Coffee Farmers To Reap From Stable Global Prices
By ALLAN ODHIAMBO
Price volatility due to speculation in global coffee trade has eased in the past decade, a new survey in international markets has revealed, raising hopes for exporting countries such as Kenya to adopt effective sales policies.
"The volatility recorded from 2000 to the present is not more marked than in previous years. The general trend is rather towards reduced volatility despite the emergence of occasional peaks from time to time as a short-term response to exogenous impacts," the International Coffee Organisation (ICO) said in a new report titled Coffee Price Volatility, released in London last week.
Volatility refers to the tendency for prices to change in an unforeseen manner over time, usually in response to new information or to an external impact that can affect the situation of fundamental market factors for the underlying commodity.
Volatility measures the degree of the increase or decrease in prices in the short term and is not defined in terms of price levels, but by their degree of variation. Analysts said price volatility is a source of uncertainty with regard to export earnings for exporting countries, making it difficult to plan and carry out effective sales policies, especially the contract types that required up-front commitment.
It is also considered a major source of economic vulnerability for many developing countries dependent on primary commodity exports, in that unforeseen huge variations often result in budgetary financing problems. Coffee has for many years been a major forex earner for Kenya alongside tea and horticulture, even though disillusionment among producers owing to suspected speculative activities both at home and abroad has threatened to erode its fortunes with some growers pulling out of the occupation on concerns over unpredictable earnings.
Some growers have even accused marketing agents and dealers of speculating over prices to deny them good earnings from the commodity. "Volatility has been a major problem because you cannot plan or budget with sharp variations in prices offers and this works against everyone," Mr Daniel Mbithi, an official at the Nairobi Coffee Exchange (NCE) said. Statistics by the Agriculture ministry showed that Kenya earned Sh9.6 billion in 2008 compared to Sh8.8 billion landed the previous year.
Able to budget appropriately
"Less price volatility means we are able to budget appropriately without fears of burning our fingers unlike before when people were operating on caution for fear of the unknown," Mr The problem of price volatility has also proved a problem in importing countries, particularly in the case of roasters in that price volatility makes it difficult to control production costs.
"For traders and holders of stocks volatility affects profit margins, increasing their exposure to the risk factors inherent in their activities. On the other hand, for investment fund managers or pure speculators volatility is an investment criterion to the extent that active or marked volatility offers a possibility of significant and rapid profits allied with heightened risk," the report further stated. According to the survey, the price of Robusta type of coffee recorded its highest level in 1994 and following a downturn in 1995 and 1996, its volatility increased in 1997 but at a level lower than in 1994.
"Nevertheless, volatility indexes for Arabicas were greater than 20 per cent. Following a slackening between 1998 and the first half of 1999, the volatility index for Arabica prices rose to new records from July 1999 to 2000, then in 2002 and, to a lesser extent, in November 2004 and March 2008," the survey report said "Despite the peak in July 2000, coffee price volatility has been relatively weak from the latter half of 2000 to July 2009"
Overall the volatility indices in key international markets such as the New York and London futures markets have remained steady over since 1999 for both the Arabica and Robusta coffees. "The general trend has been towards a reduction in volatility despite a few occasional peaks that appear as a short-term response to exogenous impacts. Even these peaks are relatively weak compared to the situation in previous years," the survey established.
Price volatility due to speculation in global coffee trade has eased in the past decade, a new survey in international markets has revealed, raising hopes for exporting countries such as Kenya to adopt effective sales policies.
"The volatility recorded from 2000 to the present is not more marked than in previous years. The general trend is rather towards reduced volatility despite the emergence of occasional peaks from time to time as a short-term response to exogenous impacts," the International Coffee Organisation (ICO) said in a new report titled Coffee Price Volatility, released in London last week.
Volatility refers to the tendency for prices to change in an unforeseen manner over time, usually in response to new information or to an external impact that can affect the situation of fundamental market factors for the underlying commodity.
Volatility measures the degree of the increase or decrease in prices in the short term and is not defined in terms of price levels, but by their degree of variation. Analysts said price volatility is a source of uncertainty with regard to export earnings for exporting countries, making it difficult to plan and carry out effective sales policies, especially the contract types that required up-front commitment.
It is also considered a major source of economic vulnerability for many developing countries dependent on primary commodity exports, in that unforeseen huge variations often result in budgetary financing problems. Coffee has for many years been a major forex earner for Kenya alongside tea and horticulture, even though disillusionment among producers owing to suspected speculative activities both at home and abroad has threatened to erode its fortunes with some growers pulling out of the occupation on concerns over unpredictable earnings.
Some growers have even accused marketing agents and dealers of speculating over prices to deny them good earnings from the commodity. "Volatility has been a major problem because you cannot plan or budget with sharp variations in prices offers and this works against everyone," Mr Daniel Mbithi, an official at the Nairobi Coffee Exchange (NCE) said. Statistics by the Agriculture ministry showed that Kenya earned Sh9.6 billion in 2008 compared to Sh8.8 billion landed the previous year.
Able to budget appropriately
"Less price volatility means we are able to budget appropriately without fears of burning our fingers unlike before when people were operating on caution for fear of the unknown," Mr The problem of price volatility has also proved a problem in importing countries, particularly in the case of roasters in that price volatility makes it difficult to control production costs.
"For traders and holders of stocks volatility affects profit margins, increasing their exposure to the risk factors inherent in their activities. On the other hand, for investment fund managers or pure speculators volatility is an investment criterion to the extent that active or marked volatility offers a possibility of significant and rapid profits allied with heightened risk," the report further stated. According to the survey, the price of Robusta type of coffee recorded its highest level in 1994 and following a downturn in 1995 and 1996, its volatility increased in 1997 but at a level lower than in 1994.
"Nevertheless, volatility indexes for Arabicas were greater than 20 per cent. Following a slackening between 1998 and the first half of 1999, the volatility index for Arabica prices rose to new records from July 1999 to 2000, then in 2002 and, to a lesser extent, in November 2004 and March 2008," the survey report said "Despite the peak in July 2000, coffee price volatility has been relatively weak from the latter half of 2000 to July 2009"
Overall the volatility indices in key international markets such as the New York and London futures markets have remained steady over since 1999 for both the Arabica and Robusta coffees. "The general trend has been towards a reduction in volatility despite a few occasional peaks that appear as a short-term response to exogenous impacts. Even these peaks are relatively weak compared to the situation in previous years," the survey established.
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