A Bitter Cup of Coffee

An Editorial from Natalia Lozano, a Colombian International Relations Specialist 

Trouble Brewing in Colombia

Trouble Brewing in Colombia

From farm to cup, the best coffee of the world comes from the ridges and mountains of Colombia, where peasants produce the bean in family-run operations. Unlike many other parts of the world, all of the harvesting and post-harvesting is still executed by hand. After the beans are collected, they are sold to the Federación Nacional de Cafeteros de Colombia (Fedecafé), a non-profit business association, at an established internal price. The beans are then exported throughout the world to be roasted, packaged and distributed before winding up in somebody’s cup in Washington, Paris, or Tokyo.

And as long as we can get to that cup before 9:00 AM, that’s just about all we need to know.

But on February 25, thousands of these growers left the coffee-picking plantations and went to pick a fight with the Colombian government. The cafeteros streamed down from the highlands to ask for more official subsides. After 12 days of unrest that disrupted the flow of basic goods to cities such as Popoyán, the coffee grows returned to the fields having secured the government’s promise of increased economic support.

The striking farmers may feel some relief, yet it is by no means clear that more assistance will solve Colombia’s coffee crisis, and it may serve only to make the crisis a chronic condition

Problem Long Brewing 

Coffee problems are nothing new. In 2009, bad weather, high production costs and the broca disease led to a 30 percent drop in the harvest, representing the lowest yield in 36 years. Since then, coffee outputs have continued to fall.

Colombia has exported in the vicinity of 8 million bags per year as of late, far from its 1992 highs when it reached a record of 15 million bags. Though output may increase marginally in 2013, production is expected to remain below 10 million bags. Once the world’s second highest producer after Brazil, Colombia now occupies the forth position after Vietnam and Indonesia, and imports 50 percent of the coffee consumed domestically (1.4 million bags), principally from Peru.

This sharp drop in production, exacerbated by market volatility, cut the incomes of nearly 2 million people that depend on coffee revenues. In 2011, 125 kilograms of coffee (a “carga”) was sold from growers to Fedecafé at a price of US$605. By 2012 the carga had dropped to US$357, and by the time coffee farmers went on strike in 2013, the price had bottomed out at $281, well below the February the cost of the resources required to produce a carga, nearly US$360.

Despite the tenuous situation faced by growers, Colombian President Juan Manuel Santos (2010 – ) dismissed the strikes and ensuing protests as unjust, unnecessary and inconvenient. Since 2010, his government has given more than US$2.500mn to coffee growers through subsides and loans. Yet, as the protests turned violent, roadblocks around Popayán generated a humanitarian crisis, and the public opinion raged against the government. President Santos was forced to soften his hard line. He agreed to double government assistance from US$33 to US$63.83 for every 125kg of coffee.

Video: Scenes from the Strike

Cheaper Coffee No Instant Fix

But higher subsides alone are not going to stop a crisis driven mainly by drops in production, volatile international prices, and a stronger Colombian peso.

Previously the international coffee price and export quantity greatly influenced the Colombian exchange rate. This influence allowed coffee men to stabilize their incomes despite international fluctuations. The importance of the coffee was such that when prices were high, dollars flowed into the country, and the peso would appreciate; but if exports were down, and the international prices low, the peso would depreciate. Essentially, coffee cycles matched Colombian macroeconomic fluctuations.

Since those days, however, the Colombian economy has diversified. In the 1970’s the coffee industry represented 63 percent of all Colombian exports; today it is the less than 5 percent. The country also receives ever-greater amounts of non-coffee related foreign investment that diminish the impact of crop prices.

Coffee has lost its influence, and low production affects only the coffee grower’s pockets.

Meanwhile, while Colombian production remains stagnant, production in Brazil increases exponentially. Brazilian output is expected to increase by 6.7 million bags in 2013 reaching upwards of 60 million total. If the international price remains low and the Colombian peso strong, the internal coffee price will face further downward pressure. Therefore, unless the production curve changes direction, the coffee problem will continue.

In this scenario, the coffee model is unsustainable even when it has the government’s economic support.

An Expensive Cup of Joe

The agreement to end the coffee strikes will cost the Colombian government roughly US$443mn annually. President Santos himself has admitted that the state cannot afford this, and that the extra money needed to save the coffee will thus come from a tax reform. But this subsidy is unlikely to address the underlying problem. Colombian farms remain less productive than their counterparts in Brazil and Costa Rica. Coffee price will remain low as the world production stays high, and peso may remain strong as investment continues to pour into the heavy commodity sector.

In the 1990’s, as the coffee business boomed, Colombians would spend their afternoons watching the telenovela “Coffee, With the Scent of a Woman”, which followed a love story unfolding in the heart of the coffee country.

When the new tax arrangements kick in, Colombians may note that the scent of coffee – imported from Peru, no doubt- has changed, and now features the bitter after taste of sending good money after bad.

Ojalá Que Llueva Café: 

Natalia Lozano trained in the Colombian Ministry of Foreign Affairs and writes for CON-TEXTO TADEISTA in Bogotá. She currently lives in Washington, DC.

Previous Articles by Natalia:

Colombia Battles for Peace – Maybe this is the Problem

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