Supply shortage causes domestic coffee prices to soar

Supply shortage causes domestic coffee prices to soar

JAKARTA (JP): A shortage of supplies due to delayed harvest
and bad weather have caused coffee prices on the domestic market
to increase to a level higher than on the world market.

"The domestic price is now 25 cents higher than the price on
the world market," the AICE executive, who wanted anonymity,
said.

"This is an abnormal situation and very frustrating because
farmers have no more stocks to sell," he added.

An executive of the Association of Indonesian Coffee Exporters
(AICE) said here on Saturday that coffee prices on the
international market have shot up to reach US$2.40 per kilo, far
higher than the 85 cents per kilo registered four months ago.

The price increase on the world market has been caused mainly
by decreases in production in some countries, including Mexico
and the war torn Rwanda in Africa.

A spokesman for the Ministry of Trade said the shortage of
domestic supplies has motivated some small-scale exporters to
default on their deliveries to foreign customers in order to make
bigger profits at home.

He said the defaulting could harm not only those particular
exporters, but all Indonesian coffee exporters because importers
could lose trust in them.

"Therefore, AICE should warn its members to fulfill their
contracts," he said.

Actions

AFP reported that many small and medium-scale exporters from
Medan and Surabaya have defaulted on their contracts to deliver
coffee due to the tight supply and speculative buying, which are
pushing domestic prices to their highest levels in seven years.

The ministry spokesman said because international business
contracts have certain rules, importers could sue the defaulting
exporters. Importers could also file complaints with the trade
attache at an Indonesian embassy. Also, the government could
issue a warning to the defaulting exporters, or even cancel their
export licenses.

He said businessmen sometimes tend to speculate in trading
with foreign partners.

Indonesia, a major Robusta coffee producer, is the third
largest coffee producer in the world after Brazil and Columbia.

Indonesia introduced a retention plan on April 1 in which
exporters should cut back exports by up to 20 percent to prop up
prices on the world market when the prices are less than 60 cents
and by up to 10 percent if prices are moving between 65 and 70
cents. Retention is refrained from when prices exceed 70 cents.
(yns)