.      1490        1260          1505        1255           0           1260           (1000 60 KG
  Consumption**                                                                                     BAGS)

  **Ending Stocks** 1207        1437          1072        1192           0           1197           (1000 60 KG
                                                                                                    BAGS)

  **TOTAL           **13175**   **13175**     **13087**   **12787**      **0**       **12847**      (1000 60 KG
  DISTRIBUTION**                                                                                    BAGS)
  ----------------- ----------- ------------- ----------- -------------- ----------- -------------- -------------

## Colombia: Green Coffee Price to Growers CY 2003 -- 2004

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

  **Colombia**                                             

  **Coffee, Green**                                        

  Col Pesos and 60 Kg                                      
  Bag                                                      

                                                            

  Year                  2003            2004               \% Change

  Jan                   287             305                6%

  Feb                   328             341                4%

  Mar                   319             334                5%

  Apr                   299             343                15%

  May                   313                                -100%

  Jun                   314                                -100%

  Jul                   290                                -100%

  Aug                   318                                -100%

  Sep                   300                                -100%

  Oct                   308                                -100%

  Nov                   296                                -100%

  Dec                   299                                -100%

                                                            

  Exchange Rate         2708            Local Currency/US   
                                        \$                 

  Date of Quote         4/10/2004       MM/DD/YYYY          
  --------------------- --------------- ------------------ ---------------

## Colombia: Green Coffee Exports CY 2003

  ------------------------------- ---------------- ------------ ----------
  **Exports**                                                   

  Colombia                                                      

  Coffee, Green                                                 

  (,000) 60 Kg Bags                                             

  Time Period                     Jan -Dec                      

  Exports for:                    2003                          **2004**

  U.S.                            3639             U.S.          

  Others                                           Others        

  Germany                         1653                           

  Japan                           1405                           

  Belgium                         536                            

  Canada                          516                            

  United Kingdom                  298                            

  Netherlands                     265                            

  Italy                           256                            

  Spain                           252                            

  Sweden                          248                            

  France                          194                            

  Total for Others                5623                          0

  Others not Listed               1069                           

  Grand Total                     10331                         0
  ------------------------------- ---------------- ------------ ----------