Required Report - public distribution

**Date:** 5/9/2006

**GAIN Report Number:** VE6006

VE6006

**Venezuela**

**Coffee**

**Annual Report**

**2006**

**Approved by:**

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

U.S. Embassy VENEZUELA

**Prepared by:**

Clara Nuñez

**Report Highlights:**

Venezuelan coffee production for the 2005/06 harvest is estimated to
increase to 820,000 bags as a consequence of good weather and credit
derived from the government coffee plan. Inconsistent price policies
have created scarcities and generated pressures to some segments of the
domestic coffee market. Venezuelan coffee consumers feel the impact of
price controls as the product disappears from market shelves. Producers
have a strong desire to build the export market, although government
supports of this activity is unclear. Exports for the 2005/06 are
estimated at 100,000 bags depending on the results 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 \[VE1\]

\[VE\]

Executive Summary

Venezuelan coffee production for the 2005/06 harvest is estimated to
increase to 820,000 bags as a consequence of good weather and credit
derived from the government coffee plan. Inconsistent price policies
have created scarcities and generated pressures to some segments of the
domestic coffee market. Venezuelan coffee consumers feel the impact of
price controls as the product disappears from market shelves. Producers
have a strong desire to build the export market, although government
support of this activity is unclear. Exports for the 2005/06 are
estimated at 100,000 bags depending on the results of the government
coffee plan to boost production and the lifting of the restrictions to
export coffee.

# Production

Venezuelan coffee is very high quality and almost all of the Arabica
variety. Most coffee is grown at altitudes ranging from 600 meters to
1,500 meters. Production is about 5.8 quintals (46 kg/ quintal) per
hectare, and yield ranges from 4.5 to 6.5 quintals per hectare depending
on the region. The work in the coffee field is basically artisan, as
holdings are small with day laborers hired for the harvest. Most of the
crop is harvested in December and January, with the harvest in the
eastern region extending until February.

Production for the 2004/05 harvest was 800,000 bags, and for the current
cycle it is estimated to increase to 820,000 bags as a consequence of
good weather, better producer prices and credits derived from the
government coffee plan that allowed some improvements in coffee
plantations. Production is forecast to show an increase to 850,000 bags
in 2006/07 assuming this trend continues.

# Production policies

In 2004, as a part of the National Sowing Plan, the government launched
a program called the "Coffee Plan" aimed at providing financial
assistance to small growers and regulating distribution. However, the
plan was not as successful as expected, and the government re-launched
the plan in November 2005 as the "Socialist Coffee Plan" promising to
benefit growers and guarantee production.

Also, in November 2005 the government established a state-owned
processing plant, "Café Venezuela," (GAIN VE5019) expected to supply the
demand of the state-owned food distribution chain, MERCAL, which
controls more than 30 percent of the food-retailing sector in the
country.

## 

# Consumption

According to the Venezuelan Producers Association, Fedeagro, as well as
the Venezuelan Coffee Industry Association, Asicaf, domestic consumption
has been historically around 700,000 bags. Per capita consumption is
estimated at 1.8 kilos/year.

# Prices

As previously reported, in addition to restricting currency exchange,
the government has price controls in place on some "essential" products,
as a means of preventing speculation. Coffee, as well as many other
basic products, has been on the control list since February of 2003, and
those price controls immediately forced down the price of domestic
coffee. The last months have been eventful in this market, since
inconsistent price policies have created scarcities and generated
pressures to some segments of this market.

On December 1, 2005 the government raised the price of both ground
coffee (retail price) and green coffee (farm-gate price) by 67 percent
and 49 percent respectively. Then, two weeks later, on December 16 the
Ministry of Agriculture and Lands (MAT) announced a new adjustment to
the farm-gate price on green coffee to be 102 percent in total, as
coffee growers were unhappy with the previous price adjustment. When the
price of green coffee (farm-gate) was increased to 102 percent, no
corresponding increase was made to the retail price of ground coffee,
leaving roasters with virtually no margin. This created a shortage of
coffee in the market during the Christmas season. It was not until
January 15, that the Ministry of Light Industry and Commerce (MILCO)
raised the price of ground coffee to 60 percent in total over the last
year's prices. (Note: producer prices are regulated by MAT while retail
prices correspond to MILCO.)

Previous to these government actions, grocery stores were selling ground
coffee above the controlled price, since the industry was distributing
non-regulated varieties or value-added products. However after the first
price increase, the government, through their consumer protection
agency, INDECU (National Institute for the Defense of Consumer) enforced
roasters to sell at the controlled price and this action created
scarcity in the shelves for more than three weeks.

Also, president Chavez threatened to nationalize coffee roasting
facilities in response to manufacturers' hoarding the product to enforce
their demands for increasing the price. The government seized 700 tons
of ground coffee warehoused in different parts of the country and
distributed it through the official Mercal network.

The industry alleged that the reason for the shortage of coffee was
simply producer and the industry lack a pricing agreement with the
government. By the end of January, 2006 the product started to appear on
shelves and the price problem and scarcity seemed to be solved.

  ---------------------------------- -------------------- ---------------
  **Farm gate prices for Coffee**                         

  **Harvest 2005/06**                                     

                                     Exchange rate        2,150 Bs/\$

  **GREEN COFFEE**                   PRICE (Bs/q)\*       Price (\$/q)

  Good Washed Coffee \"A\"           288,000              133.95

  Good Washed Coffee \"B\"           282,000              131.16

  Good Washed Coffee \"C\"           269,000              125.11

  Good Washed Coffee                 256,000              119.06

  Regular Washed Coffee              250,000              116.27
  ---------------------------------- -------------------- ---------------

Q = 46 Kg

Source: Venezuelan Official Gazette No. 38,337 -- Dec. 16, 2005

  ------------------------ ------------------ ----------------- -------------
  **Consumer Prices/                                            
  Ground & Roasted                                              
  Coffee**                                                      

  **Price Control\'s List                                       
  as January 16, 2006**                                         

  **Product**              **Presentation**   **Bolivars**      **Dollars**

  Coffee, beans            Kg                 11,850            5.51

  Coffee, beans            500 grs            5,925             2.75

  Coffee, roasted, ground  500 grs            5,925             2.75

  Coffee, roasted, ground  250 grs            2,963             1.37

  Coffee, roasted, ground  200 grs            2,370             1.10

  Coffee, roasted, ground  100 grs            1,185             0.55

  Coffee, roasted, ground  50 grs             593               0.27
  ------------------------ ------------------ ----------------- -------------

Exchange rate: Bs. 2,150/Dollar

Source: Venezuelan Official Gazette No. 38,358 -- Jan. 15, 2006

# Trade

# Currently, the Venezuelan coffee market is largely domestic; no significant exports have been registered since 2004 when the government, concerned about domestic coffee availability, effectively closed coffee exports. The mechanism used was that the Ministry of Agriculture and Lands is simply delaying or not issuing the export authorizations for coffee. Producers have a strong desire to build the export market, although government support of this activity is unclear.

# However, if producers get their way, and are allowed to export excess supply, exports for the 2005/06 should recover again to 100,000 bags, since producers expect that the domestic market will not be able to absorb the estimated increase in production in addition to the large stocks generated by the irregular price crisis, and also due to the low domestic price relative to higher prices in other markets.

Exports for 2006/07 are forecast at 110,000 bags. If the government plan
to boost coffee production succeeds, an additional quantity of coffee
that may need a to be exported. Otherwise it could distort the market.

Traditionally, the United States has been the major market for
Venezuelan coffee with 80 percent of total exports going there and the
rest to the European Union.

+--------------+------+------+------+------+------+------+------+-----+
| ####         |      |      |      |      |      |      |      |     |
| ## Venezuela |      |      |      |      |      |      |      |     |
|              |      |      |      |      |      |      |      |     |
| Coffee,      |      |      |      |      |      |      |      |     |
| Green        |      |      |      |      |      |      |      |     |
+--------------+------+------+------+------+------+------+------+-----+
|              | **20 | **R  | **20 | **Es | **20 | **Fo | **U  |     |
|              | 05** | evis | 06** | tima | 07** | reca | OM** |     |
|              |      | ed** |      | te** |      | st** |      |     |
+--------------+------+------+------+------+------+------+------+-----+
|              | **   | **   | **   | **   | **   | **   |      |     |
|              | USDA | Post | USDA | Post | USDA | Post |      |     |
|              | Offi | E    | Offi | E    | Offi | E    |      |     |
|              | cial | stim | cial | stim | cial | stim |      |     |
|              | \    | ate\ | \    | ate\ | \    | ate\ |      |     |
|              | [Old | [New | [Old | [New | [Old | [New |      |     |
|              | \]** | \]** | \]** | \]** | \]** | \]** |      |     |
+--------------+------+------+------+------+------+------+------+-----+
| **Market     |      | **1  |      | **1  |      | **1  | **M  |     |
| Year Begin** |      | 0/20 |      | 0/20 |      | 0/20 | M/YY |     |
|              |      | 04** |      | 05** |      | 06** | YY** |     |
+--------------+------+------+------+------+------+------+------+-----+
| Area Planted | 300  | 300  | 300  | 300  | 0    | 300  | (    |     |
|              |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | HA)  |     |
+--------------+------+------+------+------+------+------+------+-----+
| Area         | 200  | 206  | 200  | 208  | 0    | 208  | (    |     |
| Harvested    |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | HA)  |     |
+--------------+------+------+------+------+------+------+------+-----+
| Bearing      | 560  | 560  | 560  | 560  | 0    | 0    | (MIL |     |
| Trees        |      |      |      |      |      |      | LION |     |
|              |      |      |      |      |      |      | TR   |     |
|              |      |      |      |      |      |      | EES) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Non-Bearing  | 30   | 30   | 30   | 30   | 0    | 30   | (MIL |     |
| Trees        |      |      |      |      |      |      | LION |     |
|              |      |      |      |      |      |      | TR   |     |
|              |      |      |      |      |      |      | EES) |     |
+--------------+------+------+------+------+------+------+------+-----+
| TOTAL Tree   | 590  | 590  | 590  | 590  | 0    | 30   | (MIL |     |
| Population   |      |      |      |      |      |      | LION |     |
|              |      |      |      |      |      |      | TR   |     |
|              |      |      |      |      |      |      | EES) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Beginning    | 475  | 475  | 553  | 538  | 0    | 526  | (    |     |
| Stocks       |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Arabica      | 820  | 800  | 820  | 820  | 0    | 850  | (    |     |
| 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        | 820  | 800  | 820  | 820  | 0    | 850  | (    |     |
| Production   |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Bean Imports | 0    | 0    | 10   | 10   | 0    | 0    | (    |     |
|              |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Roast &      | 3    | 3    | 3    | 3    | 0    | 0    | (    |     |
| Ground       |      |      |      |      |      |      | 1000 |     |
| Imports      |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Soluble      | 0    | 0    | 0    | 0    | 0    | 0    | (    |     |
| Imports      |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| TOTAL        | 3    | 3    | 13   | 13   | 0    | 0    | (    |     |
| Imports      |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| TOTAL SUPPLY | 1298 | 1278 | 1386 | 1371 | 0    | 1376 | (    |     |
|              |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Bean Exports | 0    | 5    | 110  | 100  | 0    | 110  | (    |     |
|              |      |      |      |      |      |      | 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        | 35   | 40   | 145  | 135  | 0    | 145  | (    |     |
| Exports      |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Rst,Ground   | 700  | 690  | 710  | 700  | 0    | 700  | (    |     |
| Dom. Consum  |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Soluble Dom. | 10   | 10   | 10   | 10   | 0    | 10   | (    |     |
| Consum.      |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| TOTAL Dom.   | 710  | 700  | 720  | 710  | 0    | 710  | (    |     |
| Consumption  |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| Ending       | 553  | 538  | 521  | 526  | 0    | 521  | (    |     |
| Stocks       |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+
| TOTAL        | 1298 | 1278 | 1386 | 1371 | 0    | 1376 | (    |     |
| DISTRIBUTION |      |      |      |      |      |      | 1000 |     |
|              |      |      |      |      |      |      | 60   |     |
|              |      |      |      |      |      |      | KG   |     |
|              |      |      |      |      |      |      | B    |     |
|              |      |      |      |      |      |      | AGS) |     |
+--------------+------+------+------+------+------+------+------+-----+