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| 20 nov 2016 |
11:13 |
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The consolidation of coffee production threatens more volatility, Sucden warns
The long-term consolidation of the coffee industry, as unprofitable farms switch to other crops, while farmers in areas with a low cost of production up their output, will leave the coffee market more vulnerable to volatility from weather and pests, Sucden Financial warned.
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- Sucden warned of a "perfect storm" headed for unprofitable coffee producers, as the raising dollar increases the cost of inputs.
- Despite a rise in coffee prices, farmers in regions such as Costa Rica and El Salvador are running at a loss, which will drive a long term concentration of production in lower cost areas of production.
- "Costa Rica saw the cost of production increase by 58% to approximately $3,617 a hectare between 2006-07 and 2011-12.
- "Farmers have put up with negative profits since 2012 with revenues not sufficient enough to cover increasing production costs," Sucden said.
- "Some farmers have started to produce more economically viable products, such as cocoa, with only the more resilient producers able to prevail, resulting in an overall loss of production."
- And the stronger dollar is not delivering the benefits to producers which might be expected.
- Sucden noted that "while the strength in the greenback has improved the prospects of exports, growers have seen an increase in costs, which are rising at a faster rate as imports of fertilizers and pesticides become more expensive".
- "These rising costs make coffee production in these loss making areas unsustainable."
- Sucden warned of the prospect of greater consolidation in the industry, with more production concentrated in fewer areas.
- "Persistently low prices may cause production to intensify in areas with advanced systems and favourable cost structure.
- This concentration of production would leave supply more dependent on fewer sources, leaving more room for
- "If production is concentrated to these profitable areas we suspect weather events, disease and pests may have a greater impact on global production," Sucden analyst Geordie Wilkes told Agrimoney. "This may lead to increased price volatility."
- "Concentration also carries sustainability risks, notably soil degradation, which could see yields in these regions drop over the long run," he said.
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