Coffee Consumption Growing

An Expert's View about Coffee and Tea in Mexico

Last updated: 30 May 2011

A number of factors have led to the relatively flat production levels witnessed in recent years. These factors include the absence of good agricultural practices, the age of coffee plantations, poor fertilizer application practices, and higher production costs.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 5/10/2011 GAIN Report Number: MX1039 Mexico Coffee Annual Coffee Consumption Growing and Producer Inventories Building Approved By: Allan Mustard Prepared By: Gabriel Hernandez, Erik Hansen, and Adam Branson Report Highlights: The Post/New marketing year (MY)2011/12 (October to September) coffee production forecast is expected to reach 4.1 million 60-kilogram bags and the MY2010/11 estimate has been revised downward to 4 million 60-kilogram bags as adverse weather affected some of Mexico?s most important coffee producing areas. MY2011/12 and MY2010/11 imports are expected to grow to meet domestic use and exports are forecast to remain stable as producers build ending stock inventories in search of attractive world prices. Commodities: Coffee, Green Production: The Post/New MY2011/12 coffee production forecast is expected to reach 4.1 million 60-kilogram bags, 2.5 percent higher than the last year?s revised final production figure. This is a preliminary forecast as official sources indicate that climate change/weather events undoubtedly will affect planted and harvested areas as well as crop yields. Nevertheless, preliminary reports from different producing states indicate that weather conditions are allowing bearing trees a strong flowering phase. Producers, as well, are instituting appropriate agricultural and fertilizer practices. As such, the coffee sector is confident that these factors will offset any potential adverse weather conditions. The Post/New MY2010/11 production estimate was revised downward from the previous estimate due to adverse weather conditions (low temperatures in some of the main producing areas and atypical rainstorms in the State of Chiapas) that hurt the flowering phase and influenced yields. The MY2009/10 production estimate was revised upward in accordance with the latest official information. A number of factors have led to the relatively flat production levels witnessed in recent years. These factors include the absence of good agricultural practices, the age of coffee plantations, poor fertilizer application practices, and higher production costs. In recent years, the cost of production has increased due to shortages of field labor that represents about 90 percent of the total production cost. However, recently there has been an increase in production and quality, as some coffee plantations are applying better cultivation practices and adequate fertilization. As previously reported, Government of Mexico (GOM) producer support payments as well as technical and scientific support from international research organizations will continue and should facilitate production increases. The Chiapas coffee sector (the main production state) is in the fourth year of a six-year program to stimulate production through the renewal of coffee plantations, the recovery of planted areas, and the promotion of support schemes for the certification of organic plantations. As previously reported, 35 percent of the area devoted to the best quality coffee production is located at an altitude of 900 meters above sea level and 43.5 percent of the best quality coffee production grows between 600 and 900 meters above sea level. Meanwhile, the coffee berry borer pest (Hypothenemus hampei) continues to infest plantations below 600 meters altitude and is now affecting coffee plants at higher altitudes. The Mexican Association of the Coffee Production Chain (AMECAFE) is operating the ?Program Against the Coffee Borer,? describing it as one of the most important tools to improve the quality of Mexican coffee. Additionally, this program is helping Mexico to gain recognition as a quality coffee producer and to gain foreign market share as an important exporter of green beans. In general, Mexico is suited for coffee production due to its geographic location and climatic conditions. Recent reports indicate that about 98 percent of the coffee produced in Mexico is of the Arabica variety while 2 percent is of the Robusta variety. This production ratio is not likely to change. Crop Area: MX1039 Coffee Consumption Growing and Producer Inventories Building Page 2 The Post/New MY2011/12 planted and harvested area forecasts are lower due to the effects of freezing temperatures and atypical rains that affected production areas. As stated in prior reports, the current coffee sector strategy aims to stimulate production through the replanting of coffee plantations, the recovery of affected areas, and the promotion of support schemes to encourage the certification of organic plantations while increasing domestic consumption. Over the next few years, assuming beneficial weather, planted and harvested areas are expected to increase at a moderate pace, driven by the development of new coffee nurseries, younger trees coming into production, and attractive international prices. The Post/New planted and harvested area estimates for MY2010/11 were revised downward from the Post/Old estimates to reflect the latest official data. The Post/New MY2009/10 planted and harvested area estimates remain unchanged. Yields: Yields continue to differ widely in Mexico due to variations in crop care and weather. The Post/New MY2011/12 nationwide yield forecast is expected to be similar to the MY2010/11 estimate. This assumes favorable weather conditions and expected improvements in cultivation practices. The yield estimate for MY2009/10 remains unchanged. As previously reported, the nationwide average yield in Mexico is roughly 5 quintals (approximately 230 kilograms) per hectare (1 quintal is approximately equal to 46 kilograms). Currently, yields in Chiapas are around 8 quintals (approximately 368 kilograms) per hectare, but producers are trying to recapture historical yields of nearly 12 quintals (approximately 552 kilograms) per hectare. Consumption: The Post/New MY2011/12 forecast of domestic coffee use (both roasted and soluble coffee) is slightly higher than the combined MY2010/11 estimated domestic use level. Per capita consumption of coffee in Mexico remains relatively low, but total consumption is growing as more Mexicans consume coffee. Soluble domestic consumption remains the largest share of domestic use, but consumption of ground coffee is on the upswing. Official statistics indicate that 40 percent of domestic coffee production is marketed for local consumption and that the remaining 60 percent is for export. Official sources confirm that Mexico lacks a reliable consumption monitoring system, but domestic consumption is estimated between 1.8 million and 1.9 million 60-kg bags per year and forecast to increase. Trade: The Post/New MY2011/12 import forecast is at historically high levels. Mexico has been importing between 800,000 and 900,000 bags of mostly Robusta coffee beans (for soluble consumption). The import estimate for MY2010/11 was revised upward reflecting recent official data. This is attributed to increased demand by middle-income consumers who are reportedly searching for different options from domestic soluble brands as well as by high-income consumers who are in search of fashionable value- added imported coffee. The Post/New MY2009/10 import estimate was revised upward to reflect recent industry data. The Post/New Mexico coffee export forecast for MY2011/12 is expected to be the same as the MY2010/11 export estimate, as producers, in spite of increased production, are reportedly keeping larger inventories in search of higher international prices. The United States continues to be the main international market for Mexican green coffee beans. The MY2010/11 export estimate was revised MX1039 Coffee Consumption Growing and Producer Inventories Building Page 3 downward due to a decrease in domestic production and a slight increase in domestic consumption. The Post/New MY2009/10 export estimate was revised upward to reflect recent industry data. In recent years, the majority of Mexican produced coffee has been directed to the export market. The focus on exports has been fueled by the expectation of higher international prices and relatively flat domestic demand. However, the Mexican coffee industry is working to increase domestic consumption, and has established a 10-year goal of selling 70 percent of Mexico?s coffee domestically while exporting only 30 percent. Stocks: The Post/New MY2011/12 ending stock forecast is dramatically higher compared to the MY2010/11 estimate due to producers? decisions to hold larger inventories in search of attractive international prices. Ending stock estimates for MY2010/11 were revised upward due to updated data. MY2009/10 figures were revised upward, as well, with the release of export data. AMECAFE reports that Mexico has never had a reliable system to record ending stocks, and, as such, data are largely anecdotal. Current stock estimates reflect information obtained from industry sources, as no official government statistics are available. Policy: The Lower House passed the proposed ?Sustainable and Integrated Coffee Development Law,? but it has not been ratified by the Senate. Once approved, the GOM would be obliged to establish a long-term strategy for the production of high-quality coffee and to create the Mexican Coffee Council. The Council would be responsible for promoting and coordinating actions pertaining to the coffee sector. On March 14, 2010, the Secretariat of Economy (SE) announced it would allow the duty-free import of roasted and ground coffee classified under Harmonized Tariff System codes (HTS) 0901.21.01, 0901.22.01 and 0901.90.99, packaged in 40-gram containers. These products may be imported duty- free from January 1, 2011, to December 31, 2011. The GOM established that the purpose of these cupos (duty-free import permits), using a direct allocation mechanism, is to encourage the domestic coffee industry to diversify its coffee products available in the market, allow this sector to access new market niches, and to promote the consumption of coffee in Mexican households. This announcement establishes the necessary requirements for the duty-free import of roasted and ground coffee in 40-gram containers. Undoubtedly, prices will play a key role in the volume to be imported. Marketing: In order to offset low per capita consumption levels and to counter the belief that there are negative health effects associated with consuming coffee, the Mexican coffee industry is promoting the health benefits of high-quality Mexican blends. Consumers with relatively greater purchasing power have been targeted by the specialty coffee sector for years. Soluble coffee consumption, however, is based on disposable income constraints. MX1039 Coffee Consumption Growing and Producer Inventories Building Page 4 Recently, a large U.S. headquartered retail store specializing in coffee sales reported that it opened its 300th store in Mexico. The rapid growth in coffee shops has attracted foreign and domestic investment, especially since the consumption of coffee in fast-food chains has developed into a new market, as well. The largest share of off-trade volume sales of coffee continue to be accounted for by small independent grocers, although chained convenience stores are increasing their presence in terms of distribution. As a result of successful negotiations with powerful retailers, many small local brands are reaching supermarket and hypermarket shelves. Some of the companies behind this gradual change in distribution are specialty coffee shops. Production, Supply and Demand Data Statistics: MX1039 Coffee Consumption Growing and Producer Inventories Building Page 5 Table 1. Mexico: Production, Supply and Distribution (PS&D) Statistics Coffee, Green Me 2009/2010 2010/2011 2011/2012 xico Market Year Begin: Oct Market Year Begin: Oct Market Year Begin: Oct 2009 2010 2011 USDA New USDA New USDA New Official Post Official Post Official Post Area Planted 700 813 0 800 780 Area Harvested 600 766 0 729 730 Bearing Trees 710 710 0 700 700 Non-Bearing Trees 210 210 0 200 200 Total Tree Population 920 920 0 900 900 Beginning Stocks 90 56 130 386 936 Arabica Production 3,950 4,400 4,300 3,800 3,900 Robusta Production 200 200 200 200 200 Other Production 0 0 0 0 0 Total Production 4,150 4,600 4,500 4,000 4,100 Bean Imports 75 30 20 600 600 Roast & Ground Imports 20 50 20 100 100 Soluble Imports 125 150 150 100 150 Total Imports 220 230 190 800 850 Total Supply 4,460 4,886 4,820 5,186 5,886 Bean Exports 1,830 2,460 2,200 2,100 2,100 Rst-Grnd Exp. 0 20 0 50 50 Soluble Exports 700 120 700 200 200 Total Exports 2,530 2,600 2,900 2,350 2,350 Rst,Ground Dom. Consum 900 900 925 800 900 Soluble Dom. Cons. 900 1,000 935 1,100 1,100 Domestic Use 1,800 1,900 1,860 1,900 2,000 Ending Stocks 130 386 60 936 1,536 Total Distribution 4,460 4,886 4,820 5,186 5,986 Trade Matrices (NOTE: PS&D trade forecasts and estimates are on a marketing year basis whereas the tables, below, are on a calendar year basis). Table 2. Mexico: Green Coffee Imports in Metric Tons (Harmonized Tariff System: 090111 and 090112) Origin CY 2009 CY 2010 U.S. 2 6,842 Colombia 116 278 Other not listed 261 1,615 Grand Total 379 8,735 Source: Global Trade Information System MX1039 Coffee Consumption Growing and Producer Inventories Building Page 6 Table 3. Mexico: Green Coffee Exports in Metric Tons (Harmonized Tariff System: 090111 and 090112) Destination CY 2009 CY 2010 U.S. 82,368 60,069 Belgium 10,572 6,830 Germany 11,286 6,122 Canada 4,638 3,957 Other not listed 19,882 25,623 Grand Total 128,746 102,601 Source: Global Trade Information System Table 4. Mexico: Roasted Coffee Imports in Metric Tons on a Green Bean Equivalent Basis (Harmonized Tariff System: 090121 and 090122) Origin CY 2009 CY 2010 U.S. 903 1,190 Colombia 346 168 Other not listed 377 651 Grand Total 1,626 2,009 Source: Global Trade Information System Table 5. Mexico: Roasted Coffee Exports in Metric Tons on a Green Bean Equivalent Basis (Harmonized Tariff System: 090121 and 090122) Destination CY 2009 CY 2010 U.S. 3,250 6,232 Spain 1 4 Other not listed 114 23 Grand Total 3,365 6,259 Source: Global Trade Information System Table 6. Mexico: Soluble Coffee Imports in Metric Tons on a Green Bean Equivalent Basis (Harmonized Tariff System: 2101111 and 210112) Origin CY 2009 CY 2010 U.S. 1,785 2,275 Colombia 1,415 1,370 Other not listed 8 198 Grand Total 3,208 3,843 Source: Global Trade Information System Table 7. Mexico: Soluble Coffee Exports in Metric Tons on a Green Bean Equivalent Basis (Harmonized Tariff System: 2101111 and 210112) Destination CY 2009 CY 2010 U.S. 29,474 31,535 Other not listed 6,281 7,312 Grand Total 35,755 38,847 Source: Global Trade Information System MX1039 Coffee Consumption Growing and Producer Inventories Building Page 7 Author Defined: For More Information AMECAFE Web Site: http://www.amecafe.org.mx/ FAS/Mexico Web Site: We are available at www.mexico-usda.com or visit the FAS headquarters' home page at www.fas.usda.gov for a complete selection of FAS worldwide agricultural reporting. FAS/Mexico YouTube Channel: Catch the latest videos of FAS Mexico at work http://www.youtube.com/user/ATOMexicoCity Other Relevant Reports Submitted by FAS/Mexico: Report Number Subject Date Submitted MX1027 Coffee in 40 Gram Containers Allowed Duty Free 3/28/2011 MX0322 Organic Foods Find Growing Niche in Mexico 2/11/2011 MX0033 Mexico Corners the Market on Organic Coffee Production 5/7/2010 Useful Mexican Web Sites: Mexico's equivalent of the U.S. Department of Agriculture (SAGARPA) can be found at www.sagarpa.gob.mx, the equivalent of the U.S. Department of Commerce (SE) can be found at www.economia.gob.mx, and the equivalent of the U.S. Food and Drug Administration (SALUD) can be found at www.salud.gob.mx. These web sites are mentioned for the reader's convenience but USDA does NOT in any way endorse, guarantee the accuracy of, or necessarily concur with, the information contained on the mentioned sites. MX1039 Coffee Consumption Growing and Producer Inventories Building Page 8
Posted: 28 May 2011, last updated 30 May 2011

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