Market analysts report that coffee prices are ‘on their way to $3 a pound and beyond’. Prices have already doubled in the last year, reaching 268.40 cents a pound on New York futures markets on 18 February 2011. This is partly attributed to supply problems in major producers such as Colombia (on average -28% per annum since the 2007/08 season). High prices are expected to persist until 2012-13, when an increase in output is expected.

In December 2010, world coffee exports were up 32% on the corresponding month in 2009, with this recovery in exports resulting in an overall annual increase of 1.4%, after a poor start to the year. The rise was led by stronger consumer demand for arabica beans, leading in turn to increased demand for single-origin coffee beans, which has allowed certified suppliers to enjoy price premiums. This situation needs to be seen against the backdrop of arabica stock levels being at their lowest since the 1960s. Some analysts, however, have argued that recent prices have been driven by speculative investments and hence are unlikely to be sustained.

Coffee: other mild arabica prices and coffee robusta prices 2006-2010 (New York cash price, ex-dock New York, US cents/lb)

Source: International Coffee Organization ( http://www.indexmundi.com/commodities/?commodity=other-mild-arabicas-cof...) and http://www.indexmundi.com/commodities/?commodity=robusta-coffee&mont...

While the demand for arabica beans is ‘proving resilient, even at current prices’, robusta beans continue to be sold at a much lower price than arabica beans (60% lower). Roasters, however, have few options as regards rebalancing the proportions of arabica and robusta beans in blended coffee. In 1997, high arabica bean prices led blenders to use more robusta beans in their blends, and many never reverted to the earlier blend balance. This has left little scope for further adjustment to the mix of arabica and robusta used in blended coffee in response to the current high arabica coffee bean prices.

Across the ACP, some 26 countries produce coffee, 21 of these in Africa, four in the Caribbean and one in the Pacific. Six ACP countries produce over 50,000 tonnes per annum: Ethiopia, Uganda, Côte d’Ivoire, Papua New Guinea (PNG), Tanzania and Kenya. Official production has been increasing in each of these countries, except Côte d’Ivoire. ACP coffee production has grown almost twice as fast as global coffee production since the 2006/07 season, with some ACP countries showing a particularly strong growth performance.

Of the coffee produced in ACP countries, 55% is arabica. Ten ACP countries produce only arabica (Ethiopia, Kenya, Rwanda, Burundi, Malawi, Zambia, Zimbabwe, Dominican Republic, Haiti and Jamaica), while PNG has a strong focus on arabica production.

Press reports note that Kenya has enjoyed record coffee prices in recent weeks, but is unlikely to continue to benefit from the high prices, since sales to major buyers have been cut by as much as 27% in the face of drought conditions. Coffee production in Uganda and Tanzania could also be adversely affected.