Saturday, May 24, 2008

The Collapse of the Association of Coffee Producers' Countries

Coffee cartel shuts up shop

Friday, 19 October, 2001, 16:09 GMT 17:09 UK

The coffee bean cartel, the Association of Coffee Producing Countries, whose members produce 70% of the global supply, will shut down in January after failing to control international prices.

Association general secretary Roberio Silva told BBC News Online that weak international coffee prices had made it impossible for many member countries, especially in Africa, to pay the fees which allow it to operate.

ACPC members

Costa Rica
Ivory Coast
DR Congo
El Salvador

Mr Silva also said the failure of member countries to comply with the cartel's production levels was a reason for the closure.

Coffee prices fell to a 30-year low on Monday as above-average rainfall in Brazil, the group's largest grower, fuelled speculation of a bumper crop.

The association was set up in London eight years ago to control the price of coffee by adjusting supply, in much the same was as the Organisation of Petroleum Exporting Countries (Opec) controls the price of crude oil.

Bottoming out?

But the cartel has seemed powerless to stop the rapid fall of coffee bean prices.

Mr Silva stressed that the London-based organisation would resume operations once members could pay their dues again.

"We are closing down the activities because of the current crisis, but we do not expect the crisis to last for a long, long time," said Mr Silva, explaining the cyclical nature of the market.

While it may seem that prices would fall further by abandoning the cartel, Mr Silva says the market is likely to turn itself around in a couple of years time.

When prices fall below a certain level, the countries will stop producing.

And in time, this will then push prices back up.

"The market is close to its bottom," said Mr Silva.

Bean glut

The supply of coffee, which is currently growing at 3.6% per year, is outstripping demand, which is rising at just 1.5%.

The industry is expected to produce a record 118 million bags of coffee, each weighing 60 kilogrammes, representing an oversupply of about 10%.

Production is rising rapidly because countries such as Vietnam, which entered the market only recently, are expanding their coffee plantations rapidly while staying outside the cartel.

Last month the association abandoned attempts to boost coffee prices by asking its members to withhold 20% under a "retention plan".

"Despite efforts made by some member countries in implementing the Retention Plan and the positive effects achieved in the first months of operation, prices have not reacted as expected," the association said in a statement in September.

When the major producing countries discovered that other producing countries were not withholding their quota, they no longer wanted to comply, explained Mr Silva.

While the office will be closing down in January, the political agreement between member countries will continue to exist, enabling the cartel to be re-started at some point in the future.

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