Brazil Weighs Raising Minimum Coffee Price After Market Slump

By Isis Almeida & Mario Sergio Lima – Mar 6, 2013

Brazil may soon raise the minimum price for coffee beans as part of a series of measures being discussed to support growers in the world’s biggest coffee producer and exporter, according to the Agriculture Ministry.

Officials will consider a price proposal next week as well as changes to expiration dates for stockpiling loans and funds to finance stockpiles for the coming year, Gerardo Fontelles, secretary of production and agroenergy for the ministry, said in an interview on the sidelines of an International Coffee Organization meeting in London today. The proposals should be voted on at the end of the month, he said.

A group of growers’ unions has proposed raising the minimum price 30 percent to 340 reais ($173) a bag from 261 reais now, Francisco Ourique, a manager at cooperative Cooparaiso in Sao Sebastiao do Paraiso in Minas Gerais state, said in a March 4 interview.

The minimum price guarantees growers receive enough to cover costs of production. When prices fall below it, the Brazilian government takes action including buying stockpiles or paying producers the gap between the minimum price and market prices.

“It’s been four to five years that there is no change in the minimum price, so we are analyzing cost structures in different regions to see what proposal can be accepted,” Fontelles said. “Our position is really that the price should correct, but I don’t have a position from the government yet.”

Worst Performer

Growers in Brazil have lost 10 billion reais over the past two harvests, according to Cooparaiso’s website. Arabica coffee futures traded on ICE Futures U.S. in New York fell 37 percent last year, making it the worst performing commodity in the Standard & Poor’s GSCI gauge of 24 raw materials. The beans are down 1.8 percent this year.

Brazil will also consider a proposal for options contracts that would give growers the right to sell to the government at a set price by a specific date, Fontelles said. That would depend on how much gets harvested and how much farmers stockpile, he said. Options contracts, if approved, would only be able to be exercised after harvesting ends, he said.

“The most important item is stockpiling,” he said. “When I have a position on the size of the harvest is when I will start thinking about options. I need an indicator of the market.”

Conab, the agriculture ministry’s forecasting agency, in January estimated Brazil will produce 47 million to 50.2 million bags of coffee this year, a record for the lower yield in the crop’s two-year cycle. A bag of coffee weighs 132 pounds (60 kilograms).