Coffee Prices Spiral As Output Chopped

published: Friday | October 7, 2005

Andrew Green, Acting Financial Editor


Coffee production at the Mavis Bank coffee plant. - IAN ALLEN/STAFF PHOTOGRAPHER

JAMAICA'S RARE Blue Mountain coffee is becoming rarer and more expensive in foreign markets and Jamaican consumers may soon start feeling the effects.

The repeated devastation of Jamaica's coffee crop over two years has cut supplies in half. The result has been a scramble for the scarce beans in foreign markets.

"After Hurricane Ivan hit, there was a 50 per cent falloff in production," said chief executive officer of Mavis Bank Coffee Factory and Jamaica Agricultural Society (JAS) president, senator Norman Grant.

The country produced five million pounds of Blue Mountain coffee before the hurricane, he said. Afterwards, the output fell to 2.6 million pounds resulting in industry revenues dropping from US$40 million to about US$22 million.

SHORTAGE

There is a tremendous shortage of the (Jamaican Blue Mountain) coffee now which has compounded the shortage that existed before, senator Grant said. Before Ivan, Jamaica could easily have sold 10 times the volume that was being produced.

Of the amount exported, 70 -75 per cent goes to Japan, while 15-20 per cent goes to the U.S. market, he said. With the overall fallout in supplies, the U.S. market would have been especially hard hit.

A PRNewswire report out of the United States said Jamaican wholesale coffee prices have increased 30 percent. It said gourmet retailers who carry Blue Mountain coffee are prepared to increase prices to as much as $50 per pound to the U.S. consumer.

Hurricane Katrina nearly wiped out the New Orleans Port facilities where much coffee is imported into the U.S. and warehoused before being roasted and distributed. The move to other available facilities, is likely to increase coffee prices further, the U.S. report said.

Prices vary in the U.S. market from US $32 op to US $50 per pound for roasted beans in different U.S. markets, senator Grant said. "But because of shortage, you will see a narrowing of that band with a slight movement up further."

But Jamaican producers are not necessarily getting an advantage from the movement in price as contracts are already locked to premium prices, senator Grant said. The higher prices are flowing through to the middlemen in the business who are, on the other hand, seeing a fall in the volume of their Blue Mountain coffee business.

And there is no immediate relief in sight as it will take three to four years to resuscitate the industry. The recovery of Blue Mountain coffee is being delayed not only by the direct impact of the hurricanes but by the resultant devastation of the road infrastructure in coffee areas as well as the delay in insurance recovery payment due to the insolvency of the industry's insurer, Dyoll.

Information from the Coffee Industry Board (CIB) shows that the entire Jamaican coffee industry was devastated by Hurricane Ivan which hit the island in September 2004 followed by Hurricane Dennis in July of 2005. Blue Mountain coffee production grabs the limelight but a substantial amount of lowland coffee is grown with output varying significantly but amounting to about 20 per cent of the total crop.

Output of lowland coffee has suffered an even bigger decline than Blue mountain coffee, according to CIB data.

"Domestic prices will be affected by the shortage of good quality coffee beans," CIB corporate communications manager Arlene Daley stated. "Market forces will determine the final vesting point of prices."


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