Coffee Investment Opportunities

8/2/2019 Coffee Investment Opportunities

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Ph il i i ne Co ffee to 2020


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and Extension DirectionAlejandro CMojica, PhD

Coffee Sllb-network Leader Director for Research,

Cavite State University, Indang, Cavite

I NTRODUCTI ON

1.1 The Cof fee Crop Sector

The world coffee industrycomprises the production and trade ofcoffee. As a major part of the agriculturalsector, it plays an important role towardseconomic growth and dollar earnings.

Although the industry is experiencing anall time hardest crisis, as with otheragricultural commodities, the fact stillremains that coffee continues to be oneof the world's most widely consumedbeverages.

There are four varieties of coffeegrown in the world, namely, robusta,arabica, excelsa, and liberica. Of the

four varieties, arabica and robusta coffeeare of greater importance in terms ofworld trading. However, excelsa andliberica coffee also find its increasingexport market in the Middle East. ThePhilippines is one of the few countriesthat can produce all four varieties ofcoffee.

The coffee sector suffered froman alltime low in prices of green coffeebeans as a result of an over supply of

about 4 million bags. Its price has beenfluctuating for the past four decades. Inthe past, coffee prices were quitefavorable.

As a result, there has been a huge investment incoffee and a large hectarage was planted tocoffee in Asia making the continent a majorcoffee producer, particularly of robusta coffee.

Coffee trading is increasingly becoming

dependent on world trade because of its excessproduction. Cortee producing countries haveentered the world agricultural commoditymarket for coffee. Without an internationalagreement and cooperation to cushion theimpact of excessive supply, the coffee sectormust be able to determine how it can managesustainable coffee growing.

Members of the Association of CoffeeProducing Countries (ACPC), most of who aremajor coffee-producing members of theI nt ernational Coffee Organization (ICO),agreed to launch retention plan in order to copewith the gap between demand and supply, butfailed. Some of them reached an accord towithhold 20 percent of their exportable coffeestocks and are looking into the possibility ofdestroying low quality/grade coffee althoughothers are not totally in favor of the retentionplan.

1.2 Coffee R&D I nvestment

The Philippines is part of the more than50 producing countries in Africa, Asia and Latin

America, and also contribute to a large extent incoffee consumption to a long-term consumptiongrowth.

The increase in coffee production inother producing countries as a result of theiraggressive research and development (R&D)program has consequently resulted to an alltime low market prices of coffee. However, inspite of its low prices, the country's coffee

industry continues to be very important from theviewpoint of employment creation, economicgrowth, regional and provincial developmentand income distribution. It has also been apowerful motor of economic and socialdevelopment in many regions of the country.One thing that may alarm the country is the factthat though there is an excess production ofcoffee in the world market. we are notproducing enough beans for our domesticconsumption. As a result, we are continuouslydraining our dollar reserves for the last couple of

years. Last year, the country has importedaround 20,000 metric tons of coffee fromVietnam and Indonesia amounting to 12 millionUS dollars just for coffee green beans. Our lowvolume of production resulting to ourimportation may have been due to the low priceof coffee in the world market that force ourfarmers to venture to other crops, but may alsobe due to the lack of government support toboost its productivity and to the lack of directionas a result of poor R&D programs. It is for thesereasons that the government may take a closer

look at the way it is treating its ResearchDevelopment and Extension (RD and E) needs.


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In many coffee-producing countries like the Philippines, support for coffee RD and E is inadequatewhile in other countries like Brazil, Columbia, Kenya, Indonesia and Vietnam, coffee research is beingpursued at high levels. In major consuming countries their advance research facilities and expertise arecoming out with new findings on quality and health-related aspects and are insisting on the producingcountries to supply the coffee of their choice. These countries have made considerable investments in

technology and productivity. The government has allotted only a small amount of money for coffee R&Dprojects despite its big contribution to the country's economy.

2. WORLD CONSUMPTI ON

2.1 Consumption

Coffee continues to be one of the world's most widely consumed beverages. More than a thousandmillion people in the world habitually drink coffee. This represent 20 percent of the world's population withits global consumption reaching 105.5 million bags equaling 760 billion cups. The world coffee consumptioncontinues to increase with a 1-2 percent 10ng-te11Il growth rate. (Figure 1)

In terms of per capita consumption, people from Scandinavia have an annual consumption of 12 kilograms peryear followed by Denmark and Holland with 11 and 9 kilograms per person per year, respectively. (Table 1)

The Philippine coffee sector must actively participatein many fields of agriculture and industry. The governmentmust act to strengthen all the links in the production chain,from the farm to the beans and from the beans to the cupsif only to help the industry.

The wide gap in research from the production stage

to the consumption stage is likely to hit the producingcountries very badly in the coming years, unless theyreorient their research priorities and approaches to meetthe new challenges under the World Trade Organization(WTO) regime. We cannot allow this thing to happen if wewant to protect an industry that is worth billions of pesos.The country should, therefore, invest correctly on its R&D.


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By region, the European continent ranked first in the world coffee consumption an actualconsumption of 2,012 (1.7% growth rate) and 2,380 (1.3% growth rate) thousand tons from 1983 to 1995and from 1993 to 1995, respectively. Europe's projected consumption for year 2005 is at 2,736 thousandtons. European Community (EC) ranked second while North America and the United States of America (USA)ranked third and fourth, respectively, in the world coffee consumption. (Table 2)

Table 2 also shows that the Philippines' actual consumption of coffee from 1983 to 1985 was 28thousand tons with an annual growth rate of 5.5 percent. From 1993 to 1995, its actual coffee consumption

was 48 thousand tons with a growth rate of 0.4 percent. The country is projected to consume 50 thousand

tons of coffee by year 2005. Surprisingly, the country ranked seventh in the world's top 10 soluble markets

for coffee (Table 3). The top 10 account for 60 percent of sales.

Though low world prices and fierce competition between roasters boosted use in 1999, in recent years, there

has been generally little growth and some losses in many traditional producing countries.


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3. WORLD SUPPLY

Table 4 presents the total production of exporting members, crop years 1996 to 2001 from the ICO

statistics on coffee. During the crop production period evaluated, Brazil consistently topped the list of the

world coffee-producing countries with an average of 29,574.50 thousand bags of coffee. Three other

countries completed the consistent top world coffee producers: Colombia, Indonesia and Vietnam. In year2001, Vietnam was able to surpass Colombia as the world's second top producer resulting from an over

supply of coffee in the country due to its extensive massive production and government support to each

research and development. This, however, consequently brought about the all time low in the prices of

coffee affecting the entire world coffee industry. Figure 2 clearly shows the trends in the total production of

the exporting members. Interestingly, most of the world's top coffee producers have a strong and extensiveresearch and regulatory board on coffee with a stable back-up support from their respective governments.

For instance, Vietnam has established Vietnam Coffee Research Institute while India has its Indian Coffee

Research Institute as well as Brazil and Ivory Coast, all coffee R&D of which have been intensified.

Figure 3 shows that the average world coffee production totaled 5,682 thousand tons from 1995 to1997 with Brazil as the top coffee producer with an average of 1,324 thousand tons during the time bracket.Brazil also topped the production list in the years 1998, 1999 and 2000 with 2,073, 1,630 and 1,734thousand tons, respectively. Colombia ranked second followed by Indonesia and Vietnam.

Despite the decline in production in some countries, it is worthy to mention that the losses werelargely compensated by increased production in Cote d' Ivoire, Ethiopia and Uganda. Vietnam, the largestproducer of robusta coffee produced 450,000 tons following extensive planting.

Table 4. Total production of exporting members, Crop Years 1996-2001.


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Table 5 presents the worlds 10 producing countries as of crop year 1998/1999.

Just recently, Vietnam, a major producer quadruples its coffee production over the past decadesurpassing Columbia in year 2000 as the world's largest coffee producer after Brazil.

4. WORLD TRADE

4.1 I mport and I mport ing Countries

Global imports of coffee beans in 1999 increased by 4 percent, mainly due to the growth in demand

by the United States, the second largest importing country. Imports by the United States grew by 10 percentin 1999 compared to shipments in 1998 and accounted for 26 percent of the world total. Japan, the largestimporter (44 percent of the world import volume in 1999) and the EU (8 percent of the world total in 19990also increases in imports of 1 percent and 9 percent, respectively (Figure 3 and Table 6).

Table 5 shows that as of cropyear 1998/99, Brazil topped thelist of coffee producing countrieswith a 34,700 thousand bagsfollowed by Columbia (11,000)and Indonesia (6,600). Close toIndonesia is Vietnam (5,888) andMexico (4,400).


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Recent statistics on world coffee imports from May to October 2001 shows that US is the largest

importing country with 1,900,665, 1,757,035, 1,939,014, 1,670,101, 1,515,403 and 1,610,500 60-kilo bags

in May, June, July, August, September, and October, respectively. Statistics shows a fluctuating trend in the

imports of USA. The US was closely followed by Germany in terms of the volume of coffee importation

(Table 7).

3.2 Expor ts and Expor t ing Count ries

Table 8 shows the world coffee exports from 1995 to 1999. World exports of green coffee beans in1999 exceeded 5.1 million tons, almost 14 percent more than the average for 1995-1997. Bram exportedalmost 1.4 million tons, 27 percent of the total and some 300,000 tons more than in the previous year.Elsewhere, the pattern was mixed, with Guatemala, Mexico, Uganda and Vietnam registering substantialincreases but Colombia and Cote d'lvoire posting losses. A consequence of increased exports was a reductionof about eight percent in producer stocks.


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Table 9 presents the exports of exporting members to all destinations from November 2001 to

November 2002. The table shows an increasing trend in the coffee exports volume in a one-year period.

Table 9. Expor ts to expor t ing members to all destin ations.

CROP PRODUCTI ON M ONTH (6 0 KI LOGRAM BAGS)Country

1-Nov Oct- o1 to Nov 1 Dec-00 t o NOV-01 Nov-00 Oct- 00 to Nov 00 Dec-99 t o Nov-00

Total 7,188,685 1/ 13758762 1/ 89604927

1/

6772358 13,006,990 88,977,394

Colombian Milds 1,438,089 2,733,081 11,872,243 1,427,240 2,424,373 11,266,465

Colombia 1,253,089 2,376,899 9,787,377 1,198,330 2,026,410 9,191,739

Kenya 100,000 207,000 1,201,410 128,890 258,499 1,301,008

Tanzania 85,000 149,182 883,456 100,020 139,464 773,718

Other Milds 1,024,278 2,214,523 24,827,076 1,387,159 2,816,032 29,207,288

Bolivia 7,000 16,000 122,625 6,000 13,000 114,730

Burundi 35,978 71,078 313,039 29,301 72,222 441,668

Costa Rica 134,050 250,932 2,062,932 169,866 304,141 2,022,739

Cuba 14,400 16,400 92,626 13,500 14,179 127,919

Dominican Republic 13,000 14,498 104,963 7,661 12,011 171,331

Ecuador 72,987 155,962 773,907 68,567 144,824 735,953

El Salvador 14,091 41,176 1,590,705 73,468 164,836 2,554,530

Guatemala 91,162 171,332 4,256,808 201,460 328,607 4,840,637

Haiti 7,000 14,000 74,000 7,000 19,000 73,283

Honduras 24,122 28,003 2,467,875 17,368 29,846 2,829,058

India 147,500 334,384 3,974,083 125,733 306,616 4,526,626

Jamaica 2,000 3,789 27,858 2,169 4,289 30,289

Malawi 9,698 17,711 68,969 8,650 18,910 56,425

Mexico 115,789 259,142 3,343,319 309,864 552,815 5,348,944

Nicaragua 16,501 56,436 1,410,353 61,487 90,989 1,356,733

Panama 11,000 14,000 75,303 6,600 8,700 65,564

Papua New Guinea 81,000 180,000 1,068,124 81,140 172,110 1,035,105

Peru 186,000 497,000 2,397,494 180,859 520,863 2,358,803

Rwanda 17,000 42,680 288,973 5,120 20,860 282,217

Panama 11,000 14,000 75,303 6,600 8,700 65,564

Papua New Guinea 81,000 180,000 1,068,124 81,140 172,110 1,035,105

Peru 186,000 497,000 2,397,494 180,859 520,863 2,358,803

Rwanda 17,000 42,680 288,973 5,120 20,860 282,217

Venezuela 11,000 12,000 157,300 0 0 71,640

Zambia 6,000 8,000 61,145 5,088 7,090 53,458

Zimbabwe 7,000 10,000 95,016 6,258 10,124 109,727

Panama 11,000 14,000 75,303 6,600 8,700 65,564

Papua New Guinea 81,000 180,000 1,068,124 81,140 172,110 1,035,105

Peru 186,000 497,000 2,397,494 180,859 520,863 2,358,803

Rwanda 17,000 42,680 288,973 5,120 20,860 282,217

Venezuela 11,000 12,000 157,300 0 0 71,640

Panama 11,000 14,000 75,303 6,600 8,700 65,564

Papua New Guinea 81,000 180,000 1,068,124 81,140 172,110 1,035,105

Peru 186,000 497,000 2,397,494 180,859 520,863 2,358,803

Rwanda 17,000 42,680 288,973 5,120 20,860 282,217

Venezuela 11,000 12,000 157,300 0 0 71,640

Zambia 6,000 8,000 61,145 5,088 7,090 53,458

Zimbabwe 7,000 10,000 95,016 6,258 10,124 109,727

Brazil ian Naturals 2,725,918 5,111,895 24,338,477 1,788,102 3,807,104 20,482,106

Brazil 2,616,918 4,901,553 22,921,314 1,678,132 3,584,776 18,456,231

Ethiopia 108,000 209,342 1,406,163 108,970 221,328 2,016,060


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Table 9 conti nued

CROP PRODUCTI ON MONTH (6 0 KI LOGRAM BAGS)Country

1-Nov Oct- o1 to Nov 1 Dec-00 t o NOV-01 Nov-00 Oct- 00 to Nov 00 Dec-99 t o Nov-00

Panama 11,000 14,000 75,303 6,600 8,700 65,564

Papua New Guinea 81,000 180,000 1,068,124 81,140 172,110 1,035,105

Peru 186,000 497,000 2,397,494 180,859 520,863 2,358,803

Rwanda 17,000 42,680 288,973 5,120 20,860 282,217

Venezuala 11,000 12,000 157,300 0 0 71,640

Zambia 6,000 8,000 61,145 5,088 7,090 53,458

Zimbabwe 7,000 10,000 95,016 6,258 10,124 109,727

Brazil ian Naturals 2,725,918 5,111,895 24,338,477 1,788,102 3,807,104 20,482,106

Brazil 2,616,918 4,901,553 22,921,314 1,678,132 3,584,776 18,456,231

Ethiopia 108,000 209,342 1,406,163 108,970 221,328 2,016,060

Paraguay 1,000 1,000 11,000 1,000 1,000 9,815

Robustas 2,000,400 3,699,263 28,567,131 2,119,857 3,959,481 28,021,535

Angola 900 1,500 18,800 850 2,600 24,885

Congo, Dom. Rep. 15,000 38,000 95,896 14,456 29,572 220,459

Ghana 3,000 8,000 40,276 1,921 5,912 31,414

Guinea 2,000 4,000 38,929 2,003 4,751 29,404

Indonesia 321,000 782,000 4,500,202 356,125 831,235 5,161,978

Liberia 0 0 0 0 0 0

Nigeria 0 0 1,983 121 545 16,250

OAMCAF 387,000 742,837 5,374,825 326,111 750,599 7,671,313

Benin 0 0 0 0 0 0

Cameroon 61,000 117,000 1,172,537 41,238 89,273 1,216,596

Central Africa Republic 1,000 5,000 114,108 1,400 7,300 193,540

Congo, Dom. Rep. 0 0 0 0 0 0

Cote d'Ivoire 261,000 480,000 3,599,375 236,050 537,832 5,754,646

Equatorial Guinea 0 0 0 0 0 179

Gabon 0 0 2,752 250 250 284

Madagascar 57,000 124,000 302,383 34,383 87,966 202,886

Togo 7,000 16,837 183,673 12,790 27,978 302,882

Philippines 380 519 2,951 619 635 4,699

Sierra Leon 2,000 7,000 21,323 2,771 10,891 72,036

Sri Lanka 0 0 4,847 8 18 799

Thailand 12,000 29,283 1,131,020 5,917 55,367 987,700

Trinidad and Tobago 0 0 342 0 0 1,997

Uganda 150,120 303,124 3,011,609 227,519 366,304 2,646,633

Vietnam 1,107,000 178,300 14,324,125 1,181,436 1,901,052 11,151,968

1/ ProvisionalICO Statistics on Coffee

Based on the data, the robustas are the most exported coffee in the world with an average of

11,394,611 60-kilogram bags followed by the other milds (10,246,059 60- kilogram bags), Brazilian milds(9,708,933.7 60-kilogram bags) and Columbian milds (5,186,915 60-kilogram bags.

Meanwhile, Table 10 shows the total production of exporting members during the crop years 1995/96

to 2000/01 by 6O-kilogram bags. The world exports arabica and robusta coffee varieties. The highest value

of coffee exports was attained during the year 2000 (110,991) and the lowest was in 1995 (85,647).

Table 10. Total production of exporting m embers, Crop Years 1995/ 96 t o 2000/ 01


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Table 10 cont inued

CROP YEAR COMMENCI NG (60 KI LOGRAM BAGS)Country

Variety 1995 1996 1997 1998 1999 2000

Thailand ( R ) 1,317 1,403 1,293 916 1,271 1,418Togo @ ( R ) 85 290 222 321 263 334

Trinidad and Tobago ( R ) 18 18 20 17 16 15

Uganda ( R/A ) 3,244 4,297 2,552 3,298 3,097 3,200

Venezuela ( A ) 1,364 1,200 986 991 717 1,100

Vietnam ( R ) 3,938 5,705 6,915 6,947 11,648 11,667

R - Robusta

A - Arabica

1/ - Under correspondence

2/ - Estimate to be confirmed

3/ - Estimated

ICO - Statistics on Coffee

3.3 Price Development

It was reported that on September 4, 2001, ICO indicated prices for other Mild Arabica and for

Robusta were 57.89 and 25.13 US centst1b, respectively. The average prices for these types of coffee in the

1950's, where no market support mechanisms were in force, were 60.10 and 40.77, respectively. In constantterms, prices today should have been 380 and 270 US cents to maintain 1950's prices in real terms. Today's

price represent a drop in real terms of some 85 percent in 50 or 80 years (Table 11)

The report also stated that with the current collapse of world coffee prices, many exporting countries

are suffering from one of their worst economic crises for years. Throughout 2001, the slide in prices

worsened. For over two (2) years, exporting countries have been living through a painful period of lower

market prices and a sharp decline in foreign exchange earnings, from coffee. The annual average of these

earnings, which is so vital to the development plans fell from some US$ 13 billion in 1997 to US $ 8 billion in2000. In consequence, nearly all the producing countries are experiencing real economic hardship with

production costs in very many cases exceeding revenues. Consumers in importing countries are paying more

for one cup of coffee than many farmers get for a daily wage.

The price weakness was most marked in the last quarter of 1999-2000 as the trade had already

discounted reports of Brazilian crop damage and mutual and managed funds largely cleared their long

positions. The average ICO composite price for 1999-2000 was US cents 73 per lb, 19 per cent less than in

1998-1999 and 43 percent less than the average for 1995-1997. Prices fell for both coffee varieties; theaverage prices of arabica in 1999-2000 declined by nine percent while that of robusta fell by four percent.

Table 11. World coffee price.

WORLD COFFEE PRICE (US CENTS/lb)

Average Price Quarterly PriceClassification of coffee 1995 -

1997 1998 1999 20001999 2000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Brazilian NaturalArabicas 144 122 89 80 93 91 75 96 84 74 69

Colombian MildsArabicas 163 143 116 103 119 120 103 124 125 108 94 83

Other Milds Arabicas 154 135 104 87 108 107 90 111 105 92 80 71

Robustas 95 83 68 41 78 68 61 63 49 44 39 33

Source: ICO


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In addition, the problem on the deterioration in real export prices has become even morecomplicated by the increase in price volatility levels. fluctuation coffee prices have shown an annualfluctuation rate of more than 50 percent in recent years whereas during periods when the market regulatedprices fluctuated between 10-15 percent around their medium term trend. These high levels of priceinstability have a very negative effect on the development process. Table 12 presents the indicator prices forcoffee as designated by ICO from 1999 to 2001.

Table 12. I CO indicator pr ices for coffee, 199 t o 2001

Indicator Price for Coffee (US cents/lb)

Other Milds Robustas Other Price (New York)

MonthComposite

Price NewYork

Bremen/Hamburg

WeightedAverage

NewYork

Le Havre/Marseilles

WeightedAverage

ColombianMilds

Brazillian

Naturals

1999 85.72 101.54 110.88 103.9 67.64 67.23 67.53 116.45 88.84

January 97.63 110.99 118.93 112.96 81.65 83.1 82.29 123.07 99.43

February 92.36 103.24 112.23 105.48 77.68 81.68 79.23 116.92 91.72

March 89.41 103.23 111.86 105.39 72.7 74.51 73.42 117.05 88.9

April 85.72 99.69 109.13 102.11 68.89 69.96 69.32 114.02 86.14

May 89.51 109.1 117.46 111.07 68.28 67.44 67.94 123.95 96.29

June 86.41 104.21 116.22 107.21 66.2 64.68 65.59 121.45 91.69

July 78.21 90.85 106.89 94.85 62.28 60.44 61.56 107.05 78.13

August 77.22 87.64 102.54 91.37 63.8 62.97 63.07 105.28 76.67

September 71.94 81.06 94.3 84.31 60.44 58.42 59.57 97.77 70.43

October 76.36 92.22 100.15 94.2 59.25 57.43 58.52 103.69 78.74

November 88.22 112.74 114.89 113.38 64.3 61.75 63.05 136.76 98.41

December 95.63 123.56 125.91 124.46 66.4 65.39 66.79 140.35 109.47

2000 62.81 83.31 90.6 85.17 40.98 39.37 40.35 100.25 77.82

January 82.15 100.17 116.82 111.11 53.62 52.41 53.18 130.13 97.08

February 76.15 101.17 110.19 103.44 49.41 47.97 48.86 124.73 91.68

March 73.49 98.26 108.13 100.73 47.26 44.73 46.25 119.51 89.93

April 69.53 92.41 101.51 94.61 45.21 43.31 44.45 112.67 86.46

May 69.23 91.76 100.99 94.15 45.19 43.01 44.32 110.31 87.23

June 64.56 84.1 92.94 86.44 43.72 41.12 42.68 100.3 78.32

July 64.09 85.2 93.36 87.35 41.93 39.19 40.82 101.67 79.89

August 57.59 74.52 84.08 76.92 38.94 37.22 38.25 91.87 70.57

September 17.31 73.83 81.61 75.78 39.47 37.86 38.83 89.98 71.14

October 56.4 75.43 80.41 76.66 36.55 35.51 36.14 90.25 72.28

November 52.18 70.47 74.63 71.54 33.34 31.94 32.81 84.01 68.95

December 48.27 64.81 70 66.16 30.78 30.03 30.38 75.81 64.39

2001 45.6 61.94 63.14 62.28 27.3 27.49 27.54 72.05 50.7

January 49.19 64.98 68.93 65.98 32.97 31.59 32.4 75.33 62.38

February 49.39 67 67.65 67.19 31.96 31.04 31.58 76.7 62.5

March 48.52 65.88 68.35 66.5 30.96 29.87 30.52 76.94 60.35

April 47.31 65.68 67.58 66.13 28.59 28.35 28.49 78.25 55.11

May 49.38 68.94 69.83 69.22 29.71 29.29 29.54 80.92 57.19

June 46.54 63.79 64.08 63.9 29.33 28.89 29.17 74.38 51.86

July 43.07 58.47 59.51 58.72 27.59 27.21 27.43 69.7 46.43

August 42.77 59.68 59.83 59.72 25.86 25.74 25.82 73.5 46.49

September 41.17 57.71 59.39 58.07 23.79 25.08 24.27 68.8 42.42

October* 42.21 56.53 56.31 56.4 21.26 23.89 23.24 62.88** 38.63**

November* 44.24 58.96 58.81 58.85 22.03 24.26 23.68 64.89** 42.82**

December* 43.36 55.63 57.4 56.72 23.57 24.63 24.35 62.33** 42.21**

* New series for the calculation of the ICO composite and group prices

** Weighted average of the New York and german markets calculated with the new Rules and Indicator Prices

The above table shows that in 1999, the Columbian Milds coffee had the highest value in the world

market with an average of 116.45 US cents/lb followed by the other mild arabicas (103.9 US cents/lb),

Brazilian naturals (88.84 US cents/lb) and the robustas (67.53 US cents/lb). h1 the year 2000, the following

figures were attaine4: Columbian Milds, 100.25 US cents/1b; other mild arabicas, 85.17 US cents/1b;

Brazilian naturals, 77.62 US cents/1b; and robustas, 40.35 US cents/1b. In the' year 2001, the following


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rankings were attained in terms of the coffee world prices: Columbian milds, 72.05 US cents/1b; other mild

arabicas, 62.28 US cents/lb; Brazilian naturals, 50.7 US cents/lb; and other mild arabicas, 62.28 US cents/1b.

In terms of the annual prices by type of coffee, it was in 1999 when the average price of other mild

arabicas was highest and lowest in 2001. The average price of robustas was highest in 1999 and lowest in

2001. The same results were attained for both the Columbian milds and the Brazilian naturals.

5.1 PHI LI PPI NE DOMESTI C SUPPLY

Coffee was introduced in the country in 1970 during the Spanish rule and was planted inLipa, Batangas. The Philippines produces mainly Robusta coffee and is one of the few countrieswhere all four varieties of coffee are grown on a commercial scale. Most of the Robusta producedin the country are dried under the sun before they are milled. The cup produced is slightly bitter

with pronounced flavor. Philippine Arabica being produced is with pronounced fermentedcharacter. On the other hand, Philippine Excelsa is processed under the natural method andproduces an aroma similar to that of Arabica. It is usually used to a high degree in blends ofroasted ground coffee. The Liberica variety, popularly known as kapeng barako bears the biggestfruit among these varieties and is characterized by a very pharmacopical taste and flavor.

5.1 Development of Hectarage

In 1990, BAS recorded that there were about149,657 hectares devoted to coffee production in

the Philippines. From then on to 1994, it wasslightly reduced to 146,370 hectares and was

significantly reduced in 1995 when it has gone down

to 144,532 hectares. It was increased to 151,252

has in 1999. The figure however seems to be too

large for some industry experts. They claim that in

2000, there may only be 137,000 hectares and

120,000 hectares in year 2001. Alarmingly, the

country has an estimated of only 85,000 hectares

left planted to coffee by this year (2002) (Figure 4).


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The reasons for the unprecedented decrease in hectarage are the on-going industrialization in theCavite, Laguna, Batangas (CALABA) area and other parts of Region IV and the shift to other crops by coffeefarmers due to low net income per hectare of production. The efforts of NESTLE Philippines, Inc., however,in helping increase the production area are very significant especially in Mindanao. New plantings areintroduced in these areas and in some parts of Luzon and Visayas. The Coffee Foundation of thePhilippines (CFP) also exerts extra effort to expand the coffee plantation particularly in Palawan. Theprovincial leadership of Cavite took the initiative of revita1izjng their local coffee industry to arrest massivecoffee cutting and lead the country in promoting the planting of barako variety in partnership with privatecompanies such as the Figaro Coffee Foundation. In fact, last April 19, 2002, the coffee farmers in

Amadeo, Cavite under the leadership of their municipal mayor held the very first Coffee Festival of thePhilippines to serve as a catalyst in revitalizing the coffee industry of the country. No less than thePresident of the Philippines served as the guest speaker where she created the National Coffee Task Forcewhich will study how the coffee industry can be helped revitalized.

In the country, there are five regions with the largest area devoted to coffee. By order, the following are the

regions: Southern Mindanao (23.69%); Southern Tagalog (18.79%); Northern Mindanao (17.72%);

Autonomous Region of Muslim of Muslim Mindanao (ARRM) (6.86%); and Western Visayas (6.06%).

Collectively, these regions contributed 77 percent (114,281 hectares) of the total area planted to coffee inthe country as of 1998. Except for Cavite, Batangas and some areas in Davao and Bukidnon, most of the

areas planted to coffee are located in public lands, forest reserves and watersheds (Figure 5).


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Figure 6 shows the total coffee production in the Philippines from 1990 to 2000. The figure reveals

that the highest volume of coffee production in the 90's was in 1991 with 61,080 metric tons while the

lowest was in 1998 with 41,100 metric tons. During the time when we used to export, however (late 80's),the country was able to produce more than 70,000 MI. This was our happy moment when the US included

us in the quota system where they buy our high quality robusta coffee in premium price the Cavite AA.

Today our production volume was very low that it does not able to meet our local demand. With our

domestic consumption of 55,000 MT the country was able to produce only 30,000 MT 30% of which is

supplied by Cavite farmers The balance of 20,000 MT are being imported from our neighboring countriessuch as in Vietnam and Indonesia The table shows that the volume of coffee production fluctuates within the

evaluated period.

In the case of our average yield per hectare, it follows the same trend with that of hectarage and

volume of production trends that declined from 1,150 kilograml1lectare in 1991 to 1, 110 kilograml1lectare

in 1995. To the industry experts, the estimate was too high. They claim that a more realistic figure for 1995

would be less than half at 485 kilograms/hectare of green beans. The current yield is way below the ideal ofabout 1,500 kilograms/hectare. The regions with relatively good yield are Southern Tagalog, Cordillera

Autonomous Region (CAR) and Mindanao. Yield in these areas are approximately 800 kg/ha while extremeNorthern Luzon and Visayas could only manage 300 kg/ha and 320 kg/ha, respectively. As of 1999, Davao

del Notre, Bukidnon. and Davao City, all from Southern Mindanao, is t;lle largest producing provinces in the

country (Figure 7). Cavite, home of the Cavite AA robusta beans, averages 1 ton per hectare, which is way

below the average yield per hectare of farmers in Vietnam at 2 tons per hectare. ..

With the volume of production we have in 2000, the country produces approximately 0.7 percent ofthe total global production as of crop year 1999/2000 in which 89 percent are robusta, 4 percent arabica and

a combined 7 percent of excels a and liberica (barako) varieties. Robusta is mainly used as a main ingredient

in the production of soluble or instant coffee. Arabica variety is used mainly for blending, thrives well in high

elevation areas and grows well in the Cordillera mountains in Luzon and Mindanao regions specifically in the

volcanic mountains of Mt. Apo in Davao. Mt. Matuntuon in South Cotabato, Mt. Kitanglod in Bukidnon and

Kalamansig in Sultan Kudarat. Excelsa and liberica (Barako), on the other hand are grown in the lowlands


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and are much sought by buyers from the Middle East for its strong distinct flavor. One of the four varieties,

Liberica produces the biggest beans of up to 2 centimeter. Foreign buyers classify it as big beans similar in

size to Harar coffee of Ethiopia and often command a better price than excelsa and robusta.

By island, :Mindanao is the largest supplier of coffee in the country. In 1998, about 71 percent or

86,649 metric tons of the country's coffee output comes from this island. Luzon, on the other hand,

contributes 24 percent or 29,720 metric tons while the Visayas region accounts for the remaining 5% or

5,717 metric tons. On the regional level, the top producing regions are: Southern Mindanao (31.68%) or

38,673 metric tons; Northern Mindanao (15.55%) or 18,979 metric tons; Southern Tagalog (14.05%) or

17,155 metric tons; ARMM (10.75%) or 13,121 metric tons and CAR (6%) or 7,451 metric tons. These five

regions contribute for 78.03% or 95,379 metric tons of the total coffee produce (Figure 8).


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6. DOMESTI C TRADE

6.1 Exports

The Philippines exports the four coffee varieties in its raw/green, not roasted, not decaffeinated form.

In 1994 and 1995, Robusta accounted for the bulk of exports, recorded at around 3,646 metric tons (89%)and 1,638 metric tons (68%), respectively. In value terms, Robusta variety accounted for US$7,450,633

(FOB) in 1994 and US$4, 790, 798 (FOB) in 1995 a decrease of around 36%. From among these varieties,

Liberica variety dominated the Philippine exports in 1996 and 1997, which registered a total export of about

262 metric tons (US $760, 576, FOB) and 246 metric tons (US$578,469, FOB), respectively. For the year

1998, Liberica variety topped the Philippine exports at 299 metric tons valued at US$652,549 (FOB).

The country also exports extracts, essences and concentrates of coffee and preparations. From 436

metric tons in 1994, exports decreased by 16.7% the following year. In value terms, an increase wasobserved by as much as 23.4 % in 1995 compared to the year 1994. Exports in 1996 and 1997 further

increased to 438 metric tons (US$ 3,223,593) and 540 metric tons (US$ 3,186,485), respectively. In 1998,

however export was recorded at 280 metric tons, a decrease by about 61 % from the previous year level

In 1998, Singapore was the major market for the Philippine Robusta. For the Arabia variety, Taiwan

was the largest buyer absorbing 64.40% of total exports. On the other hand, Oman and Singapore are the

major destinations for the Excelsa and Liberica varieties with Oman absorbing the Bulk of Philippine exports.

(Excelsa-61.56%; Liberica- 73%).

For the same period, Oman is the Philippine sole market for roasted, ungrounded, not decaffeinated

coffee absorbing 0.27 metric tons valued at US$ 1, 539(FOB). On the other hand, Singapore accounted for

around 8% (169 metric t~) of total exports of the extracts, essences and concentrates of coffee preparations

valued at US$ 1,050,293 (FOB) Philippine coffee exports in 1998 were dominated by raw/green (76%) and

extracts, essences and concentrates of coffee preparations (22%), a combined total of 98%. The remaining

2% was co-shared by roasted ungrounded, not decaffeinated coffee.

Figure 9 presents the country's export volume from 1976 to 2001 based from the statistics provided

by the Depart ment of Trade and I ndustr y -I nt ernational Coff ee Organization Cert ifyi ng Agency

(DTI-ICOCA). The highest coffee export volume was attained from 1985 to 1986 with approximately 44,000

metric tons followed by 1984 to 1985 with 34,000 metric tons of coffee exports. Third in rank was during

1988 to 1989 with 29,000 metric tons followed by 1982 to 1983 and 1983 to 1984 with 26,000 and 25, 000

metric tons of coffee exports, respectively. Statistics shows a tremendous decreasing trend in coffee export

volume from 1990 to present. An all time low on coffee export volume was experienced in year 2000 to 2001

nearing a very low 1,000 metric tons of coffee exports.


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Meanwhile, Figure 10 shows the trend in the country's exportable volume of production from 1976 to

2001. The highest value was attained in 1998 to 1989 with 50,000 metric tons of coffee followed by the year

1984 to 1985 with 45,000 metric tons of exportable coffee. The graph shows a fluctuating trend in the coffee

exportable volume from 1976 to 1992 until it suddenly moved downwards from 1992 to 2002. The industry

suffered from negative values of exportable coffee volume from 1998 to present. This implies that the

country has not been exporting coffee for 10 years now.

The country was a net exporter of coffee in various forms: green beans, roasted ground coffee, andsoluble/instant coffee (Figure 11). Prior to 1990, 15% to 30% of our total production was sold abroad.However, when the International Coffee Agreement collapsed in 1989, world price dropped down makingexports unproductive. Thus, from 1991 to 1996, exports shrank to a mere 0.3% to 2.7%. The trade balancefrom 1992 to 1996 followed an erratic trend. Export earnings fell to US$ 4.6M in 1996 from a peak of US$

8.2M in 1992. Nestle Philippines Inc., maker of Nescafe products, reportedly covered 85% of theinstant/soluble coffee market, while the remaining 15% was shared by Commonwealth foods (Cafe Puro),General :Milling Company (Kaffee de Oro), Universal Robina Corporation (Great Taste) and others. Extracts,essences, and concentrates of coffee comprised the bulk of coffee exports, mostly bought by Singapore(Figure 11). Oman is a lucrative market for green liberica and excelsa. Following the removal of quantitativerestrictions, imports ballooned to US$ 2M in 1996 from US$ 0.4M in 1995 (Food and Agribusiness Yearbook,1997).


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The Philippines have exported various forms of coffee ranging from green bean, roasted ground coffee and

soluble/instant coffee. During the later part of 1980's, around 15-3Opercent of the total production was sold

abroad, Neste Philippi nes, I nc., maker of Nescafe products, reportedly commanded the coffee market

through its 85% share. Commonwealth Foods (Cafe Puro), General Milling Corporation (Kape de Oro),Universal Robina Corporat ion (Great Taste) and others share the remaining 15% (BAS, 1997) (Figure

13). Export dropped to 0.3% in 1996 due to the downgraded world price of coffee. The trade balance from1992 to 1996 followed an erratic trend. Export earnings fell to US$ 4.6 M in 1996 from a peak of US$ 8.2 M

in 1992.

As a summary, Figure 13 presents the trend in the Philippine exportable volume side by side with that of its

export volume as separately discussed earlier.


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6.2 I mports

The Philippine imports coffee in different forms, such as roasted, raw green extracts, essences and

concentrate\s and other forms. In 1994, the country imported .166 metric tons of roasted coffee (ground,

not decaffeinated) from Netherlands valued at US$ 89. 70. Importation of this was increased in 1995 to 8.5

metric tons, 98% higher than the previous year. A slight increase of 16% (8.502 metric tons) was recorded

in 1996. The year 1997 posted the highest import recorded at 292 metric tons valued at US$ 459,645 (FOB).

For the period 1994-1997, importation posted at n average annual growth rate of 88%.

Imports of coffee extracts, essences and other preparations increased from 7 metric tons in 1994 to 912

metric tons in 1997, an annual growth rate of 95%. An increase of about 72 percent was recorded in 1997compared to 1996. h11997, value of exports was recorded at US$ 2,048,221 FOB), 25% higher in 1996

value recorded at US$ 1,535,632.

In 1998, Indonesia supplied 95.32% of the Philippine requirement for raw/green coffee, Robusta variety. For

the same year, total Philippine imports of Excelsa variety, which accounted for 2,839 metric ton valued at

US$ 206 was all, sourced from the USA.

Australia, in 1998 was the main source for the Philippines' roasted, ground decaffeinated coffee. Moreover,

the three major suppliers of roasted, ground not decaffeinated coffee were: USA (39%), Australia (29%),and Italy (19%). For coffee extracts, essences and concentrates, the USA, accounted for 394% (217.44

metric tons of the total import volume, valued at US$ 389,259 (FOB). Singapore ranked second with 19%share and 12% from Hong Kong. Almost all of the Philippine imports in 1998 were the raw/green (not

roasted, not decaffeinated) form it accounted for 95.40% of total imports.

6.3 Price Development

Figure 14 shows the domestic price trends of roasted coffee according to the following varieties:

arabica; excelsa and robusta. For the arabica coffee, it was in 1998 when its price was highest at P180.15

per kilogram and was lowest in 1990 at P78.65 per kilogram. For the robusta coffee, the price was highest in

1995 when a kilogram was sold at P132.42 and was lowest in 1990 with 47.64 per kilogram. For the excelsa

variety, the year 2000 marked the most expensive price of coffee at PII0.34 per kilogram while the cheapestprice happened in 1990 with P44.42 per kilogram.

The table reveals a general increasing trend in the prices of both arabica and excelsa varieties. On the otherhand, from robusta's highest price in 1995, a declining trend in its price was observed onwards.


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6.4 Domestic Consumpt ion

Figure 15 shows the countrys domestic coffee consumption in metric tons from 1990 to2002 based from ICO statistics. As revealed in the table, the year 2002 marked the highestdomestic coffee consumption using up 55,000 metric tons of coffee. The year 1999 closely followed

by the year 2001 consuming 53,000 metric tons followed by 1997 with 51,180 metric tons. Thelowest domestic consumption within the evaluated consumption period happened in 1990consuming only 43,200 metric tons. Statistics revealed a very stable and consistent domesticconsumption experiencing no drastic plunges or climbs in the volume of consumption.

7. PROBLEMS OF THE PHI LI PPI NE COFFEE I NDUSTRY

The Philippine coffee industry is not spared with the usual problems experienced by other industries. Major

industry players, especially the fanners, feel these problems. Low volume of production, poor quality of

coffee beans, unstable market prices, and low yield and income per hectare are among the most

overwhelming problems. Low yield and production are attributed to the limited technical know-how onappropriate production technologies such as fertilization, pruning techniques, cropping systems, post harvest

handling and processing. These problems are mostly centered on the extension delivery of our agricultural

technicians who finds themselves at a lost due to the recent devaluation system of our government. The old

age of existing coffee trees also contributes to low productivity. This problem is also aggravated by the

reduction in land area planted to coffee as a result of industrialization and land conversion. The lack of

marketing intermediaries and on the other hand, too many of them in some places is also seen as a problem

confronted by many local fanners. Aside from this, the price of coffee is affected by fluctuations in the

international market that triggers instability. With these problems the challenges for the coffee industry is to"produce enough consistent quality coffee to take advantage of the market opportunities". Enough in the

sense that we are still importing coffee to our neighboring countries such as Vietnam and Indonesia. We

must produce more to avoid importation, which means dollars going out of our country. We must help our

farmers to capture more added values by selling more processed coffee directly to consumer. To attain this

much faster, we should eliminate individualism and promote cooperativism. We should also work fordiversification projects that would make farmers less dependent on a single crop. Foremost, we should train

and encourage them to enter the more lucrative especialty coffee niche. All these problems must be

translated into an R D & E framework that will address the industry until the next 10 or 20 years.


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This is a prerequisite if the local industry is to become competitive in the world market. The industry

should also develop additional products from coffee and its by- products and intensify its market promotion.

Given the decreasing hectarage of coffee production areas, increased production of quality beans can be

done through modern production technologies. Farmers should also be adequately supported in terms of

extension services, credit facilities, marketing assistance and provision of post harvest facilities. To increase

our robusta and arabica production we need to provide technologies that would increase the yield per

hectare from 0.4 ton to 1.5 tons. Farmers must be given information on how the quality of our coffee beans

can be improved. We also need to rehabilitate/rejuvenate old plantation to increase their yield. Expansion forrobusta and arabica plantation should be supported by the government for self-sufficiency.

For the coffee industry, it is hoped that after the program, it shall be improved. Production area has

been increased from 124,000 has to at least 150,000 has. The national average yield has been raised from

800 kg/ha to 1000 kg/ha. The quality of our coffee beans has been improved as that of other Asian

countries. The per hectare profit of farmers has been increased from P 50,000.00 or more per hectare

ultimately, the export earnings of the country shall have been increased.

The coffee RDE program within the next 20 years will embark on a comprehensive approach to arrestrecent challenges to the industry in the current World Trade Organization (WTO) regime. Rea1izing thevital role of the industry in employment creation, economic growth, income distribution, regionaldevelopment, and environmental protection, the program will focus on the overall aspects that will also copewith the problem of globalization.

The program main focus of the program is on increasing the coffee yield per unit area at a lower costof production. Improved efficiency can be enhanced through modern technologies that will involve the use ofnew cultivars, biotechnology, fertilizer usage, proper pruning techniques, and the use of irrigation facilities.

8. DESI RED I NDUS1RY SI TUATION

For a while, coffee has been a neglected commodity in

the country. Records show that to date, there were only few

researches conducted on coffee, the result of which has not been

consolidated. Package of production technologies are also

very limited.

A critic assessment of the real status of the industry is inorder. There is also a need to update our knowledge of thecoffee international market.


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.The control of pests and diseases shall also be regarded as a primary factor in varietal improvement andefficient coffee production.

The need of the growing consumers on good quality coffee shall also be given emphasis. This will

include strategies that will help the farmers capture more added values by selling more processed coffee

directly to the consumers. New marketing strategies shall also be considered. To realize the goal of sharing

them the windfall they reaped. Individualism shall be eliminated in favor of cooperativism. The different

forms of coffee products shall also be looked into as well as the post harvest and packaging equipments that

will be best used for them. The program also seeks to help the farmers and the industry as a whole with

technologies on a more lucrative specialty product that command high prices in the market particularly

excelsa and liberica coffee. The production of organic coffee shall also be looked into.

Another important part of the program is closely looking into sustainable coffee production, which shall

include studies that will promote soil conservation organic fertilization and crop and animal productionfor diversification projects that would make farmers less dependent on single crop fanning. Farmersshould also be assured of guaranteed economic returns.

Finally, a program that will help the farmers improve the quality of coffee berries shall also a prime concern

of the program, with no less than the ICO pushing for the development of strategies that will only selectgood quality seed in the market. It is imperative that we improve the quality of seed beans in order to be

globally competitive.

9.2 Program Goal

To develop the coffee industry into an equitable, sustainable, environment friendly, and a globally

competitive one for a better quality of life of the Filipino people and for the improvement of the nations

economy.

9.3 General Obj ect ives

The general objective of the program is to increase the production of high quality coffee beans at

less cost for local and international market, develop coffee by-products for niche market, and promote

sustainable coffee production.

9.4 Specific Obj ect ives

Specifically the program intends to:

1. Conduct a critical assessment of the industry and its position in terms of productionsystem/technology policies, processing and manufacturing for local and international markets;

2. Develop, test. And verify production technologies on technology, pruning techniques, varietal

improvement, farming systems, pest management, irrigation, shade management, postharvest

and processing systems;

3. Establish demonstration farms and seed and clonal nurseries in selected areas;

3. Formulate strategies for the development of new coffee products;

5. Provide a scheme that will ensure support to workers in the industry such as policy analysis andadvocacy, credit and crop insurance for farmers, institutions, and human resource development;

6. Package available technologies for publication and conduct training programs to enhance

capabilities of fanners, local government writs (LGUs) and non- government organizations (NGOs)

that are involved in coffee production;

7. Establish coffee trade and info11llation centers in strategic areas of the country;

8. Establish postharvest and processing centers in selected areas;

9. Coordinate/link \\lith other stakeholders of the industry;


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10. Establish a Geographic Information System (GIS) for profitability and productivity assessment of

coffee;

11. Intensify market promotion of coffee and coffee by-products in local and international markets;

12. Collect, evaluate and improve coffee varieties that are promising in the world market;

and

13. Establish the National Coffee Research and Training Center.

9.5 Program Components

The national integrated research, development and extension program for coffee shallconsist of the following components:

I . Research and Development

I ndustry Assessment and Policy Analysis/ I mpr ovement

This shall include a critical assessment of the industry. Although it has already been done in the past,

an updated data is very important in the analysis and formulation of policies concerning the industry.

Assessment shall include the policies and production systems/technologies that are being practiced by

fanners. The local processing, manufacturing, local and international processing and marketing systems shall

also be assed.

Technology Generation on Product ion and Post Product ion

As a very important component, this shall focus, on the research and development of new production

technologies that will help coffee farmers improve the production efficiency. Included are the establishment

and maintenance of germplasm collection of three islands Luzon, Visayas and Mindanao. It shall also focus

on varietal improvement, development of more appropriate coffee-based fanning systems, nutrient

management studies, pruning techniques, pest management and biotechnology researches. This component

shall also include the development of post harvest processing systems and establishment of post harvest

facilities.

Saving Bio-Diversit y and Prot ection of Envir onment

This program shall also address problems on coffee agro-eco system, fertilizer and pesticide usage,

and soil erosion.

I ndustry Support

This component shall take care of the individuals/institutions that are involved in the industry. Focus

shall be put on policy analysis and advocacy activities. Marketing intelligence activities outside of the country

shall be included. This component shall take care of the development of the farmers' credit and crop

insurance system.

2. Training and Ext ension

This shall cover the packaging of available technologies, publications and training of fanners, LGU'sand NGO's that are involved in the industry. This also includes the establishment of demonstration farms andseed and clonal nurseries in selected areas. Institutionalization and networking is a major part of thiscomponent. Local and foreign study and cross farm/country visits by key individuals in all network shall alsobe included. This shall also include the establishment of "Coffee Research/Trade/Information Centers" thatwill also house post harvest facilities for coffee and its by-products.


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I nstit ut ion and Human Resource Management

This program shall engage in a strong institution/network and manpower development. These include

provision of in housing training, and participation to trainings and tours outside the country for technology

verification and generation. Acquisition of needed equipment and facilities vital to research and development

shall be included. This include at least a laboratory facilities and vehicles for the program.

Monitor ing and Evaluation

A systematic scheme shall be pursued in monitoring and evaluating the program. It shall alsoinclude the establishment of zonal and regional GIS for coffee production areas.

9.6 St rategies of I mplementat ion

Linkages and Netw orking

The first step in the implementation of the program is the establishment and operationalization ofnational network linkage with various NGOs, LGUs, and other stakeholders in the industry.

Creat ion of National Coff ee Development Board

Establishment of National Coffee Research/ I nform ation Trade Center

Coffee research/information/trade centers shall be established to handle all activities included in the

program. The center will house a publication and training center for the conduct of seminars, training,

workshops and technology promotion activities. The center shall include post-harvest and processing centers

accessible to small fanners.

Establishment of Demo-Farms, Seed and Clonal Gardens

Demonstration farms showcasing the recent technologies on coffee production shall be established in

three areas particularly in Luzon, Visayas and Mindanao. The demo-farms shall also include a seed and

clonal garden for massive production of quality planting materials

Establi shment of GI S for Coff ee

A geographic information system center for coffee shall be established to monitor and assess

production and profitability in different production areas of the country.

Monitor ing and Evaluation

Regular monitoring and evaluation shall be done to assess the impact of the programespecially during the termination of the program.


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Documents

Coffee Investment Opportunities