Traders cool on coffee producer plan

Traders cool on coffee producer plan

SINGAPORE (Reuters): A new producer plan to bolster prices on
the multi-billion dollar international raw coffee market was
greeted coolly on Monday by Asia traders who suspect regional
producers will find it hard to fund and to enforce.

"How are they (Indonesia and Vietnam) going to finance (the
scheme)? Where are they going to hold stocks?" said one trader
based in Bangkok. "In the short term, it might support the
futures market. But in the long run, (it) ...is no good because
there is oversupply."

World producers agreed in London on Friday a two-year scheme
to keep surplus coffee off the US$8.0 billion a year global
market in a bid to lift prices that have fallen as much as 40
percent since December to around seven-year lows.

The 14-member Association of Coffee Producing Countries
(ACPC), backed by five non-member producers, agreed to retain 20
percent of coffee exports until the average ICO price rises above
95 cents a pound. The ICO indicator price was around 69 cents on
Friday.

Traders doubted Indonesia and Vietnam, two of the world's top
robusta coffee producers, could comply with the scheme.

They said the nations lacked sufficient financial resources to
hold back large amounts of beans offered by farmers or exporters,
and did not have proper storage facilities even if the funds
existed.

Some traders even said the agreement might actually encourage
Indonesia to sell more beans in the near future if it did succeed
in propping up prices.

"If it gives support to the futures market, farmers and
exporters will sell more coffee to the market...They need to sell
because coffee is arriving," said another trader.

Indonesian farmers and exporters have delayed sales as long as
possible despite the country's main harvesting season because of
depressed prices.

Traders in Indonesia said earlier on Monday there was no need
for the country to join the scheme as it was uncertain if all
producing countries would honor the agreement.

"We had such a retention scheme about five years ago. What
happened that year was Brazil and Colombia were cheating on us,"
said a Jakarta-based trader.

"I believe they will do such thing again this year."

In Vietnam, where many coffee exporters and farmers were
caught by the slide of futures prices during peak harvest season
earlier this year, the news over the ACPC agreement was also met
with skepticism.

Key barriers included getting Vietnam's vast bureaucracy to
draw up formal implementation plans, as well as finding the money
and the will to force compliance in an industry that covers
dozens of exporters.

"For Vietnam, this plan is nothing but talk. Vietnam can
promise the world and look like they are doing something," said a
trader in southern Ho Chi Minh City.

"I am also skeptical Vietnam can finance this plan, although
they do have several months to play with."

For Vietnamese coffee producers and exporters, memories remain
fresh of the government's failure to come to the rescue earlier
this year, despite industry calls for money to hold back coffee
bean exports amid sharp international price declines.

Many had to sell beans at a loss over the past several months,
now holding little ahead of the new harvest season starting from
October.