BMI View: Venezuela's coffee production will decline in the coming years, as a lack of crop inputs and price regulations drag coffee yields and area under cultivation lower. As a result, Venezuela will fail to recover its status as a net exporter of high-quality coffee.
Venezuela is on track to record another lacklustre year for agricultural production, as output price restrictions and soaring input prices are keeping a lid on investment in crops and machinery. Coffee will be no exception to this trend, as we forecast production to decrease in 2013/14 and 2014/15 as elevated operating costs, lack of input supplies and price regulations significantly discourage farmers from grinding coffee of a higher quality. The outbreak of the coffee rust disease in Central and South America in 2013 is also still hurting Venezuela's coffee crop. The rust disease is unlikely to disappear in 2014/15, given the ongoing shortages of agrichemicals and other products to treat it. As a result, we see output coming in at 700,000 60kg bags in 2013/14 and 660,000 bags in 2014/15, down 4.1% and 4.7% year-on-year (y-o-y) respectively.
|Sector On The Decline|
|Venezuela - Coffee Production ('000 60kg bags) & Area Harvested ('000 ha)|
The outlook for coffee production in Venezuela remains dire, as hurdles to output expansion will remain in place over the coming years. We forecast coffee production to decline by 6.9% between 2012/13 and 2017/18, to 680,000 bags. Insufficient maintenance of coffee fields, due to the lack of funding and soaring prices of fertilisers, has led to stagnating yields. Venezuela's coffee production yields are now the lowest in South America, at 385kg/ha in 2012, according to the UN Food and Agriculture Organization (FAO), compared with 1,433kg/ha in Brazil and 597kg/ha in Colombia. The quality of beans is also decreasing, and Venezuela no longer produces type A or Lavado Fino coffee (finely washed), which greatly limits its competitiveness with other Latin American Arabica producers.
Venezuela is increasingly resorting to coffee bean imports in order to meet its dynamic domestic demand for coffee. In 2013/14, we forecast domestic production to cover about 53% of coffee consumption, while the country used to record hefty surpluses until 2009/10. Coffee imports are likely to reach a new record high in 2014/15, of about 680,000 bags, compared with 640,000 bags in 2013/14. Venezuela is now a net importer of coffee, which is in stark contrast with the first half of the 2000s, when the country was exporting over 150,000 bags annually to Europe and the US.
|Venezuela - Coffee Imports & Exports ('000 60kg bags)|
Heavy Price Regulations To Remain In Place
The performance of the coffee industry will remain ruled by price regulations, which are likely to stay in effect until 2018, affecting both coffee growers and processing companies. Coffee prices are controlled at both the farm gate and retail levels, as coffee is a basic food item and included in the government's basic food basket.
In 2013, the government approved a price increase for wholesale coffee, ranging between 37% and 66%, depending on the quality and grain classification. However, farmers argued that this increase was below production costs. This lack of profitability shut the doors of private bank loans, leaving growers and processors depending on public credit entities.
|Nicaragua's Share Growing|
|Venezuela - Coffee Imports By Origin, 2013 (% of imported volume)|
Meanwhile, coffee retail prices have been controlled since 2003 and have not been adjusted since November 2012. In 2014, the government refused once again to raise retail prices and restated in May that retail prices of coffee would remain at VEF46.6/kg, or USD7.4/kg, while retailers were hoping to be allowed to raise prices above the official controlled price (VEF106.2/kg) during the period February-May 2014. The nationalisation of the two main coffee-producing companies, Fama de América and Café Madrid, has enabled coffee processing to continue despite the lack of profitability in the sector.
|Coffee Production, '000 60kg bags 1||730.0||700.0||660.0||666.6||673.3||680.0|
|Coffee Consumption, '000 60kg bags 1||1,308.0||1,313.2||1,318.5||1,323.8||1,329.1||1,334.4|
|Notes: f BMI forecasts. Sources: 1 USDA.|