Colombia, the world's second largest coffee exporter, has stopped selling coffee abroad as a result of a dramatic drop in coffee prices on the London and New York markets.

Prices have fallen from $3.37 to $2.90 a pound in the past month, causing panic and confusion on the coffee futures market, which for the last two years has seen constantly rising prices.

"With these falling prices, private Colombian exporters have had to withdraw from the market," said Gilberto Arango Londono, president of the Colombian Coffee Exporters Association.

Government regulations require exporters to hand over $3.23 to the Colombian Central Bank for every pound of coffee shipped abroad. With prices abroad now lower than the retention tax, exporters cannot sell until the government reduces the amount collected by the bank.

Colombian exporters have stopped buying from growers in the country, leaving the field entirely to the National Federation of Coffee Growers. The federation had been trying to prop up domestic coffee prices, which are barely 30 per cent of the world price, as the government takes 70 per cent in taxes and other charges.

Falling prices are attributed here to two main causes:

Release of figures showing a drop in coffee consumption in the United States, the world's biggest coffee market.

Release onto the market of coffee stocks that had been held back by roasters speculating on further price rises.

The world market may be further depressed by the release of two to three million bags of coffee now warehoused in Uganda.

A warning issued by Dutch manufacturers (roasters) that Angolan coffee exports, which many countries - including Brazil - had been using throughout 1976 to supplement flagging supplies, could be sold out by the middle of 1977 also was ignored by the markets.

Meanwhile, the Nestle Co., Inc., announced wholesale price increases Monday ranging from five to 13 cents an ounce on all its soluble coffees in a move that should be reflected on supermarket shelves by mid-summer.

Nestle's current hikes, which will bring the wholesale price of an eight-ounce jar of Taster's Choice to $6.49 and a 10-ounce jar of Nescafe regular to $5.95 in eastern markets, should appear at the retail level by the middle of July.