January 20, 2014 / 6:31 PM / 5 years ago

Italian roaster sees coffee supply tightening for two years

LONDON (Reuters) - World coffee supplies are expected to tighten over the coming two years, potentially triggering a modest rise in bean prices, Andrea Illy, chairman and chief executive of Italian coffee company illycaffe said on Monday.

Andrea Illy, Chairman and CEO of Illycaffe speaks to reporters following a news conference in New York, May 28, 2009. REUTERS/Mike Segar

Coffee prices fell by more than 20 percent in 2013, as a bumper crop in top grower Brazil contributed to a global surplus, but Illy said that farmers would produce less this year in response to lower prices.

“Fundamentals will continue to be tense with low stocks and equilibrium between production and consumption,” Illy said, referring to the 2013/14 and 2014/15 seasons.

Tightening supply could trigger higher prices, but there is unlikely to be “crazy peaks”, said Illy, who plans to open dozens of new coffee shops around the world this year.

He estimated prices could rise between 10 and 20 percent.

Benchmark arabica coffee futures closed down 1.1 cent or 0.9 percent at $1.1725 (7135 pence) per lb on Friday.

Earlier this month Volcafe, the Swiss-based coffee division of commodities house ED&F Man, warned that Brazil’s coming coffee crop could disappoint due to hard pruning and tired trees after two consecutive bumper harvests.

Illy declined to give a forecast for the Brazil crop.

He estimated annual global consumption growth would remain stable at around 2 to 2.5 percent, in line with the historical average over the past decade, with India and China providing some of the biggest growth opportunities.

High-quality coffee roaster illycaffe sources arabica coffee from around 15 countries for its wholesale operations and cafe outlets.

READING THE COFFEE GROUNDS

Created by Illy’s grandfather about 80 years ago, the firm now supplies around 6 million of the 1.6 billion cups of coffee the International Coffee Organisation estimates are drunk worldwide every day.

The company has about 300 “mono-brand” coffee shops and plans to open around 30 more stores this year in regions including the Middle East, Asia, Europe and North America, Illy said, speaking in London at the launch of the firm’s first store in alliance with Samsung Electronics Co (005930.KS).

Samsung will provide illycaffe with a selection of mobile devices such as tablets, along with mobile applications specifically developed for illycaffe products and stores.

The company’s consolidated turnover was about 361 million euros ($490 million)in 2012. Illy said coffee shops currently represented around 10 percent of the business but that the segment could expand to around one third of the company’s operations in future.

“We are pursuing this goal and it will happen in the medium term, meaning 7 to 10 years,” Illy said.

The coffee industry has experienced a wave of consolidation led by German consumer products company Joh A Benckiser (JAB) which has bought Caribou Coffee, Peet’s Coffee & Tea and DE Master Blenders 1753 in the past couple of years.

Illy said that illycaffe had not been approached by JAB or any other companies and intended to remain a private company focused on organic growth.

Reporting by Sarah McFarlane; Editing by Pravin Char

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