Tuesday 28 September 2021

Coffee Profitability Under Question

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(Q24N) The downward trend seen in international grain prices “raises doubts about the economic viability of coffee production.”From the Introduction of a document entitled “Assessment of the economic sustainability of coffee production”, prepared by the International Coffee Organization (ICO):

coffeecafeIntroduction Since March 2015 the ICO composite price has been consistently below the 10-year average of 137.24 US cents/lb, raising concerns about the economic viability of coffee production and putting the livelihoods of coffee producers at risk in many countries. Prolonged periods of low prices strain liquidity at the farm level, resulting in less than optimal input use during the following production cycle, negatively affecting yields and quality.

The expectation of future coffee prices too low to cover full costs of production can hamper important investments in renovation of coffee plantations. Replanting is particularly important as part of the mitigation of the impact of climate change and to respond to increased pest and disease pressure.

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Finally, low or negative profitability may lead to the abandonment of coffee production as farmers may switch to other more profitable agricultural crops. As a result, there is a widespread concern in the coffee sector that a prolonged phase of low coffee prices could negatively affect the supply of high quality coffee beans and could have adverse effects on household incomes in coffee growing communities. Hence,specific policies need to be formed to address the issue of economic sustainability of coffee production, stabilising supply in the future and enabling farmers to be fairly remunerated.

This study will (1) assess the cost structure of coffee production in selected countries, and (2) derive recommendations on how to improve the economic viability of coffee production. The study will be based on an analysis of the coffee price levels using ICO market data, and an assessment of production based on cost data provided by Members.

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Source centralamericandata.com

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