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Central America's coffee crisis: Costa Rica report.

Every weekday morning around 6:30, a long line begins forming outside the offices of ICAFE, Costa Rica's quasigovernmental coffee institute. The coffee farmers--here to collect their state provided coffee subsidies or "bonos"--are frustrated with the present and apprehensive about the future.

The mood inside ICAFE headquarters isn't much better.

"This is our worst crisis in 30 years," says the organization's subdirector, Xinia Chaves Quires. "International prices are lower than the cost of production. It's begun to produce grave effects on the national economy and direct consequences for the farmer."

Last May, Costa Rica temporarily suspended coffee exports to protect falling world prices and the breakup of the ICO, but the move was called off two weeks later. No other Central American nation joined Costa Rica in its unorthodox protest.

At that time, the country's trade minister, Roberto Rojas, justified the action, saying it had the desired effect of pushing coffee prices up $4-5 a pound. "We thought that at prices below the $60 level, it would be irrational for our coffee growers to sell coffee," he said. "The measure was temporary, but it did have an effect."

Looking back, Chaves of ICAFE sees things in a different light.

"The idea was to protest. We never expected to have an impact on world prices," said Chaves. "For us, the satisfaction was to tell the world we're not giving away our coffee for free."

Normally, Costa Rica earns 20% of its foreign exchange from coffee, but with low prices, coffee now accounts for only 15%. Costa Rica's 1991-92 crop totaled 3.65 million quintales. The 1992-93 crop is expected to come to between 2.8 million and 3 million qq.

"Coffee's not coming in as in previous years. This is definitely due to low prices," said Michael Eppe, manager of Peters & Co., one of Costa Pica's oldest coffee buyers. "Prices are below production costs. We need at least $30 more per qq to cover costs and make a decent profit."

"We all expected a drop in prices, but I didn't expect such a drop," he said, explaining that last year's crop was sold at an average $65.50/qq, compared to $84.00/qq the year before.

"Coffee used to be one of the most important producers of foreign currency, and now, that's over. Bananas are producing more," said Eppe. "If these prices continue for a few more years, more and more producers will stop producing. The trouble is, what can they do instead of coffee? You can not produce bananas in coffee lands."

For Costa Rica, the problem is compounded because of the country's high production costs associated with fertilizer and other expenses. Costa Pica is already among the most productive coffee-growing nations in the world, with a yield of 1,575 kg of coffee beans per hectare. This compares to 867 kg/ha for El Salvador, 809 kg/ha for Honduras, 758 kg/ha for Guatemala, 489 kg/ha for Panama, and only 367 kg/ha for Nicaragua.

In 1990-91, the U.S. bought 540,549 (60 kg) sacks, or 22.4% of Costa Rica's coffee exports. Germany took another 456,388 sacks, or 18.9%, and Great Britain 240,925 sacks, or 10%. Other big customers were Canada (6.5%), Netherlands (6%) and Italy (5.6%).

Total exports came to 2.4 million sacks.

Other pertinent statistics: in Costa Rica, 130,000 people depend directly on coffee. And in 1990, bananas and coffee together brought in 37.4% of agriculture income; in 1991, that rose to 43%.

Chaves says Costa Pica currently has 112,000 hectares of coffee under cultivation; 92% of the growers have fincas of less than 20 hectares each. She said the government is currently paying 1,750 colones per fanega (400 liters) of "care oro," an awkward system of measurement which works out to $3.22 per hectoliter.

"We've established the cost of production in Costa Rica at $62 a quintal; it's now selling for $57/qq. In marginal zones, we have decided to elimInate taxes on exports."

Chaves said ICAFE has reduced the export tax assessed growers from 1% to 0.5%, and has created two mechanisms of assistance: first, the Plan Nacional Cafetalero, an agreement with Fertilizantes Centroamericana--the state-owned fertilizer company--to give credits to producers on easy terms, and second, the Fondo Nacional de Estabilizacion Economica, which, she says, "seeks to give the producer a form of help when the price of coffee drops below $62/quintal. The producer gives back this money when prices go above $90. This has, been a big help."

At the recent Sintercafe meeting in San Jose, which attracted over 400 coffee buyers, growers and sellers from Central America and around the world, the mood was one of guarded optimism. Jorge Cardenas, general manager of Colombia's National Federation of Coffee Growers, said the recent increase to around 70/1b is no guarantee that prices will stabilize. If the world wants high levels of high quality coffee, producing countries need a quota system, he said. "We need to make all efforts to come to a new agreement that will be adjustable to the economy," said Cardenas.

Despite the gloom and doom, Eppe--who's been in coffee for 36 years, most of that time in Costa Rica--says there's little chance of social unrest or chaos, even if the current low prices don't improve.

"You cannot compare Costa Rica with El Salvador," he said, naming the Central American country that depends more on coffee exports than any other, and thus could face a worst-case scenario. "A worker here has his obligations, but also his rights. In some other countries, he has no rights."

Eppe added that "the Costa Rican government is making an effort to finance the farmers to keep the people producing coffee. We all firmly believe the situation will change, and that we'll see better prices."
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Author:Luxner, Larry
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1993
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