A severe crisis in Brazil, the world's top coffee producer, has kept the international coffee market unstable for a long time, and fears of a supply shortage keep pushing prices up. Now Colombia has heated the market further. Its farmers are exploiting the imbalance between supply and demand: hoping for higher prices, they have not delivered coffee under contracts they signed with exporters and traders. Major buyers have suffered heavy losses, and there are fears of another step up in international prices.

Colombia is the world's third-largest coffee producer and second in arabica. About 550,000 families depend on coffee for their livelihood. A source in the coffee industry told Reuters that Colombian farmers this year failed to deliver about 10 per cent of local output, or 1 million bags (60 kg a bag). Exporters, traders and roasters have been hurt as a result.

International coffee prices have risen 55 per cent this year, mainly because bad weather caused output to collapse in Brazil, creating a supply shortage. Colombian farmers took advantage. Prices were much lower when they signed supply contracts with traders, but in the current market they have held back deliveries, aiming to resell at higher prices.

A dealer at a global agricultural commodities trade house said traders had not received supplies as contracted, which had thrown the market into disarray. If the drought in Brazil continues, he said, coffee could break through 300 cents a pound; the market is heading towards extreme instability.

He said the world's leading coffee roasters are planning to change their "single origin Colombia" campaigns, mainly because of complications over supply sources.

Market analysts say the failure of a leading producer such as Colombia to honour supply contracts will have a big impact on the world market and could inflame rising coffee prices further, although they said the effect was not expected to last long.

Colombian farmers say they will deliver the coffee late this year or next year, but buyers are not satisfied. A senior trader at another global trade house said many buyers have faced losses and are looking for alternative sources. If farmers do not deliver next year either and prices keep rising, the risk could grow larger.

He said several global trade houses have each faced losses of $8 million to $10 million because of the disrupted supply. The biggest loser among them is FNC, Colombia's coffee growers' federation, which represents Colombian farmers and accounts for 20 per cent of the country's exports.

FNC head Roberto Velez said very few Colombian exporters had escaped the trouble. All the top trade houses, including the leading exporter FNC, are making losses. "If even one grower withholds supply, the whole chain suffers financial losses," he said.

Source: Bonik Barta. First published in Bengali on The Agro News.