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Coffee Prices Collapse to 8-Year Low as Safety Net Removed

July 4, 1989

LONDON (AP) _ Coffee bean prices tumbled to their lowest levels in eight years in London trading Tuesday on heavy selling triggered by the International Coffee Organization’s announcement that it would suspend export quotas.

″The news is negative and the immediate reaction very predictable,″ said analyst Laurence Eagles of commodities traders Gerrard and National Intercommodities.

Coffee beans for September delivery closed at $1,387 a metric ton in London, down $98 from Monday’s final price. Earlier in the day, the price fell to $1,343.

Selling was particularly heavy in London on Tuesday because the New York market was closed for the Fourth of July holiday.

The 74-nation organization of coffee consumer- and producer-nations announced the suspension of quotas late Monday, after members rejected proposals to extend the existing international coffee pact. The suspensions took effect at midnight.

The price of coffee, which reached this year’s peak of $1,896 a ton in January, had been falling steadily ahead of Monday’s emergency meeting.

Export quotas have been in force since the early 1960s, apart from a 19- month break in 1986-87 and a six-year gap in the 1970s. They are used to keep surplus coffee off the market in an effort to balance supply with demand and so maintain the average world price above a target minimum of $1.20 a pound.

With the quotas gone, traders predicted a free-for-all among exporting countries seeking to raise their market shares.

Many delegates blamed the organization’s failure to reach a new deal on the hard line of the United States, the main consuming nation, and the tough position of the 11-nation Group of Mild Arabica Producers, largely comprised of Central American producers, not to extend quotas.

Singapore was the only other consuming nation besides the United States to vote against the extension.

The Mild Arabica Producers, led by Mexico and Costa Rica, pressed for guarantees of a bigger slice of the market before they would agree to support an extension of the quotas.

Their proposals were backed by the United States, but roundly defeated when put to a vote.

Colombia - the world’s second-biggest producer, for which coffee represents 40 percent of its export income - led the fight to keep the coffee agreement and its quota system alive.

Colombia has been much more active than Brazil, the biggest producer. Coffee now generates less than 10 percent of Brazilian foreign exchange.

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