The failure of the International CoffeeOrganization (ICO) to reach agreement on coffee export quotas
could trigger a massive selloff in London coffee futures of at
least 100 stg per tonne today, coffee trade sources said.
    Prices could easily drop to as low as 1.00 dlr or even 80
cents a lb this year from around 1.25 dlrs now, they said.
    A special meeting between importing and exporting countries
ended in a deadlock late yesterday after eight days of talks
over how to set the quotas. No further meeting to discuss
quotas was set, delegates said.
    Quotas, the major device used to stabilize prices under the
International Coffee Agreement, were suspended a year ago after
prices soared following a damaging drought in Brazil.
    With no propects for quotas in sight, heavy producer
selling initially and a price war among commercial coffee
roasting companies will ensue, the trade sources predicted.
    Lower prices are sure to trickle down to the supermarket
shelf this spring, coffee dealers said.
    The U.S. And Brazil, the largest coffee importer and
exporter respectively, each laid the blame on the other for the
breakdown of the talks.
    Jon Rosenbaum, U.S. Assistant trade representative and
delegate to the talks, said in a statement after the council
adjourned, "A majority of producers, led by Brazil, were not
prepared to negotiate a new distribution based on objective
criteria.
    "We want to insure that countries receive export quotas
based on their ability to supply the market, instead of their
political influence in the ICO."
    Brazilian Coffee Institute (IBC) President Jorio Dauster
countered, "Negotiations failed because consumers tried to
dictate quotas, not negotiate them."
    Previously, quotas were determined by historical amounts
exported, which gave Brazil a 30 pct share of a global market
of about 58 mln 60-kilo bags. A majority of producers wanted
quotas to continue under this basic scheme.
    But most consumers and a maverick group of eight producers
proposed carving up the export market on the basis of
exportable production and stocks, which would reduce Brazil's
share to 28.8 pct.
    Consumer delegates said this method would reflect changes
in many countries' export capabilities and make coffee more
readily available to consumers when they need it.
    A last-minute attempt by Colombia, the second largest
exporter, to rescue the talks with a compromise interim
proposal could not bring the two sides together.
    Delegates speculated Brazil's financial problems,
illustrated by its recent suspension of interest payments on
bank debt, have increased political pressure on the country to
protect its coffee export earnings.
    Developing coffee-producing countries that depend heavily
on coffee earnings, particularly some African nations and
Colombia, are likely to be hurt the most by the ICO's failure
to agree quotas, analysts said.
    The expected drop in prices could result in losses of as
much as three billion dlrs in a year, producer delegates
forecast.
    The ICO executive board will meet March 31, but the full
council is not due to meet again until September, delegates
said.
 REUTER
