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Colombia: amid tumult, coffee production increases.

The Colombian coffee industry has been brutally hit by the slump in Milds prices. But both exporters and planters are holding on in the hope that the situation will eventually improve, if only because it could hardly get worse.

Against this less than promising background, the Tea & Coffee Trade Journal interviewed Dr. Gabriel Rosas, a former Colombian Minister of Agriculture and now the president of the National Coffee Exporters' Association. In this abridged version of the interview, Dr. Rosas, one of the industry's most influential figures, reviews recent developments:

T&C: There has been a catastrophic slump in coffee prices. How will this affect the Colombian coffee industry?

Dr. Rosas: You yourself have described the situation as catastrophic, and really the coffee market situation is unprecedented. We are in a real crisis, and obviously this very seriously affects the structure of the coffee industry and the confidence and activities of growers and exporters. The latest developments are undermining market and production conditions not only in Colombia, but in all the producer nations.

T&C: Is the current price situation going to have a negative impact on the quality of coffee being produced?

Dr. Rosas: With current prices, we are going to see world-wide, I think, deteriorating standards in coffee growing and quality. The world will be reduced to drinking poor coffee if the present position persists. This could put markets at risk because consumers will be reluctant to accept low-grade coffee, and we'll all be in difficulties.

T&C.' So maybe the future lies with gourmet coffees such as Jamaica's Blue Mountain? In Colombia, are steps being adopted to develop coffees of this nature?

Dr. Rosas: I think the whole industry will be affected by the present situation. As for the idea of developing an elitist, luxury sector, as you suggest, the possibilities are limited. Housewives, who in practice determine consumption patterns, are guided more by price than any other consideration. But, obviously, quality remains a very important factor, and we must do our utmost to maintain it. But, with very depressed prices, a fall-off in demand is inevitable. So I don't think anybody will be unaffected by the current situation.

T&C: What are the possibilities of resurrecting the International Coffee Agreement?

Dr. Rosas: As I attended the (spring) coffee summit in London, I can perhaps comment objectively. In London, very positive steps were taken to generate the political will to sit down and discuss the problem. But the stance of both producer and consumer nations gave the impression that negotiations are going to be, at the very least, very difficult and complex because there is an enormous range of problems to be considered.

Among them is the question as to whether there will be a decision or accord regarding a world export quota. The problem will be the size of the quota. Then there's the question as to how the quota is to be distributed. Major interests will be at stake. Some nations will want a larger slice of the cake, while others will be reluctant to cede part of the share they have won over the years.

T&C: Colombia, for example, now has a larger share of the market. Would they be unwilling to sacrifice it?

Dr. Rosas: Yes, the situation's very difficult. Then there's the selectivity question. What pattern of output would be established under a new pact? What controls and flexibility would there be? Some countries have not clearly defined their position. For instance, I was surprised by the attitude of the EEC nations which manifested something of a reluctance to negotiate. It was a bad symptom that they declared they had the political backing of their governments and industrialists for a new accord but no technical mandate to proceed.

T&C: Was this Just a pretext to avoid a new accord in view of the .fact their importers are now getting coffee at almost give-away prices ?

Dr. Rosas: Exactly. Behavior like this gives rise to such doubts, and the same applies to the U.S., which is in an election campaign. None of the contestants will want to do anything that could harm the interests of their consumers by paving the way to a decision that could argument prices.

T&C: Do you think, then, we'll see a new coffee pact this year?

Dr. Rosas: I have to be very moderately optimistic. l don't rule out the possibility of a pact. But I don't think it will be an easy task.

T&C: In Colombia, we have a rather paradoxical situation: terrible prices but rising production. Have you the latest production ,figures ?

Dr. Rosas: The estimate for the full calendar year is that Colombian output will be around 17 million bags. This is a worrying figure. Why, in a crisis year, are we producing more coffee? Perhaps one explanation is this: Colombian coffee is grown with support prices and with a guaranteed market.

By contrast, the agricultural sector generally is no longer protected. So, obviously, coffee has certain advantages over other crops, and it enjoys a privileged position in the broad economic context.

Accordingly, a coffee planter, viewing the position, will think world prices are very depressed, and the price 1 myself receive has declined. But I still have the guarantee of a support price and an assured market. So why should I quit the business if it at least affords me stability and a livelihood, while other crops guarantee me absolutely nothing?

T&C: In other words, there is no other practical alternative for most coffee planters ?

Dr. Rosas: Correct. Nothing else affords better guarantees, even in the present crisis of prices and deteriorating incomes--factors which have had less effect here than in other countries.

T&C: Nevertheless, with coffee production rising, the country long-term cannot go on propping up planters' prices forever, or the result will be economic disaster?

Dr. Rosas: I agree. The resources of the National Coffee Fund (the industry's price support mechanism) are not inexhaustible. We have to agree on a production program which will bring supply in line with demand.

T&C: What would be a reasonable annual production figure in Colombia?

Dr. Rosas: I think between 14 and 15 million bags.

T&C: What's the domestic market demand for coffee?

Dr. Rosas: 1,200,000 bags a year.

T&C: This year, how much coffee will Colombia have for export?

Dr. Rosas: We ought to have between 13-13.5 million bags.

T&C: With assured markets ?

Dr. Rosas: I think we ought to be able to market that without much difficulty, assuming prices don't deteriorate further.

T&C: At present prices, can exporters remain in the market?

Dr. Rosas: Yes, but in very precarious conditions, and they have to use their imagination to the utmost in order to be able to earn a very small dividend.

T&C: But most exporters here are still in the market?

Dr. Rosas: Yes.

T&C: And they won't be forced out of it?

Dr. Rosas: Well, in this crisis, one can't discount any possibility. But for the moment, I don't foresee grave problems for the great majority of exporters because they've been prudent.

T&C: If the government once again were to be forced to reduce the price paid to planters, this could lead to social discontent, and possibly the guerillas could make inroads into plantation zones?

Dr. Rosas: This is the problem we have to bear in mind...For technical reasons, however recommendable in themselves, we can't add an ingredient of social instability to the situation... We have a social problem, and it has to be handled with political considerations in mind400,000 families depend on the coffee sector.

T&C: Has the price crisis yet had an effect on quality?

Dr. Rosas: No, quality remains good.

T&C: But for how long, with prices as they are?

Dr. Rosas: If prices fall further and if the economic situation of the planter is bad, then he won't be able to maintain quality because he won't be able to finance the growing procedures needed to ensure standards.

T&C: Will Colombia be able to reach agreement with other producers with respect to a new pact?

Dr. Rosas: The crisis is so serious I think we will have to reach agreement. But I have certain doubts regarding the position of Brazil and Mexico. Perhaps it will be easier for the Central Americans to reach an accord with us.

T&C: Colombians have been divided into two camps: those who have favored maintaining a coffee pact, and those who have argued that Colombia, with its choice quality, would do better on a free market.

Dr. Rosas: The facts are very clear. The problem here is the price question - not just quality. And we are not going to win larger markets merely by arguing we can offer quality. This is a market in which demand is not growing at the same rate as output. The market is determined more by price than by quality.

Colombia to reduce output

Colombia is considering a plan to reduce its annual coffee output by 1.8 million bags to around 15 million bags. Under the plan, at least 150,000 hectares currently dedicated to the production of Milds would be planted with other crops or would be turned over to livestock production.

The program would be implemented primarily in marginal coffee growing zones, many of which are more suited for the production of fruit and vegetables rather than Milds because of their climactic and soil conditions. Coffee grown in such regions is frequently of poor quality.

The plan to cut output is being considered within the flamework of Colombo-Brazilian efforts to resuscitate the International Coffee Agreement quota system. According to Bogota newspapers, both the Colombians and Brazilians are now agreed that steps must be adopted to cut production if a new pact to boost prices is to have any chance of success.

In Colombia, the Growers' Federation would almost certainly pay marginal-zone planters cash incentives to substitute coffee with other crops. Though short-term, the crop-substitute program would entail substantial expenditure, long-term, it would more than pay for itself as the authorities' coffee purchase commitments and warehousing costs would be reduced. Also, with the elimination of much of the coffee from marginal zones, quality generally should be enhanced.
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Author:Nares, Peter
Publication:Tea & Coffee Trade Journal
Article Type:Interview
Date:Oct 1, 1992
Words:1721
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