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Coffee Quotas Suspended

July 4, 1989

LONDON (AP) _ The International Coffee Organization suspended all export limits Monday, foreshadowing a drop in coffee prices worldwide.

The 74-nation organization approved a two-year extension of the current agreement, minus the quotas. Limits were suspended as of midnight Monday.

Members earlier rejected two proposals for a new agreement to succeed the 6-year-old pact that expires Sept. 30. Both failed proposals would have retained quotas to stabilize coffee prices.

″It’s a free market, and all the surplus will now be available for consumers,″ said Nestor Osorio, who headed Colombia’s delegation to the one- day emergency meeting. He indicated that South American and Central American coffee producers are sitting on large stockpiles.

The United States - the most powerful consumer nation - and 11-nation Group of Mild Arabica Producers took a hard line against quotas. The United States wanted lower consumer prices, and the Central American nations wanted a larger market share.

The United States was ″very determined not to have an agreement,″ Osorio said.

The International Coffee Organization, established in 1963, tries to stabilize coffee prices by limiting sales of green, or unroasted, coffee beans by the producers to the consumers. The organization suspended quotas twice before, first for 19 months in 1986-87 and then for six years in the 1970s.

The limits keep surplus coffee from world markets and maintain the average world price above the target minimum of $1.20 per pound.

The lifting of quotas could cost coffee producers, who currently earn about $10 billion annually, up to $2 billion in lost revenues, said West German negotiator Hugo Roerig. Coffee is a main export-earner for dozens of countries, and in Uganda and other African nations it accounts for up to 90 percent of sales abroad.

The market fell dramatically before the coffee organization announced its decision, and traders said it would likely collapse further when trading opens Tuesday. Nearly 10 percent was knocked off the price of coffee on the London market.

The organization failed to agree on two proposals that would have left the door open to continuing the present price-support regime.

One proposal would have extended the existing agreement as is, with no change in quotas. The other called for extension with changes that would increase the availability of mild arabica coffees - one of the most popular varieties.

The suspension of quotas was part of a fall-back package drawn up last week by the coffee organization’s 16-nation executive board in case an extension was not adopted.

Delegates said this means a free market until at least September 1991, unless a completely new accord is negotiated and enters into force before then.

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