FINANCIAL MARKETS : Coffee Drinkers May Be in for a Quality, Price Treat

Coffee drinkers could be the winners of a possible marketing war among roasters following this week’s suspension of coffee bean export quotas, analysts say.

The International Coffee Organization’s decision to suspend quotas will enable smaller coffee producing countries severely restricted under the quota system to export high-quality coffee beans to willing U.S. customers, observers say.

It also could mean lower retail prices by year’s end.

“The agreement had put the American roaster into a strait jacket,” said Bert Ruiz, a vice president with the New York brokerage firm Balfour Maclaine Corp. “They were restricted in the types of coffee they could buy under the agreement.

“Now roasters are going to go into a very strong marketing war to buy the best coffees they can. For once in a very long time product will determine price.”

Procter & Gamble, maker of Folgers coffee, says it is one customer that will take advantage of a more open system.

“The suspension of quotas does permit us wider access to a variety of coffee beans from all the different producing nations,” said company spokesman William Dobson.

“As a roaster, our access to those beans were limited to the quotas. So if we saw a trend to a particular type of coffee taste, we might not be able to get a supply of beans to meet the preference. Now, without the quotas, that will change.”

A Lack of Quality

Chock Full O’Nuts Corp. spokesman Joseph Breslin says quality coffee had been going to countries that were not part of the international agreement while member nations were losing out. The quotas restricted exports only among ICO nations.

“There has been a lack of quality coffee in the United States. We had not been getting access to quality coffee because producing nations were going to communist countries and selling it to them,” Breslin said.

“Now there probably will be more quality coffee available to . . . the United States than there has been in the last several years.”

Coffee drinkers also may be in for dramatically lower retail prices. Analysts predicted Wednesday that supermarket prices could decline by more than 40 cents a pound by the end of the year.

Some of the price cuts may come as special discounts on particular brands and higher cents-off manufacturers coupons.

“We could see prices translating from wholesale to retail in one to two months, sooner than usual,” said Kim Badenhop, an analyst with Merrill Lynch Capital Markets Inc. “Unless the middlemen are going to fatten their profit along the way, wholesalers should be able to pass along cuts of 40 to 45 cents.”

The ICO announced Monday that it would suspend export ceilings after member nations rejected proposals to extend the existing coffee pact. The decision by the 74-nation organization of coffee consumer- and producer-nations took effect at midnight Tuesday.

Prices had Climbed

The decision essentially eliminates artificial supply conditions imposed by the ICO to keep producer prices at $1.20 to $1.40 per pound and creates a more open market. The coffee group, established in 1963, has attempted to stabilize world coffee prices by limiting the sale of green, or unroasted, coffee beans by producers.

Retail coffee prices had climbed an average of 43 cents a pound, or about 16%, from May, 1988, to May, 1989--or from $2.73 cents per pound of ground roast to $3.16 a pound, according to the Bureau of Labor Statistics.

Procter & Gamble’s Dobson said that while prices might decline, the cuts may not match the recent drop in wholesale prices, which tumbled more than 40 cents in June.

“We would expect if things stabilize, to see the price of some raw coffees declining, but we wouldn’t necessarily see a direct pass-through (from producers to consumers) because of depressed profit margins over the years,” said Dobson.

Cliff Sessions, a spokesman for General Foods, which makes Maxwell House and Sanka coffees, said “We do not expect an immediate change in prices.” Sessions said the company still had to move a substantial amount of inventory purchased at higher prices.