COMMODITIES: Coffee Crisis Survivors to Reap Future Rewards

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Oct 2 2001 (IPS) - The coffee growers who survive the current price crisis will ultimately reap the rewards of the next boom period, while the least competitive are likely to be forced out of the coffee industry altogether, predict coffee experts in Brazil.

In Latin America, the region responsible for nearly 60 percent of the world’s coffee output, Central American and Colombia are suffering due to their high production costs, which average 100 dollars per 60-kilo sack of coffee.

Brazil, the world’s leading producer of the bean, has managed to keep costs below 80 dollars a sack, according to Aguinaldo José de Lima, president of the Coffee Growers’ Association of Patrocinio, an area in central Brazil that is not known for its fertile soils but where coffee plantations have flourished during the last decade.

The crisis today is characterised by prices “at an inconceivably low level,” the lowest in history, taking global inflation into account. But it is also “a blow to our dreams,” and is forcing coffee producers to be more realistic about their economic perspectives, commented Lima.

The current coffee prices average 50 cents on the dollar per pound (0.453 kg), meaning that a sack fetches just 66 dollars, compared to 120 dollars six years ago.

Coffee production has not been able to shake free of the cycles of euphoria and depression, despite the efforts of the Association of Coffee Producing Countries (ACPC), founded in 1993 to balance supply and demand.

Brazilian coffee growers largely agree that those who are able to keep operating their farms through the current troubles, while working to improve productivity, will make it through to see what they hope will be a new cycle of high prices in the near future.

The ACPC failed in its attempt to contain coffee supplies through an export-withholding plan, which was formally abandoned as of Oct 1, largely because many producer nations did not comply with the established quotas.

The London-based association itself runs the risk of a sharp budget shortfall and may even be dismantled at a meeting slated for January.

With the global coffee market on the downslide due to excessive supply, the outlook is for continued low prices – or for deeper slumps -, remaining below farmers’ production costs.

The International Coffee Organisation calculates that the world harvest that is now drawing to a close totals 115.4 million 60- kilo sacks, but that consumption for this year will be less, just 108.3 million sacks.

This year the crisis of over-supply cannot be blamed on Brazil, though it is still the number-one producer. Its latest yields have been limited by climate problems, points out Osvaldo Paiva Ribeiro, president of the National Coffee Council of Brazil, which represents some 250,000 growers.

The high volume of coffee on the global market is attributed to the Asian producers, particularly Vietnam, which has had surprisingly abundant harvests in recent years, replacing Colombia as the world’s second leading coffee producing nation.

Coffee growers in Brazil are attempting to refinance their debts, and hope the government will provide the financial support they need to get through this period of prices stagnating below production costs.

“If the country takes intelligent actions and adopts the correct policies now, it will come out of this crisis strong,” commented Ribeiro. Brazil holds many advantages in the international competition for marketshare, in terms of costs, infrastructure and quality, he said.

“The least competitive farmers will be forced to abandon their operations,” which will reduce future coffee supplies and keep prices up, predicted coffee entrepreneur Lima.

The current coffee price wars will hit the African coffee producing nations the hardest and will lead to increased Asian participation in the world market, said Brazilian ambassador in London and APCP chairman, Sergio Amaral, some months back. Amaral is currently Brazil’s minister of Development, Industry and Foreign Trade.

But the social deterioration caused by the price slump affects producers in all coffee growing regions because the industry is an important source of jobs

In the central state of Minas Gerais, which is home to half of Brazil’s coffee plantations, the sector employs approximately two million people – either full-time or seasonally -, reports Argileu Martins, technical director of the government’s Enterprise for Technical Assistance and Rural Extension Services.

The impacts on local employment in the coffee growing region will be felt during next year’s harvest, which begins in April or May, and ends in August or September, said Martins.

Rising unemployment will aggravate poverty, which is already a serious problem among the workers who migrate throughout the region during the harvest season, moving from coffee farm to coffee farm, and earning very little as a result of the low prices on the international market.

The harvest that is now concluding already saw a reduction in the number of seasonal workers, many of whom come from the northern part of Minas Gerais or from other states, such as Paraná, in the south, where coffee farms were destroyed by freezing temperatures, said Aparecida do Lago Vieira, head of the Federation of Rural Workers in Minas Gerais.

Small farmers – those with fewer than 100 hectares – produce 49 percent of the coffee grown in Minas Gerais, and their production costs average 25 to 45 dollars per sack, in contrast to the 70 dollars reported by the larger coffee farms, observed Martins. The family-run operations do not have to pay the costs associated with the workforce needed on larger plantations.

Without no cure-all plans in sight for the industry, coffee growers in Brazil and other countries will have to face many challenges, fighting for financial backing in times of price fluctuations so that they do not have to abandon their farms, but also making an effort to boost productivity – as well as consumption.