Required Report - public distribution

**Date:** 11/15/2004

**GAIN Report Number:** CO4014

CO4014

**Colombia**

**Coffee**

**Semi-Annual**

**2004**

**Approved by:**

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

U.S Embassy

**Prepared by:**

Leonardo Pinzon

**Report Highlights:**

Colombian coffee production reached 11.05 million bags in the
October-September 2003/04 commercial year and it is estimated to
increase to 11.6 million bags for the 2004/05 year. Exports are forecast
to increase 2 percent to 10.4 million bags. The U.S. joining the ICO has
raised expectations of a more stable coffee market, and increased hopes
that this will open opportunities for quality recognition and
cooperation.

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. joins ICO
4](#u.s.-joins-ico---colombia-was-highly-interested-in-having-the-u.s.-back-in-the-international-coffee-organization-ico.-with-the-u.s.-now-joining-the-ico-colombian-coffee-grower-authorities-at-the-coffee-federation-hope-to-set-a-new-agenda-at-the-ico-that-includes-topics-related-to-quality-recognition-marketing-development-technical-assistance-and-support-for-scientific-research-among-others.-they-welcome-participation-of-the-u.s.-as-an-active-ico-member-since-the-measures-previously-taken-by-the-country-producers-to-establish-quality-standards-or-to-remove-from-the-market-low-quality-coffee-did-not-have-the-impact-they-looked-for.-it-is-clear-to-colombian-coffee-growers-that-the-new-ico-will-not-have-economic-clauses-and-will-be-based-on-free-market-principles.)

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

[Support 5](#support)

[Prices 5](#prices)

[Tables 6](#tables)

# Executive Summary

Colombian coffee production fell by 5 percent to 11.1 million 60-Kg bags
in the 2003/04 commercial year. Production is expected to increase to
11.6 million bags in the 2004/05 year due to good weather thus far in
the season and the continuing renovation of old plantings.

The decision of the U.S. to rejoin the ICO has raised the expectations
of a more stable international coffee market. Colombian coffee growers
and exporters also feel that this will open opportunities for developing
international cooperation in quality recognition, technical cooperation,
research and marketing efforts.

Colombian exports are projected to reach 10.39 million bags in 2004/05
commercial year. Under current market conditions, Colombian growers
forecast international prices to stay at around \$0.80 per pound.

The project of the Coffee Federation and the Colombian government to
renovate coffee plantings has now concluded renovation of 50 percent of
the area located at the best altitude and with a more modernized
production process. The higher density of coffee plants and increased
production per area are impacting on coffee production, which is
offsetting the reduced area in marginal production regions. The
production target of the industry is between 11 and 12 million bags of
green coffee under normal weather conditions.

# 

# Production

Colombia's production reached 11.1 million 60-Kg bags in the
October-September 2003/04 crop year. This production level is 5 percent
lower than a year before due to delays in rain while the trees were
growing.

The production forecast for the 2004/05 crop is for 11.6 million 60-kg
bags. Production is expected to continue at this level because of good
weather thus far in the season and the continuing renovation of old
plantings. Over the longer run, production under normal weather
conditions is expected to be between 11.0 and 12.0 million bags.

The main production areas are expected to intensify production, and to
continue plant renovation, although the total area planted is expected
to fall due to the retirement of marginal production areas. The coffee
plantings renovation project is an effort by the Coffee Federation and
Colombian Government to maintain quality and improve yields, principally
at the main coffee areas (located in the best altitude between 1,500
meters and 1,800 meters). Growers increased the density planted, which
is currently calculated at 5,700 trees per hectare, up from 4,800 trees
per hectare previously. Coffee plantations are now an average age of 5.5
years old, down from the 7.5 years before the renovation program. Over
the longer run, production under normal weather conditions is expected
to be between 11.0 and 12.0 million bags.

The coffee renovation program covered 45,000 hectares during 2003/04
marketing year. The program has now helped in the renovation of nearly
350,000 hectares, approximately half the current planted area. In
addition to the general renovation program, the government is supporting
the inter-planting of a corn crop with coffee at the time of planting
renovations. Instead of receiving financial resources, growers receive
needed fertilizers. Under this program, around 7.000 hectares of corn
were planted in 2003/04 at the time of renovating this area of coffee.
The plan to interplant corn with coffee is somewhat controversial, since
some coffee producers report that the increased income corn production
is more than offset by delays in growth of the coffee plants and lower
coffee yields.

## 

# Consumption

Local coffee consumption is considered low when compared with other
producing countries, and according with estimation from the Coffee
Growers Federation the total coffee consumption will not change. Overall
domestic consumption is expected to grow in the future mainly driven by
the increasing consumption of products containing coffee, which have
shown a dynamic trend according with the industry. The strong marketing
efforts of the Coffee Federation (FEDECAFE) in opening coffee stores in
Colombia under the brand name "Juan Valdez" has also helped to extend
coffee consumption. The purpose of these stores is mainly to give
consumers the opportunity to taste 100 percent Colombian coffee prepared
under different recipes.

## 

# Trade

In 2003/04 marketing year Colombia exported 10.15 million 60-kg bags,
down 3 percent from 10.48 million 60-kg bags a year before. The U.S.
market received 35 percent of the total exports of Colombia, which
represents around 20 percent of the total U.S. consumption. Colombia
exported to the U.S. 3.6 million 60-kg bags. Japan and Germany were the
second and third largest markets for Colombian coffee exports amounting
1.6 million 60-kg bags and 1.3 million 60-kg bags, together representing
29 percent of exports.

# Stocks

Colombia maintained stocks below 2,000 million 60-kg bags. The monthly
average in 2003/04 commercial year was 1,742 million bags. This lower
level reflects not only the stabilization in production but also strong
external demand. The stocks held at the end of crop year 2003/04 were
1.2 million bags and this is estimated to fall slightly to 1.1 million
bags at the end of the 2004/05 year.

# Policy

## U.S. joins ICO - Colombia was highly interested in having the U.S. back in the International Coffee Organization, ICO. With the U.S. now joining the ICO, Colombian coffee grower authorities at the Coffee Federation hope to set a new agenda at the ICO that includes topics related to quality recognition, marketing development, technical assistance and support for scientific research among others. They welcome participation of the U.S. as an active ICO member, since the measures previously taken by the country producers to establish quality standards or to remove from the market low quality coffee did not have the impact they looked for. It is clear to Colombian coffee growers that the new ICO will not have economic clauses and will be based on free market principles. 

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 320.000 pesos (\$125.96)
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 \$0.50 per pound.

# 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 10 percent above prices a year before.

# Tables

+----------------+---------+-------+------+-------+-------+--------+
| #              |         |       |      |       |       |        |
| ##### Colombia |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| #######        |         |       |      |       |       |        |
|  Coffee, Green |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| (1000          |         |       |      |       |       |        |
| HA)(MILLION    |         |       |      |       |       |        |
| TREES)(1000 60 |         |       |      |       |       |        |
| KG BAGS)       |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
|                | 2003    | Re    | 2004 | Est   | 2005  | Fo     |
|                |         | vised |      | imate |       | recast |
+----------------+---------+-------+------+-------+-------+--------+
|                | USDA    | Post  | USDA | Post  | USDA  | Post   |
|                | O       | Est   | Offi | Est   | Off   | Es     |
|                | fficial | imate | cial | imate | icial | timate |
|                | \[Old\] | \[    | \[O  | \[    | \[    | \      |
|                |         | New\] | ld\] | New\] | Old\] | [New\] |
+----------------+---------+-------+------+-------+-------+--------+
| **Market Year  |         | 10    |      | 10    |       | 1      |
| Begin**        |         | /2002 |      | /2003 |       | 0/2004 |
+----------------+---------+-------+------+-------+-------+--------+
| Area Planted   | 775     | 775   | 770  | 770   | 765   | 765    |
+----------------+---------+-------+------+-------+-------+--------+
| Area Harvested | 630     | 630   | 630  | 630   | 630   | 630    |
+----------------+---------+-------+------+-------+-------+--------+
| Bearing Trees  | 2850    | 2850  | 2800 | 2800  | 2800  | 2800   |
+----------------+---------+-------+------+-------+-------+--------+
| Non-Bearing    | 1030    | 1030  | 1030 | 1030  | 1030  | 1030   |
| Trees          |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL Tree     | 3880    | 3880  | 3830 | 3830  | 3830  | 3830   |
| Population     |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Beginning      | 1393    | 1393  | 1437 | 1437  | 1192  | 1131   |
| Stocks         |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Arabica        | 11712   | 11712 | 1    | 11053 | 11600 | 11600  |
| Production     |         |       | 1300 |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Robusta        | 0       | 0     | 0    | 0     | 0     | 0      |
| Production     |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Other          | 0       | 0     | 0    | 0     | 0     | 0      |
| Production     |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL          | 11712   | 11712 | 1    | 11053 | 11600 | 11600  |
| Production     |         |       | 1300 |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Bean Imports   | 0       | 0     | 0    | 0     | 0     | 0      |
+----------------+---------+-------+------+-------+-------+--------+
| Roast & Ground | 70      | 70    | 50   | 50    | 55    | 55     |
| Imports        |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Soluble        | 0       | 0     | 0    | 0     | 0     | 0      |
| Imports        |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL Imports  | 70      | 70    | 50   | 50    | 55    | 55     |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL SUPPLY   | 13175   | 13175 | 1    | 12540 | 12847 | 12786  |
|                |         |       | 2787 |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Bean Exports   | 9808    | 9808  | 9670 | 9484  | 9720  | 9720   |
+----------------+---------+-------+------+-------+-------+--------+
| Roast & Ground | 120     | 120   | 120  | 120   | 120   | 120    |
| Exports        |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Soluble        | 550     | 550   | 550  | 550   | 550   | 550    |
| Exports        |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL Exports  | 10478   | 10478 | 1    | 10154 | 10390 | 10390  |
|                |         |       | 0340 |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Rst,Ground     | 1010    | 1010  | 1000 | 1000  | 1000  | 1000   |
| Dom. Consum    |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Soluble Dom.   | 250     | 250   | 255  | 255   | 260   | 260    |
| Consum.        |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL Dom.     | 1260    | 1260  | 1255 | 1255  | 1260  | 1260   |
| Consumption    |         |       |      |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+
| Ending Stocks  | 1437    | 1437  | 1192 | 1131  | 1197  | 1136   |
+----------------+---------+-------+------+-------+-------+--------+
| TOTAL          | 13175   | 13175 | 1    | 12540 | 12847 | 12786  |
| DISTRIBUTION   |         |       | 2787 |       |       |        |
+----------------+---------+-------+------+-------+-------+--------+

  ------------------------ ----------- --------- -------------------------
  Colombia                                       

  Coffee, Green                                  

  Exports                                        

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

  Exports for:             2003                  **2004**

  U.S.                     3627        U.S.       

  Others                               Others    

  Japan                    1567                   

  Germany                  1338                   

  Canada                   589                    

  Belgium                  508                    

  Italy                    281                    

  United Kingdom           267                    

  Sweden                   262                    

  Holland                  240                    

  Spain                    219                    

  Finland                  171                    

  Total for Others         5442                  0

  Others not Listed        1085                   

  Grand Total              10154                 0
  ------------------------ ----------- --------- -------------------------

+-----------------+--------------+-----------------------+-------------+
| #               |              |                       |             |
| ###### Colombia |              |                       |             |
+-----------------+--------------+-----------------------+-------------+
| **Coffee,       |              |                       |             |
| Green**         |              |                       |             |
+-----------------+--------------+-----------------------+-------------+
| **Prices**      |              |                       |             |
+-----------------+--------------+-----------------------+-------------+
| Prices in       | Pesos (,000) | per uom               | 125 Kg bag  |
+-----------------+--------------+-----------------------+-------------+
|                 |              |                       |             |
+-----------------+--------------+-----------------------+-------------+
| Year            | 2003         | 2004                  | \% Change   |
+-----------------+--------------+-----------------------+-------------+
| Jan             | 328          | 341                   | 4%          |
+-----------------+--------------+-----------------------+-------------+
| Feb             | 319          | 334                   | 5%          |
+-----------------+--------------+-----------------------+-------------+
| Mar             | 299          | 343                   | 15%         |
+-----------------+--------------+-----------------------+-------------+
| Apr             | 313          | 326                   | 4%          |
+-----------------+--------------+-----------------------+-------------+
| May             | 314          | 346                   | 10%         |
+-----------------+--------------+-----------------------+-------------+
| Jun             | 290          | 378                   | 30%         |
+-----------------+--------------+-----------------------+-------------+
| Jul             | 318          | 320                   | 1%          |
+-----------------+--------------+-----------------------+-------------+
| Aug             | 300          | 319                   | 6%          |
+-----------------+--------------+-----------------------+-------------+
| Sep             | 308          | 352                   | 14%         |
+-----------------+--------------+-----------------------+-------------+
| Oct             | 296          |                       | -100%       |
+-----------------+--------------+-----------------------+-------------+
| Nov             | 299          |                       | -100%       |
+-----------------+--------------+-----------------------+-------------+
| Dec             | 305          |                       | -100%       |
+-----------------+--------------+-----------------------+-------------+
|                 |              |                       |             |
+-----------------+--------------+-----------------------+-------------+
| Exchange Rate   | 2,540.47     | Local Currency/US \$  |             |
+-----------------+--------------+-----------------------+-------------+
| Date of Quote   | 11/12/2004   | MM/DD/YYYY            |             |
+-----------------+--------------+-----------------------+-------------+