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.