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Thursday, 24 February 2011 13:33

Coffee Prices Up Amid Rising Global Demand

By Rawlings Otini

NAIROBI, Kenya, February 24, 2011 (Business Daily) - Coffee prices rose to new highs last week, cranking up returns for marketers and cushioning farmers against a drop in supply. The average price of various grades at the coffee auction rose five per cent compared to the previous week to stand at $411, from $393.50 per bag, at the Nairobi Coffee Exchange.


Coffee marketers are optimistic of good earnings this year due to sustained strong performance of the commodity's price in key markets around the world since last year.

"We are trading at the highest prices ever; both here and around the world," said the Nairobi Coffee Exchange managing director, Mr Daniel Mbithi.


The value of AA grade during the week rose 19 per cent to $19.6 million while that of grade AB rose 41 per cent to $36.9 million. The good returns at the coffee auction reflect good performance in the industry globally based on supply concerns caused by poor weather in key producing countries like Brazil and Colombia.


Brokers said that coffee is also benefiting from a global commodity boom that has been fuelled by increased investments in the futures market by fund managers in the developed markets.


The good run in coffee prices that has been witnessed in the last six years has touched record highs beginning this month. The high prices recorded last week triggering high earnings among coffee brokers and farmers.


Among the major brokers in the country are Dormans, Ibero Africa, Diamond Coffee, Java among others. Data released by the Nairobi Coffee Exchange showed that prices of various coffee varieties rose in January culminating in the highest level last week.


On the international market, last year returned the highest average yearly prices according to the International Coffee Organisation (ICO) records.


"The current supply/demand structure has reinforced the continued firmness in prices. Current developments in market fundamentals suggest that prices will remain firm in most of 2011," the organisation said.


The tight supply of coffee to world markets is attributed to adverse weather that has disrupted harvesting and transportation in many exporting countries.


High Cost


Colombia was particularly hard hit by coffee leaf rust (CLR) and is not expected to recover soon partly due to the fact that access to treatment is limited by the high cost of inputs. Monthly arabica and robusta coffee prices rose seven per cent last month compared to December last year according to the ICO: "World coffee consumption remains relatively buoyant, particularly in emerging countries," ICO added.


The composite indicator price for arabica was at its highest level at 423.74 US cents per kilo last week while robusta was fetching 213.62 US cents according to ICO. Players in the industry have however warned that the presence of cartels in the market has for long denied farmers the benefits of high coffee prices that are currently at a record high.


"This total control has contributed to price manipulation and as a result, small scale coffee farmers have had little reason to invest in higher quality production leading to a vicious cycle of declining earnings and lower yield per hectare," the managing director, Lucy Murumba said.


A good run in coffee prices has triggered theft and illegal trade in the commodity with farmers now the main targets of cartels seeking to reap from the boom.


Market players said though cases of theft and illegal buying and selling of the commodity have been rising since the 2004/05 season, and coinciding with a firm run in prices, farmers are now more vulnerable. Production dropped 10 per cent to 40,000 metric tons of clean beans during the 12 months to September from a previous forecast of between 49,000 and 55,000 tons. (END/2011)




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