Commodities & Futures: Doubts on deadline for coffee export quotas

NEGOTIATIONS are under way in London again on a new international treaty aimed at bringing about a recovery in wholesale coffee prices, which are hovering close to their lowest for 20 years.

But the coffee industry's message is that there is no need for drinkers to stock up on supplies, because the early introduction of quotas to limit export volumes - the market-boosting plan being studied - is seen as very unlikely. Certainly, no deal between coffee exporting and importing countries can be finalised this time round.

Progress at the talks, which began last Monday and end this Wednesday, will at best be at the margins. Although further talks have been pencilled in for later this year, there are still big doubts whether the deadline of 31 December for completing the draft of the proposed new International Coffee Agreement can be met.

And if market conditions do not change radically, export quotas, which probably cannot become operational before October 1993 at the earliest, will take some time to bite into supplies.

Production is booming, with the International Coffee Organisation estimating a record 101 million 60kg bags for the 1991-92 marketing year just ending, and warehouses in importing countries already holding about 20 million bags, double the normal level. The export market, meanwhile, remains fiercely competitive.

The latest round of ICA negotiation - the third so far - started well, with the mood deceptively relaxed. It was clear that both sides saw dangers in probing positions too deeply. 'It has been very much shadow boxing,' said Lawrence Eagles, commodity analyst at the futures brokers GNI Ltd. 'This is because if there were real fisticuffs there'd be too much blood in the ring.'

Yet, even so, a few drops were spilled last week in sparring between Brazil and the US. The two obviously find it difficult to work together, with the biggest producer resentful of the largest consumer's attempt, so far successful, to dictate the agenda. But Washington's room for manoeuvre is limited, because of trade and political opposition to renewing market controls abandoned three years ago.

The dominant issue last week was how best to police supplies to ensure that quota limits set under any new ICA are not violated. 'Concrete results' were needed on this and on the mechanism for adjusting quotas, according to Myles Frechette, the chief US negotiator, or the 'the credibility of concluding a new international coffee agreement in the near term' would be 'very much in doubt'.

A paper from the US and other importing countries - Principles for an effective system of controls - was not, however, well-received by Brazil. 'We have to see whether we can devise an effective system of controls on the detailed proposals being presented not go back to a discussion of principles,' Clodoaldo Hugueney, Brazil's senior negotiator, said.

Feathers were ruffled again this weekend when the talks turned to the quota-adjustment mechanism, which the US says must be designed to ensure that changes in allocations reflect those in the demand pattern for different types of coffee. The US was standing firmly behind its proposals at the last negotiations, Mr Frechette said. 'If consumers only reiterate what they want it is difficult to make progress,' Mr Hugueney countered. 'It doesn't help at all.'

Despite the problems, some progress has been made on defining terms and narrowing differences over the control system. The consumers, for instance, are now prepared to play a greater role in monitoring imports of coffee.

But no detailed rules for policing trade in coffee and for adjusting quotas will be finalised this week, while many potentially more controversial issues must still be settled before a new ICA can emerge. These include the size of the initial export quota, the criteria for sharing it out among 50 producers, and the target wholesale price to be achieved by controlling the market.

Unrelated developments could also throw the ICA negotiations off course, or even paralyse them. How, for instance, would a victory for Bill Clinton in November affect US coffee policy? What happens if Brazil's President Fernando Collor de Mello - who, like George Bush, has personally backed a new ICA - is forced out of office?

The difficulties in agreeing a new price pact for coffee should not be underestimated.

(Photograph omitted)