A severe drought in Brazil has put the price of coffee on an upward march that could reach $6 or even $8 a pound in stores later this year.
The drought is expected to cut this year's harvest in Brazil, the world's largest coffee producer, by between one-third and one-half. Although news of recent rains eased the upward spiral somewhat, international coffee traders last week pushed the price of coffee futures to $2.73 a pound for unroasted beans.
The price of coffee in stores is roughly double the price of unroasted beans, according to experts in the field.
Some forecasts put the ultimate retail price as high as $12, but others believe that producing countries will take steps, including drawing down stockpiles, to blunt the rise. These countries suffered long-term damage following a severe shortage in 1977 that drove prices up dramatically.
During that shortage -- brought on by a frost that destroyed 75 percent of Brazil's 1975 crop -- the price of green coffee more than tripled in the next 18 months to a record high of $2.29 a pound. Average retail prices skyrocketed from $1.33 a pound in 1975 to $3.47 two years later, according to the Agriculture Department.
That crisis was marked by hoarding and consumer boycotts, domestic hijacks and international smuggling. Latin American coffee producers formed a cartel, and international traders were found to have manipulated markets to maintain high prices.
Coffee prices eased in late 1977, but a permanent bitter aftertaste remained in the form of lowered consumption.
Coffee drinking reached its peak in 1962 when three-quarters of all Americans over the age of 10 regularly imbibed. The 1977 crisis sent consumption plunging from 32.4 gallons per capita annually in 1976 to 24.2 the next year, according to USDA. There are 21.3 cups in a gallon. Today, the 55 percent of the population that still drinks coffee consumes an average of 3.3 cups a day, according to the National Coffee Association, a New York trade group.
The huge popularity of soft drinks among younger Americans, plus health scares about possible hypertension, cancer and low birth weight due to excessive consumption, have been the major factors in the long decline of coffee drinking. But, as the 1977 crisis demonstrated, price is also a prime consideration.
Coffee is a $6-billion-a-year market in the United States. This country's largest coffee seller, General Foods Corp., with its popular Maxwell House, Sanka and Brim brands, raised the wholesale price of its one-pound can of ground coffee last week to $3.96. That same can cost $2.48 in June. Its record high was $4.21 a pound in the spring of 1977.
Shelf prices should be affected in the coming months, although coffee is a very competitive market and supermarkets sometimes absorb increases, a General Foods spokesman said. He added that changes in wholesale prices generally take about four weeks to affect store prices.
Giant Food Inc., the area's largest chain, reports that retail coffee prices have remained steady for the past six months at $3.69 a pound. However, the Georgetown Coffee, Tea and Spice shop is raising its prices after three substantial increases in wholesale prices since November. Buyer Bob Rowe predicted that the retail price of coffee could reach $8 or more a pound if the commodity prices hit $4 a pound. Moreover, not only Brazilian coffee is up, but also coffee from other countries, he said.
U.S. government agronomists and economists do not believe the 1986-87 crisis will be as severe as the one a decade ago. First, unlike frost, a drought does not kill coffee trees, so production should pick up next year, assuming nothing else goes wrong. However, experts note that frosts have tended to occur every few years and Brazil is said to be overdue.
The Brazilian Coffee Institute predicts that this year's harvest will be 16.7 million bags, down from about 30 million last year. Each bag contains 132 pounds. While other countries are expected to make up the remainder of the world's annual production of about 98 million bags, much of that crop will not be of the same type and quality as Brazil's premium Arabica beans.
Milton Anderson, an international agricultural economist with USDA, estimates world stockpiles at about 48.5 million bags, or half a year's supply. Some industry representatives say supplies are lower and add that they are not easily moved, especially from some African producing countries such as Uganda.
Second, the economic situation is also different this time around. The coffee market is regulated by the International Coffee Agreement, a 75-nation concord that includes 50 producers and 25 consuming countries.
Export quotas were introduced after the 1977 crisis to stabilize prices. After five successful years of smoothing out prices, the agreement met its first acid test this year and failed. However, a leading U.S. coffee economist, who spoke on condition he not be identified, said the agreement never was meant to handle a major weather disaster like the present one.
Last month, the president of Colombia, a leading coffee exporter, wrote the heads of other Latin producing nations, asking them to agree to an earlier suspension of quotas, thereby creating a free market in coffee. The U.S. economist explained that the coffee producers in effect are being given an incentive to export more -- and thereby force down prices -- in exchange for an ICA agreement to stabilize prices when the market again turns down.
In 1977, a cartel was formed by 11 Latin American countries to keep prices up. But it was disbanded a short time later at the insistence of the United States, which refused to negotiate in the ICA so long as the cartel existed.
In the wake of the 1977 crisis, Congress and government agencies began investigations into market manipulation. In 1981, the Commodity Futures Trading Commission fined Ricardo Falla Caceres, who headed El Salvador's coffee trading company, $200,000 and banned him from future trading. The company was prohibited from speculating in coffee markets in this country. Charges against nine other Latin American and North American traders were dismissed. Although the CFTC is watching trading closely this time, no rumors have surfaced thus far of similar manipulations.