June 11 - A sudden surge in Colombian coffee prices is sending coffee roasters scrambling for replacement supplies and Colombia could lose sales in the long term, industry sources in Europe and the United States say.
"Prices that roasters are paying to maintain Colombian coffee in their blends is hurting a lot, it's dramatically impacting the return in their coffee sales," said Christian Wolthers of U.S. coffee importer Wolthers America Inc.
Colombian coffee prices shot up as poor weather cut the harvest and coffee tree replanting programmes cut output.
The country is the world's third largest coffee producer in normal years, after Brazil and Vietnam. Its coffee is prized for its intensely aromatic taste without bitterness and is very popular in the United States, Germany, Switzerland and Japan.
"Colombian prices just do not fit into commercial price calculations," one Swiss coffee trader said. "Roasters keep telling me to simply find them something else."
A German trader reported a loss of confidence in Colombia.
"The big winners in this are likely to be alternative suppliers, especially those with very close similarity to Colombia such as Guatemala," the trader said. "A lot of trust in Colombia has gone."
"I have been told by German, Swiss and Dutch roasters that they want a wider diversification of supplies away from Colombia in the new season."
Physical arabica coffee is priced with differentials, with buyers paying above or below New York's ICE "C" futures contract to reflect factors including tight supplies.
Colombian differentials in Europe rose from only 30 to 35 cents over New York in early March to 62 cents on Thursday after reaching peaks of around 100 cents over in late May. They have climbed from 7.5 cents over New York in November 2008.
"It is not an easy time for the industry as Colombia is a major supplier," said Roel Vaessen, secretary general of the European Coffee Federation. "Many roasters are sitting it out and waiting for the new crop to come in and seeking work-around solutions."
ROASTERS RAISE PRICES IF THEY CAN
Roasters with brands based on Colombian supplies have been compelled to increase prices.
In the United States, J.M. Smucker Co has raised prices of its 100 percent roasted Colombian coffee by about 19 percent. Kraft Foods followed with its Maxwell House 100 percent Colombia ground coffees.
In Germany, Europe's largest coffee industry was suffering badly as a retail price war meant price rises could not be passed on in supermarkets, said Holger Preibisch, chief executive of the German Coffee Industry Association.
Rapid relief is not expected, despite the Colombian differentials falling from recent peaks.
"We still face several more months when world supplies will be really tight," Vaessen said.
U.S. roasters cut Colombia purchasing in past weeks and were making hand-to-mouth purchases of essential supplies, said Ernesto Alvarez, chief executive officer of COEX Coffee Group.
Alvarez expects Colombian beans will be in tight supply until the first quarter of 2010.
"I think the Colombians have lost, already, followers and buyers of their coffee because of what happened," Alvarez said. "The substitution that took place will continue to take place into next year."
Roasters are raising purchases of Colombian alternatives largely from Guatemala, Costa Rica, Nicaragua and some limited volumes from Brazil, Kenya, Tanzania, Papua New Guinea and India.
European traders also said roasters were likely to diversify supplies in the coming year. Most coffees are blends and with roasting and mixing equipment ever more efficient, roasters can diversify the range of their input coffees.
Prices for alternatives have been rising. Guatemalan SHB coffee differentials have already shot up from 30 cents over New York in March to 44 cents over now.