Required Report - public distribution

**Date:** 5/15/2005

**GAIN Report Number:** CO5020

CO5020

**Colombia**

**Coffee**

**Semi-Annual**

**2005**

**Approved by:**

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

U.S Embassy

**Prepared by:**

Leonardo Pinzon

**Report Highlights:**

Colombian imports of coffee are expected to increase to 400,000 60 kg
bags in 2004/05 as less low quality local coffee is available for local
consumption. Colombia's coffee production reached 11.9 million (60 Kg
bags) at the end of marketing year 2004/05 and is expected to be 11.55
million (60 kg bags) during year 2005/06. Exports reached 11.03 and will
likely remain at that level. With the U.S. as an active ICO member,
Colombia expects other countries such as Canada, Russia and China to
become members. In the free trade agreement currently being negotiated
between the U.S. and Colombia, the Colombian industry is seeking
recognition of Colombian coffee as a distinctive regional denomination
and is requesting immediate duty reduction for products that contain
coffee.

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)

[U.S. -- Colombia Free Trade Agreement
5](#u.s.-colombia-free-trade-agreement)

[Support 5](#support)

[Prices 5](#prices)

# Executive Summary

Colombia's coffee production reached 11.9 million (60 Kg bags) at the
end of marketing year 2004/05, which represents an increase of 834,000
bags compared with a year before. Production for 2005/06 is expected to
fall to 11.55 million (60 kg bags) mainly due to excess rainfall which
has had some impact on flowering.

Coffee quality has improved, which means that a lower amount of low
quality coffee is available for the local market. Although local
consumption remains lower, coffee supplies for local consumption have
been tight and imports have increased. Imports are calculated at 400,000
(60 Kg bags) and will increase to 500,000 (60 Kg bags) next year, mainly
to cover local coffee consumption.

Exports increased to 11.03 million 60-kg bags in 2004/05, 878,000 (60-kg
bags) higher than a year before. In 2005/06, export volumes are expected
to fall slightly by 92,000 (60-kg bags) due to lower production.

The Colombian government continues to support coffee growers through
guaranteeing a minimum price to the growers of 340,000 Col pesos (\$
0.60 per pound) and giving fertilizer for plant renovations. In
addition, the coffee growers federation will devote 2 US cents of the
current 6 US cents levy on exports to develop the coffee future's market
in Colombia.

Officials at the Colombian Coffee Federation welcome participation of
the U.S. as an active ICO member and expect other countries such as
Canada, Russia and China to become members as well. They are hoping to
push for more work in topics related to quality recognition, marketing
development, technical assistance and support for scientific research
among others. Colombian exporters expect that a coffee market committed
to quality recognition will be result in higher international prices for
Colombian coffee.

The Colombian coffee industry is pressing for recognition of Colombian
coffee as a distinctive regional denomination in the free trade
agreement currently being negotiated between the U.S. and Colombia, and
will request immediate duty reduction for products that contain coffee.

# Production

Colombia's coffee production reached 11.9 million (60 Kg bags) at the
end of marketing year 2004/05 which represents an increase of 834,000
bags compared with a year before. This increase in production is due to
continued plant renovations with higher tree densities and better
management practices. Although the recovery in international prices has
increased export value, the rising value of the peso has reduced
considerably the income of coffee growers.

Production for year 2005/06 is expected to fall slightly to 11.55
million (60 kg bags) mainly due to excess of rainfall that has affected
plant floration. The renovation program and better management practices
for higher productivity and quality will continue. Reduced production in
marginal areas is being offset by increasing areas in the Huila region
in the southeast of the coffee zone where the altitude and climate have
the same characteristics for producing high quality coffee as the
traditional central coffee zone. In the future, Colombia's coffee
production is like to be between 11.0 and 12.0 million bags as the
reduced area is planted with higher tree density and is more intensively
managed for higher production and quality.

The Coffee Growers Federation has increased emphasis on increasing
production of high quality coffee that is identified by its origin on
international markets. In addition, supplementary activities are been
promoted by the Coffee Growers Federation for small producers, 90
percent of which have less than 5 hectares, to have a diversified source
of income and improve quality and productivity.

# Consumption

Colombia's coffee consumption is expected to maintain its current
relatively low level of consumption (compared with other producer
countries). Increases in local coffee consumption are generally due to
expanding consumption of products containing coffee. Despite the strong
marketing efforts to expand coffee consumption as a whole, there has
been more competition among coffee brands and only a slow shift from
lower to high quality and specialty coffees.

The National Coffee Growers Association announced the launch new
products that contain coffee. This will increase demand on the local
market for low quality coffee.

# Trade

Colombian coffee imports have been growing rapidly to reach a projected
400,000 60-kg bags for 2004/2005 marketing year, 300,000 bags higher
than a year before. Coffee imports are covering the market gap left by
higher exports. Ecuador and Peru have been the main suppliers.

In 2004/05 marketing year Colombia exported 11.03 million 60-kg bags,
878,000 60-kg bags higher (8.6%) from 10.15 million 60-kg bags a year
before. The U.S. market received 35 percent of the total exports of
Colombia and continues as the single largest market for Colombian
coffee. Colombia exported to the U.S. 3.8 million 60-kg bags. Japan and
Germany were the second and third largest markets for Colombian coffee
exports amounting 1.7 million 60-kg bags and 1.5 million 60-kg bags,
together representing 28 percent of exports.

Colombian exports has been benefited with the strong program of quality
coffee recognition and the short supply of high quality coffee.
International prices are higher than a year before and Colombian coffee
is receiving a premium. The Colombian grower federation is confident
that greater differentiation of high quality coffee and the U.S.
rejoined to ICO will help improve consumer awareness and recognition of
Colombian coffee.

# Stocks

An estimated 1.1 million bags were held in stocks at the end of the
2004/05 marketing year. This amount represents a bit more than a month
of exports. The estimate of stocks is Post's estimate based on
information from the Colombian Coffee Federation. Lower stocks are
expected next year due to expected tight supplies of quality coffee in
the local market as long as prices remain profitable on international
markets.

# Policy

**U.S. joins ICO** - With the U.S. now joined the ICO, authorities at
the Coffee Federation hope that the ICO will be more dynamic on topics
related to quality recognition, market development, technical assistance
and support for scientific research among others. They welcome
participation of the U.S. as an active ICO member and expect other
countries such as Canada, Russia and China to become members as well.

Colombian exporters are also happy about the entrance of the U.S. into
ICO. They see as highly positive the fact that the biggest single
country consumer of coffee worldwide is again part of the ICO. They
expect that in a coffee market committed to quality recognition, quality
differentiation will be the main factor in determining international
coffee prices.

## U.S. -- Colombia Free Trade Agreement 

The free trade agreement currently being negotiated between the U.S. and
Colombia will have no impact on duties, since green coffee entering U.S.
market pays no tariffs. The Colombian Government will, however, pursue
the establishment of rules of origin that do not allow the U.S. to
export to Colombia coffee products made from coffee produced outside the
region. They will also be seeking recognition of Colombian coffee as a
distinctive regional denomination and will request immediate duty
reduction to products that contain coffee: candies, beverages and
others.

## Support

The Colombian government continues providing support through
guaranteeing a minimum price paid to growers of 340.000 pesos (\$149.11)
per 125 kg bag. Currently the government is not paying this subsidy
because the international price is well above the trigger price for the
support of \$0.60 per pound.

The Colombian Growers Federation is planning to support use the future's
market for growers to sell their crops. Two US cents from each bag
exported will be devoted to promote the use of this mechanism.

# Prices

Despite the revaluation of the peso (i.e. it is going up relative to the
U.S. dollar), prices paid to the growers have improved due to better
international prices. The average price paid to growers during the
January-September period was 36 percent above prices a year before.

# Tables 

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

  **Colombia**                                                                                            

  **Coffee,                                                                                               
  Green**                                                                                                 

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

                   2004       Revised           2005       Estimate          2006       Forecast          UOM

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

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

  Area Planted     770        770               765        765               750        750               (1000 HA)

  Area Harvested   630        630               620        620               610        610               (1000 HA)

  Bearing Trees    2800       2800              2800       2800              2800       2800              (MILLION
                                                                                                          TREES)

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

  TOTAL Tree       3830       3830              3830       3830              3830       3830              (MILLION
  Population                                                                                              TREES)

  Beginning Stocks 1437       1437              1131       1131              1006       1126              (1000 60
                                                                                                          KG BAGS)

  Arabica          11053      11053             11500      11887             11600      11550             (1000 60
  Production                                                                                              KG BAGS)

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

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

  TOTAL Production 11053      11053             11500      11887             11600      11550             (1000 60
                                                                                                          KG BAGS)

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

  Roast & Ground   50         50                55         400               60         500               (1000 60
  Imports                                                                                                 KG BAGS)

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

  TOTAL Imports    50         50                55         400               60         500               (1000 60
                                                                                                          KG BAGS)

  TOTAL SUPPLY     12540      12540             12686      13418             12666      13176             (1000 60
                                                                                                          KG BAGS)

  Bean Exports     9484       9484              9750       10352             9850       10250             (1000 60
                                                                                                          KG BAGS)

  Roast & Ground   120        120               120        120               120        120               (1000 60
  Exports                                                                                                 KG BAGS)

  Soluble Exports  550        550               550        560               550        570               (1000 60
                                                                                                          KG BAGS)

  TOTAL Exports    10154      10154             10420      11032             10520      10940             (1000 60
                                                                                                          KG BAGS)

  Rst,Ground Dom.  1000       1000              1000       1000              1000       1000              (1000 60
  Consum                                                                                                  KG BAGS)

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

  TOTAL Dom.       1255       1255              1260       1260              1260       1260              (1000 60
  Consumption                                                                                             KG BAGS)

  Ending Stocks    1131       1131              1006       1126              886        976               (1000 60
                                                                                                          KG BAGS)

  TOTAL            12540      12540             12686      13418             12666      13176             (1000 60
  DISTRIBUTION                                                                                            KG BAGS)
  ---------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ----------

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

  **Colombia**                                                

  **Coffee, Green**                                           

  **Time Period**                 **Oct-Sep**    **Units:**   **,000 (60
                                                              Kg bag)**

  **Exports for:**                2005                        **2006**

  **U.S.**                        3817           U.S.          

  **Others**                                     Others        

  **Japan**                       1679                         

  **Germany**                     1451                         

  **Belgium**                     701                          

  **Canada**                      627                          

  **Italy**                       391                          

  **United Kingdom**              367                          

  **Sweden**                      267                          

  **Spain**                       234                          

  **Korea**                       205                          

  ** **                                                        

  **Total for Others**            5922                        0

  **Others not Listed**           1293                         

  **Grand Total**                 11032                       0
  ------------------------------- -------------- ------------ ------------

+--------------------------------+-----------+-----------+------------+
| ###### Import Trade Matrix     |           |           |            |
+--------------------------------+-----------+-----------+------------+
| **Colombia**                   |           |           |            |
+--------------------------------+-----------+-----------+------------+
| **Coffee, Green**              |           |           |            |
+--------------------------------+-----------+-----------+------------+
| Time Period                    | Oct-Jul   | Units:    | ,000 (60   |
|                                |           |           | Kg bags)   |
+--------------------------------+-----------+-----------+------------+
| **Imports for:**               | **2004**  |           | **2005**   |
+--------------------------------+-----------+-----------+------------+
| **U.S.**                       | 0         | U.S.      |            |
+--------------------------------+-----------+-----------+------------+
| **Others**                     |           | Others    |            |
+--------------------------------+-----------+-----------+------------+
| **Ecuador**                    | 264       |           |            |
+--------------------------------+-----------+-----------+------------+
| **Peru**                       | 87        |           |            |
+--------------------------------+-----------+-----------+------------+
| **Vietnam**                    | 7         |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| ** **                          |           |           |            |
+--------------------------------+-----------+-----------+------------+
| **Total for Others**           | 358       |           | 0          |
+--------------------------------+-----------+-----------+------------+
| **Others not Listed**          | 2         |           |            |
+--------------------------------+-----------+-----------+------------+
| **Grand Total**                | 360       |           | 0          |
+--------------------------------+-----------+-----------+------------+

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

  **Colombia**                                               

  **Coffee, Green**                                          

  **Prices in**        **,000 Col     **per uom**            **125 kg
                       pesos**                               bag**

  ** **                ** **          ** **                  ** **

  **Year**             **2004**       **2005**               **% Change**

  **Jan**              341            417                    22%

  **Feb**              334            483                    45%

  **Mar**              343            559                    63%

  **Apr**              326            519                    59%

  **May**              346            502                    45%

  **Jun**              378            464                    23%

  **Jul**              320            413                    29%

  **Aug**              319            410                    29%

  **Sep**              352            384                    9%

  **Oct**              349                                   -100%

  **Nov**              388                                   -100%

  **Dec**              422                                   -100%

  ** **                                                       

  **Exchange Rate**    2280.19        Local Currency/US \$    

  **Date of Quote**    11/14/2005     MM/DD/YYYY              
  -------------------- -------------- ---------------------- -------------

Source: Coffee Growers Federation. Price paid to the growers