Letter to The Honorable Ron Kirk United States Trade Representative

Letter

With coffee bean prices hitting a 13-year high last month, U.S. Senator Charles E. Schumer, today, urged the Obama administration to press the world's leading coffee exporters like Brazil and Vietnam to abandon any stockpiling plans that could drive prices even higher. Schumer said that coffee prices have risen for businesses across the country, and are more and more frequently being passed on to consumers. Consumers are paying almost 10 percent more for their Folgers, Dunkin' Donuts, Millstone and Folgers Gourmet Selections coffee, and will soon be paying 10 percent to 15 percent more for their Green Mountain Coffee. Schumer said that in addition to nationwide chains, rise in coffee prices is slamming small business like Freedom of Espresso, based in Syracuse.

Schumer stood at Freedom of Espresso, which has seen its supply costs go up by 27% in the last year. He was joined by John Reynolds and Anna Dobbs, Freedom of Espresso owners.

"New Yorkers already have one cartel reaching into their pockets every time they fill their car up at the pump, they don't need another one grabbing their hard earned dollars when they're getting coffee," Schumer said. "Coffee stockpiling by foreign countries hurts our small businesses and nickel and dimes consumers every morning, and it is just one more way that unfair trade practices by foreign countries hurts us here at home."

"With coffee supply costs increasing from other nations, it puts an undue strain on coffee shops in the United States like ours," said Freedom of Espresso owner John Reynolds. "Freedom of Espresso has been part of the Syracuse business community for 15 years. We have done everything we can not to pass rising costs down to consumers, but small businesses can't absorb supply costs increases like this."

The "coffee trade' is subject to international trading rules just like any other product. The United States Trade Representative (USTR), currently Ambassador Ron Kirk, is responsible for ensuring that local coffee shops like Syracuse's Freedom of Espresso can purchase beans at a fair market price. In 2007, the world's coffee producers signed an agreement, the International Coffee Agreement of 2007, which specifically barred the stockpiling of coffee beans in order to avoid the type of rapidly rising prices that is currently occurring.

Since June, coffee futures have shot up 35 percent, due in large part to crop problems in South America that have limited supply. U.S. stockpiles of coffee, meanwhile, are at their lowest levels in 10 years. This rise in global coffee prices is hitting U.S. consumers hard. Last month, JM Smucker, the company behind retail coffee products like Folger's and Dunkin' Donuts, announced it was raising prices at stores by 9 percent. Kraft Foods, which produces Maxwell House coffee, has followed suit. Some coffee retail chains--like Starbucks--are attempting to ride out the trend without passing the heightened costs onto consumers, but others have been forced to bow to cost pressures. For instance, Wawa, which operates roadside gas stations and markets in the mid-Atlantic region of the U.S., announced a modest per-cup increase on August 30.

The coffee stockpiling that has taken place across the world, has already hit the pocketbook of Central New Yorkers and small business owners. Freedom of Espresso has seen their supply costs go up 70% in the last three years and a striking 27% in the last year alone. Today, Freedom of Espresso's owners said they've worked hard to shield consumers from the increasing supply costs, but a continued rise in prices will leave them no choice. Schumer said that if the price of a cup of joe were to increase 35 percent, as commodity prices have, it would be a significant hit to the coffee drinker's pocket, regardless of if they buy it by the bean in a supermarket or by the cup at a café.

The government of Vietnam, which is the world's top exporter of robusta coffee beans that are used for instant coffee, is considering a scheme to stockpile up to 200,000 tons of the crop in order to keep global prices rising. It would be the second such hoarding plan Vietnam has undertaken this year, coming after it bought up more than 60,000 tons of its own coffee last spring. Meanwhile, growers in Brazil, which is the world's overall No. 1 coffee producer, have been pressuring that country's government to consider a similar plan since May. In response, Schumer is sending a letter to U.S. Trade Representative Ron Kirk urging him to confront this proposed stockpiling at this month's meeting of the International Coffee Organization (ICO). The group, which has 88 member countries and considers coffee trade prices and policy, convenes on September 20.

Stockpiling by major producers would only add to this price rise. In addition, Schumer said, it would violate the International Coffee Agreement of 2007.

Schumer's letter to Ambassador Kirk can be seen below:

The Honorable Ron Kirk
United States Trade Representative
600 17th Street, NW
Washington, DC 20508

Dear Ambassador Kirk,

I write to express concern about reported coffee stockpiling plans by major coffee-producing countries. Such stockpiling would exacerbate already record high coffee prices and short-term supply problems. I respectfully ask you to use the September 20-24 meeting of the International Coffee Organization (ICO) to urge exporting members to eliminate or avoid adopting such plans.

In recent months, world coffee prices have surged to a new 12-year high. Recent news reports indicate that Brazil and Vietnam are considering stockpiling coffee to force prices up even further and to ensure that prices do not plummet once new crops reach the market later this year. These reports are troubling.

Brazil and Vietnam are the world's largest coffee exporters, accounting for approximately 45 percent of average world production and exports over the past 10 years. Needless to say, stockpiling by the two largest producer countries would have adverse economic consequences for importing countries, as well as for consumers around the world. As the world's largest coffee importer (the U.S. accounts for 21 percent of total coffee imports by all importing countries) and an active member of the ICO, the United States has a significant interest in ensuring that ICO members avoid taking actions that may hinder fair trade in coffee.

Stockpiling with the deliberate intention of pushing up prices would appear inconsistent with the objectives of the 2007 International Coffee Agreement, and I urge the U.S. delegation to the upcoming ICO meeting to question Brazil and Vietnam about recent reports regarding stockpiling plans, as well as other developments in the coffee markets including producer country efforts to build and manage stocks. I also ask that you please keep me apprised of developments on this issue.

Sincerely,

Charles E. Schumer
United States Senator

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