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An exploration of commodity income stabilization options for coffee farmers - page 13 / 47

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Chart 1: Nominal prices for mild Arabica and Robusta coffees, 1985–2006

cts/lb

250

Arabica

200

150

100

50

  • 0

    86

90

94

Robusta

98

02

06

Source: Based on data of the International Coffee Organization. These prices reflected the monthly averages of spot prices in New York and various European ports.

Mild Arabicas

54%

30%

15%

2%

Robustas

54%

36%

8%

2%

Table 1: Frequency of month-to-month price changes for mild Arabicas and Robustas, 1997–2006 (in per cent of total number of observations)

< 5%

Size of price change (plus or minus)

5–10%

10–20%

  • >

    20%

Source: Calculated from ICO spot price data (monthly averages)

  • 3.

    Coffee prices show a particular pattern, more pronounced for Arabica than Robusta: relatively long periods of low prices are interspersed with short periods of very high prices. This is a result of the dominant role of Brazil as an Arabica producer. Most of Brazil’s Arabica is produced in highlands, where from time to time a frost can destroy part of the coffee crop. During the critical period of Brazil’s Arabica season, much of the world coffee community closely follows weather in Brazil’s coffee- producing states, and even a rumour of frost damage can set off a price hike.

  • 4.

    Robusta prices traditionally followed Arabica prices—the relationship between the two markets once was so strong that traders commonly managed Arabica price risk on the Robusta market and vice versa, depending on where they perceived prices to be best. This relationship has weakened over the past decade though, and these two kinds of coffee are increasingly behaving as if they are separate commodities. To draw a comparison, in the past the price relationship between the two was like that

9

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