THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY

USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT

POLICY

Required Report - public distribution

Date: 5/9/2019
GAIN Report Number:

Ecuador

Coffee Annual

Ecuadorian Competitiveness in Production of Soluble Coffee has

Vanished

Approved By:
Agricultural Attaché Kirsten Luxbacher

Prepared By:
FAS Quito

Report Highlights:
Prohibitively high costs of electricity and water, transportation, and high labor costs have cut production
of soluble coffee in half. Germany and Russia are Ecuador’s top two markets for its exports of soluble
coffee products. Concurrently, successes are noticeable within the specialty coffee beans product
category for export. Reportedly, a Korean buyer bought one lot of Ecuador’s high-altitude specialty
coffee for $3,800 per 60 kg bag in 2018.
Executive Summary:

Ecuador’s soluble sector, and exports of soluble coffee, have fallen by 50 percent in the last few years.
Ecuador’s competitiveness in processing imported coffee has vanished. The lack of competitiveness in
the production of industrialized coffee is mainly related to prohibitively high costs of electricity and
water in Guayaquil, insufficient and erratic supply of electricity and water in Manta, high transportation
costs between Manta and Guayaquil, and overall high wages compared to neighboring countries ($500
per month, including social benefits).

Ecuador’s coffee production in marketing year (MY) 2019/20 (April/March) is forecast at 275,000 bags
(60-kilograms per bag) on a Green Bean Equivalent (GBE) basis, up 20,000 bags or eight percent higher
than the MY 2018/19 estimate. FAS Quito is maintaining its MY 2018/19 coffee production estimate at
255,000 bags. Production has increased due to better than expected results in the recovery of old
plantations and the replacement of old trees. Despite only limited government efforts to support coffee
growers, on the other hand, high international prices and unsatisfied global and domestic demand for
specialty coffees from exotic destinations have driven an increase in Ecuador’s production of Arabica
coffee. In recent years, specialty coffee growers, with proven reputation, are receiving much better
prices than traditional subsistence coffee growers. Prices for specialty coffees are negotiated with little
or no consideration of international coffee futures prices. Reportedly, one lot of Ecuador’s high-altitude
specialty coffee sold for $3,800 per bag GBE in 2018. Loja, Loja; Quito, Pichincha; Intag, Imbabura;
and most recently Cuenca, Azuay are the main areas where specialty coffees are being grown.

Ecuador’s total domestic coffee consumption in MY 2019/20 is forecast at 249,000 bags GBE, up 9,000
bags or four percent higher than the MY 2018/19 revised estimate of 240,000 bags. Total domestic
consumption has increased in spite of the slowdown in the Ecuadorian economy.

Ecuador’s coffee exports in MY 2019/20 are forecast at 456,000 bags GBE, down 30,000 bags or six
percent lower compared to the MY 2017/18 (revised) estimate of 486,000 bags. FAS Quito is revising
downward its MY 2018/19 coffee export estimate due to the decrease in Ecuador’s production of
soluble coffee. In MY 2018/19 Ecuador exported an estimated 75,000 bags of coffee (Arabica and
Robusta) beans, 410,000 bags of soluble coffee (about 84 percent of total exports), and some 1,000 bags
of roasted-ground coffee. Germany, Russia, and Colombia were Ecuador’s top three markets for its
exports of coffee products in CY 2018.

Imports in MY 2019/20 are forecast at 441,000 bags, down 15,000 bags or three percent lower
compared to the MY 2018/19 (revised) estimate of 456,000 bags. The relevance of Ecuador’s coffee
sector remains tied to its soluble-coffee processing capabilities. Thus, it continues to import nearly as
much coffee as it then converts into soluble coffee to be exported to foreign markets.

Commodities:
Coffee, Green

Coffee, Green 2017/2018 2018/2019 2019/2020

Market Begin Year Apr 2017 Apr 2018 Apr 2019
USDA New USDA New USDA New
Ecuador
Official Post Official Post Official Post
Area Planted 200 200 200 200 0 200
Area Harvested 130 130 137 130 0 130
Bearing Trees 90 90 93 110 0 115
Non-Bearing Trees 70 70 67 50 0 45
Total Tree Population 160 160 160 160 0 160
Beginning Stocks 237 237 213 213 0 198
Arabica Production 95 95 135 140 0 155
Robusta Production 110 110 120 115 0 120
Other Production 0 0 0 0 0 0
Total Production 205 205 255 255 0 275
Bean Imports 625 625 650 370 0 350
Roast & Ground 3 3 4 1 0 1
Imports
Soluble Imports 80 80 85 85 0 90
Total Imports 708 708 739 456 0 441
Total Supply 1150 1150 1207 924 0 914
Bean Exports 132 132 140 75 0 85
Rst-Grnd Exp. 1 1 2 1 0 1
Soluble Exports 572 572 650 410 0 370
Total Exports 705 705 792 486 0 456
Rst,Ground Dom. 39 39 41 43 0 48
Consum
Soluble Dom. Cons. 193 193 151 197 0 201
Domestic Consumption 232 232 192 240 0 249
Ending Stocks 213 213 223 198 0 209
Total Distribution 1150 1150 1207 924 0 914
(1000 HA) ,(MILLION TREES) ,(1000 60 KG BAGS)

Crop Area

Total area planted has remained constant at about 200,000 hectares for the past three marketing years.
The area harvested —130,000 hectares in MY 2019/20—is forecast to remain the same as the previous
marketing year. However, productivity will continue to increase as new and pruned trees continue to
come into production. Most farmers rely on family labor for maintaining the crop and harvest.
Intercropping and poly-culture are still common, occurring on at least 40 percent of total planted area.

Production and Processing

Ecuador’s coffee production in marketing year (MY) 2019/20 (April/March) is forecast at 275,000 bags
(60-kilograms per bag) on a Green Bean Equivalent (GBE) basis, up 20,000 bags or eight percent higher
from the MY 2018/19 estimate. This forecast is based on the expected result of efforts to recover old
plantations and the replacement of old trees and cultivars with new ones in recent years. FAS Quito is
maintaining its MY 2018/19 coffee production estimate at 255,000 bags. Production had been suffering
for many years due to a lack of investment in rejuvenating plantations and new cultivars. Often, current
cultivars are in need of complete renewals. At the beginning of CY 2019, farmers reported low
presence of pests and diseases and favorable weather conditions.

Ecuador has lost considerable competitiveness in the production of soluble coffee. Ecuador’s soluble
coffee manufacturers have the capacity to process more than one million bags per year. When
Ecuador’s coffee growing sector lost competitiveness in the 1990s due to the entrance of new producing
countries, domestic production was replaced with imported beans from Vietnam. In the last three to
five years, Ecuador’s competitiveness in processing imported coffee has also vanished. The lack of
competitiveness in the production of industrialized coffee is mainly related to prohibitively high costs of
electricity and water in Guayaquil, insufficient and erratic supply of electricity and water in Manta, high
transportation costs between Manta and Guayaquil, and overall high wages compared to neighboring
countries ($500 per month, including social benefits). Guayaquil and Manta are Ecuador’s major port
cities and also the locations where coffee processing plants are located. As a result, Ecuador’s soluble
sector, and exports of soluble coffee, has fallen by half in the last few years.

Ecuador's Historical Coffee Production

Arabica Robusta Total
800

700

600
1,000 Bags GBE

500

400

300

200

100

-
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
Market Year

Prices

Farmers in calendar year (CY) 2018 were paid on average $221 per 60-kg bag of Arabica coffee, $67 or
23 percent less than in 2017. Robusta coffee prices averaged $82 per 60-kg bag in 2018. Farmers
received $10 or 11 percent less than in 2017. Overall, prices for Robusta coffee are less volatile than
Arabica.

Despite only limited government efforts to support coffee growers, high international prices and
unsatisfied global and domestic demand for specialty coffees from exotic destinations have driven an
increase in Ecuador’s production of Arabica coffee. In recent years, specialty coffee growers, known to
produce a high quality bean, are receiving much better prices than traditional subsistence coffee
growers. Prices for specialty coffees are negotiated with little or no consideration of international coffee
futures prices. Reportedly, one lot of Ecuador’s high-altitude specialty coffee sold to a Korean buyer
for $3,800 per bag GBE in 2018. Loja, Quito, Pichincha; Intag, Imbabura, and more recently Cuenca
and Azuay are the main areas where specialty coffees are grown.

Price Table Ecuador, Wholesale Coffee Prices ($/60 Kg Bag, Green Coffee)
Arabica (green) Robusta (husked beans)
Month 2017 2018 % Change 2017 2018 % Change
Jan 264.35 240.74 -8.9% 94.61 76.10 -19.6%
Feb 264.35 240.74 -8.9% 91.60 74.38 -18.8%
Mar 264.35 240.74 -8.9% 91.80 76.18 -17.0%
Apr 287.58 240.74 -16.3% 90.36 78.65 -13.0%
May 290.38 240.74 -17.1% 89.12 84.05 -5.7%
Jun 296.76 240.74 -18.9% 92.75 86.38 -6.9%
Jul 290.58 240.74 -17.2% 96.35 87.72 -9.0%
Aug 291.04 224.87 -22.7% 98.16 88.13 -10.2%
Sep 286.23 206.35 -27.9% 96.79 87.11 -10.0%
Oct 298.28 187.11 -37.3% 93.71 84.11 -10.3%
Nov 314.82 176.55 -43.9% 87.81 81.63 -7.0%
Dec 314.82 174.61 -44.5% 76.91 80.37 4.5%
Average 288.63 221.22 -23.4% 91.66 82.07 -10.5%
Source: FAS Quito Office Research

Fifty percent of coffee production occurs in Ecuador’s coastal provinces. The province of Manabí
accounts for 25 percent of total production. The Amazon and the Sierra (highland) areas account for 30
percent each of the Ecuador’s coffee production. Robusta coffee is planted in the Amazon, while
Arabica coffee is cultivated along the coast and the high lands. There are about 60,000 coffee farmers
nationwide.

Inputs

Overall, Ecuador’s coffee sector is a mix of domestic bean production and the processing of imported
beans for the soluble industry. Coffee is largely handpicked in Ecuador. There is limited use of
fertilizer and modern irrigation systems. Traditional cultivation accounts for 65 percent of the crop.
Traditional bean production is mostly in the hands of subsistence landholders who do not use fertilizers,
pesticides, irrigation, or contracted labor. The country’s soluble coffee producers source raw material,
coffee beans, from major Robusta producers such as Vietnam. The technology used by the soluble
industry was developed mainly in Switzerland.

Yields

Yields are increasing and growers using modern agronomic practices often surpass 200 kilograms (kg)
per hectare. Yields in MY 2018/19 averaged 118 kilograms per hectare. The observed increase in yield
per hectare is mainly the result of new and rejuvenated cultivars with new bearing trees coming into
production. Yield estimates are forecast to increase in the coming years. FAS Quito estimates an
average yield of 95 kilograms per hectare harvested in MY 2017/18 and forecasts an average yield of
127 kilograms per hectare in MY 2019/20.

Policy
Ecuador’s 2008 Constitution stipulates that only public agencies can benefit from fees and special
contributions set forth by public law. As a result, no organization other than a government entity can
collect fees. Prior to this, Ecuador’s Coffee Council (COFENAC), a public-private organization
focused on coffee policy and trade, was responsible for providing assistance to Ecuador’s coffee sector.
It was fully disbanded in February 2015. The Ministry of Agriculture and Livestock (MAG) in 2015
assumed control over coffee policies and technical assistance programs. No fees or export taxes are
currently being levied on coffee exports. MAG continues to assess ways to promote coffee production
through technical assistance, pruning campaigns, provision of inputs and full renewals of old cultivars.
Ecuador’s Foreign Commerce Committee is responsible for authorizing imports of foreign coffee
beans.

Consumption

Ecuador’s total domestic coffee consumption in MY 2019/20 is forecast at 249,000 bags GBE, up 9,000
bags or four percent higher than the MY 2018/19 revised estimate of 240,000 bags. Total domestic
consumption has increased despite the slowdown in the Ecuadorian economy. Real growth in Gross
Domestic Product (GDP), according to the IMF, is expected to be negative 0.5 percent in 2019 and
marginally positive at 0.2 percent in 2020. Ecuador’s population is 16.5 million, growing at a rate of
1.3 percent per annum (U.S. Census Bureau – July 2018 estimate). Post estimates per capita
consumption of coffee on a GBE basis at around 0.87 kilogram per person. Ecuadorians consume
primarily soluble (instant or powder) coffee. However, preferences are changing and the market is
developing a taste for roasted-ground coffee. El Café (Grupo Noboa) dominates the soluble coffee
market. The increase in consumption of roasted-ground coffee is driven by a growing coffee culture
accompanied by the opening of specialty coffee roasters and coffee outlets such as Café Vélez, Galletti,
Cafecom, El Español, Sweet & Coffee, Isveglio, Cyril, Corfú, and Colombia’s Juan Valdez.

Stocks

Ecuador maintains coffee stocks of around 100,000 to 200,000 bags GBE. The government does not
manage or warehouse these stocks, as these are beans used mainly to produce soluble coffee. Therefore,
domestic soluble coffee manufacturers, and smaller bean exporters storing beans while reaching a
shipment size, are the entities responsible for these coffee stocks.

Trade

Ecuador exports beans and soluble coffee. The harvest of domestically-grown beans occurs between
April and October. These beans are exported primarily between July and October. Imports of coffee
beans for processing by the soluble industry, and exports of soluble coffee, on the other hand, occur
year round. Ecuador’s coffee exports in MY 2019/20 are forecast at 456,000 bags GBE, down 30,000
bags or 6 percent lower compared to the MY 2018/19 (revised) estimate of 486,000 bags. FAS Quito
has revised downward its MY 2018/19 coffee export estimate by 256,000 bags GBE. As described in
the Production Section, Ecuador’s soluble industry has lost competitiveness and continues to struggle to
survive in an environment of increasingly higher production costs.

Ecuador exported in MY 2018/19 an estimated 75,000 bags of coffee (Arabica and Robusta) beans,
410,000 bags of soluble coffee (about 84 percent of total exports), and some 1,000 bags of roasted-
ground coffee. Germany, Russia, and Colombia were Ecuador’s top three markets for its exports of
coffee products in CY 2017 and CY 2018. Imports in MY 2019/20 are forecast at 441,000 bags, down
15,000 bags or three percent lower compared to the MY 2018/19 (revised) estimate of 456,000 bags.
Imports of soluble coffee in MY 2019/20 are forecast to increase 5,000 bags to 90,000 bags.

Export Trade Matrix Calendar Year 2017 and 2018

Country Ecuador
Commodity Coffee, Green, in 60Kg Bags
Destination 2017 2018
Germany 323,095 225,412
Russia 146,581 72,972
Colombia 51,129 72,325
Poland 33,371 6,698
United States 33,151 2,172
Turkey 18,247 6,512
Japan 17,735 19,959
Other countries 56,928 76,650
Total 921,174 482,700
Sources: Ecuadorian Ministry of Agriculture and Livestock, Ecuadorian Association of Coffee Exporters ANECAFE,
and FAS Quito Office Research.

Ecuador’s statistics do not report data for coffee beans temporarily imported for processing into soluble
coffee and subsequently re-exported. In monetary value, Ecuador exported almost $70 million in
soluble coffee products in CY 2018, with some $47 million alone in shipments to Germany and Russia.
Ecuador’s exports of green coffee totaled almost $12 million of which $6.2 million corresponded to
Robusta exports to Colombia.

Ecuador's Historical Coffee Exports

Beans Rst-Grnd Soluble

1,200

1,000

800
1,000 Bags GBE

600

400

200

-
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Market Year