May 7, 2013 / 4:56 PM / in 5 years

UPDATE 1-Brazil raises arabica coffee benchmark price 17 pct

* Producers welcome price but wanted more

* Gov’t says support measures for coffee a priority

* No indication yet of which measures or when (Quote from cooperative, details of possible support)

BRASILIA, May 7 (Reuters) - Brazil, the world’s top coffee producer, raised its benchmark price for arabica coffee 17 percent on Tuesday to 307 reais ($150) per 60-kg bag, a decision traders see as a sign of imminent government intervention to boost prices.

A statement from the agriculture ministry announcing the higher benchmark price, used as a guideline rate when the government makes a now-rare purchase of coffee or pays a temporary subsidy, said measures to support the sector were now a government priority.

The announcement confirmed the price at the level Reuters reported last week in a story quoting a government source.

The price, which was negotiated with the finance ministry, is below the 340 reais per bag sought by the agriculture ministry but was still welcomed by Brazilian producers.

“The price will bring a certain amount of tranquility to the market and ensure that the recent rise we have seen will be sustained,” said Silas Brasileiro, head of the National Coffee Council, the main coffee producers’ entity.

Brasileiro said instead of buying coffee beans directly, producers wanted the government to repeat the ‘Pepro’ subsidy program last offered about six years ago.

It rewards growers with a premium when they sell above a pre-determined amount, giving an incentive for them to collectively hold out for higher rates since those who sell for less receive nothing.

“It’s what we prefer because it can cover higher volumes at a lower cost (to the government),” Brasileiro said.

So far the government has given no confirmation of the support measures it is considering, nor how or when they would be agreed on. The benchmark coffee rate in itself is meaningless unless it is accompanied by government intervention in the market. No mandatory minimum price for coffee exists in Brazil.

The benchmark July arabica contract trading on ICE Futures US climbed around 0.5 percent in the 17 minutes following the announcement, revisiting the session high at $1.4290 per lb.

Brazil is about a month away from harvesting another large crop forecast at between 47 million and 50.2 million 60-kg bags, according to a government estimate in January that will be revised on May 14. ($1 = 2.0109 Brazilian reais) (Reporting by Peter Murphy; Editing by Gerald E. McCormick and Marguerita Choy)

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