Survival of Coffee Pact at Stake as Talks Begin

Survival of the international coffee agreement, one of the few commodity price-support pacts that still works, will be at stake as consumers and producers start talks in London today.

Delegates say the 50 producer and 24 consuming member nations of the International Coffee Organization (ICO) must resolve major differences if the agreement is to be renewed beyond its expiration date next September.

The United States and many European consumers want radical changes but producers prefer minor reforms to the current pact, in force since 1983.

West German delegate Hugo Roerig said: “We are ready to work to see if we have common ground. If there is no common ground then we have a somewhat dangerous situation.”

Failure to renew the agreement could send prices into free fall because of massive oversupply and stagnant demand. This would be disastrous for several debt-laden producers including Brazil, the biggest Third World debtor.

“Timing is becoming vital from now on if consumers are serious about wanting to rewrite the agreement. They’ve got a lot of negotiating to do,” said Neil Rosser with commodity analysts Landell Mills.

Commodity pacts have faced tough times recently, with a cocoa agreement paralyzed by lack of cash and the Organization of Petroleum Exporting Countries in disarray over production quotas and prices.

Consumer delegates said it was uncertain what impact the Bush Administration would have on U.S. policy involving commodities and price stabilizing agreements.

The United States, the world’s largest coffee consumer, has said it will negotiate a new coffee pact but delegates said it is determined to get rid of a two-tier market which has flourished under the present accord. The United States and other consumers that belong to the International Coffee Organization complain that they have to buy at ICO prices while exporters sell cheaper coffee to non-ICO importers. “The U.S. industry is not prepared to sit for another five years and see non-members buy coffee 30% to 40% cheaper,” a delegate said.

Coffee dealers in Europe believe non-members, mainly countries in Eastern Europe and the Middle East, have been buying coffee over the past months at 40% discounts.

Among European Community consumers West Germany and Britain are adamant about wiping out the two-tier market. They oppose any simple extension of the current accord, which uses export quotas to try and balance coffee supply and demand. But France could live with the existing system with some improvements, consumer delegates said.