The coffee industry could take joint action to combat the impact of low global prices on producers, such as restricting supply, but a decision can only be made after uncertainty over Brazil’s election passes, the head of a Brazilian industry group said on Monday.
Brazil’s weak real currency and widespread shortselling of coffee futures helped push prices in New York to a 12-year low in September.
The world’s No. 1 coffee producer this month faces its most wide-open election in a generation, with the real currency depreciating to a record low amid fears that the country’s next leader will fail to carry out reforms seen as necessary to plug high national debt.
It’s possible the coffee industry will act in concert, said Ricardo de Souza Silveira of processors association ABIC, acknowledging that representatives of Colombia’s coffee producers visited Brazil last month to discuss taking unified action to help growers.
“We will find one or another device to give a better balance to the producer. He is going through a very difficult time,” Silveira told Reuters on the sidelines of an event at the foreign affairs ministry in Brasilia.
“Holding back a bit to leave more to sell in the future, hedging, future sales, there are substantial mechanisms the producer can use. But in Brazil it’s very difficult to think of the future with the political instability we’re living through,” he added.
The industry will only be able to sit down and discuss what action to take after the presidential election, he said. The first round of voting is set for Sunday, but the race is likely to go to a runoff election on Oct. 27 if no candidate gets a majority in the initial vote.
“Once the elections pass, the dollar will establish an equilibrium and things will get better,” he said.
Brazilian coffee producers are being hammered by the currency shift as it has raised the cost of imported fertilizer and other inputs, said Lucio Dias, head of sales for Cooxupe, the world’s largest coffee cooperative and Brazil’s No. 1 exporter.
About 35 percent to 40 percent of the costs of a bag of coffee are priced in dollars, he said at the same event.
Still, only a few producers are being forced to sell at a loss, and the greater concern is the impact of costs on the next harvest, Dias said.