June 2013
Coffee prices fell sharply in June 2013,
as market fundamentals, combined with an uncertain macroeconomic outlook, drove
the ICO composite indicator price to its lowest level since September 2009. The
market remains well supplied with coffee, with total exports for the first eight
months of coffee year 2012/13 (October to May) reaching 75.7 million bags, compared
with 72 million in the same period last year. Moreover, commodity prices in general
declined over the course of the month, mostly due to negative economic news from
China and the United States.
Given current price trends, there is
a diminishing incentive for farmers to invest in their crops, and the use of inputs
such as fertilizers and labour will likely be reduced. This could potentially have
a negative impact on production volumes and quality over the next couple of years,
resulting in increased price volatility and a less sustainable agricultural value
chain.
There is a temptation to see the decrease
in coffee prices simply as a market correction responding to abundant supply and
macroeconomic uncertainty. The idea that ‘the market is always right’ can be used
to justify prices falling to unsustainable levels for many producers, yet this perspective
fails to take into account the devastating consequences that can affect the most
vulnerable.
While it is true that no lasting mechanism
has been found to eliminate the pronounced volatility in coffee prices without creating
pernicious supply imbalances over the long term, measures need to be taken by governments
of both importing and exporting countries to help the millions of small‐scale coffee
farmers affected as prices fall below the cost of production. Of immediate concern
is the issue of food security, as poor farmers find themselves without enough cash
available to secure adequate nourishment for their families in the last few months
before they harvest their next crop. But equally important, if sustainability is
truly to be a priority, is the need to train these same farmers into small entrepreneurs,
possessing basic skills not just in agronomy, but also in broader farm management.
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Read
full report here: http://www.ico.org/documents/cy2012-13/cmr-0613-e.pdf