Dec. 9 (Bloomberg) -- World coffee consumption may outstrip production by as much as 8 million bags in 2009-10 because of the smaller crop in Brazil, the top grower, said Nestor Osorio, International Coffee Organization Executive Director.

``It's a tight situation that will support prices,'' Osorio said in an interview today in Ho Chi Minh City.

Prices of the mild-tasting arabica coffee used by Starbucks Corp. jumped 6.1 percent yesterday, the biggest gain in almost three years as Brazil's Agriculture Minister Reinhold Stephanes said output may drop as much as 22 percent next year to as low as 36 million bags. Prices of the bitter-tasting robusta used in espresso and instant coffee by Nestle SA climbed 4.3 percent.

Coffee is ``at fair value'' currently, said Pamela Thornton, a portfolio manager at Armajaro (USA) Inc., who runs a coffee and cocoa fund exceeding $400 million. ``While prices have come down, they won't suffer as much from the speculation in other commodities,'' she said at a conference Osorio was attending.

Coffee has outperformed commodity indexes as prices plunged since the end of June. Arabica has dropped 29 percent in New York compared with a 61 percent slump in the Standard & Poor's GSCI index of 24 raw materials.

``If world output were to drop to 122-125 million bags, from 132.5 million, while consumption is about 130 million bags, we're going to have a deficit from a surplus,'' Osorio said. ``The other origins cannot compensate for such a big fall of up to 10 million bags from Brazil.''

The world may have a surplus of 4.5 million bags in 2008-09, with production at 132.5 million bags and consumption around 128 million bags, according to ICO figures.

Surplus to Deficit

Osorio reiterated his forecast yesterday for a 40 million bag Brazilian crop, down from 45.9 million bags this year as trees enter the slower half of a two-year cycle. Each bag weighs 60 kilograms (132 pounds).

``Normally tree stress may reduce the Brazilian crop by 15- 20 percent in the following year but the significant factor this year was the price of fertilizer,'' he said.

Colombia was expected to produce 12.5 million bags, ``but rains may have reduced that by 200,000 to 500,000 bags,'' he said. Good management practices will keep the crop at between 12 million and 16 million bags in coming years, he said.

``Vietnam isn't losing very much because the industry is still young and the trees have strong yields,'' he said, estimating the current crop at 21 million bags. Output in the next three years may stabilize at 18-20 million bags, he said.

Brazilian production will stabilize rather than expand, said Neil Rosser, managing director of London-based NKG Statistical Unit, the research body of Neumann Kaffee Gruppe. Vietnam and Colombia are the biggest growers after Brazil. The ICO is a group representing producing and consuming countries.

To contact the reporter on this story: Claire Leow in Ho Chi Minh City at cleow@bloomberg.net;

Last Updated: December 9, 2008 01:42 EST