Grounds war: international coffee prices stay low, forcing Colombian growers large and small to rethink.

Miguel Chaparro, the leader of a small indigenous community of Arahuanco natives, has made the five-hour journey by mule from his farm down to Pueblo Bello, a frontier town that connects the rest of Colombia with the Indian country of the Sierra Nevada. Located in the north of Colombia, the Sierra Nevada is a sparsely-populated vast expanse of plains, thick jungles and mountains with few roads "all but forgotten by the Colombian government.

In this wilderness, inhabited by indigenous tribes, Marxist guerrillas and rightwing death squads, Chaparro and his community for decades have grown 40 hectares of coffee. In line with Arahuaco beliefs of keeping the earth flee of chemicals, Chaparro grows organic coffee, a form of specialty coffee Colombia is keen to promote to distinguish the national product from oilier types on the shelves of supermarkets in Europe and in the United States.

Dressed in the traditional white gown of the Arahuaco Indians, Chaparro explains his frustration with growing the bean. In 1997, his trip down to Pueblo Bello yielded US$1.34 a kilogram. Now he gets $0.89 a kilo--a 34% decrease. "We're already moving away from coffee, planting lemons and oranges," says Chaparro. "With all the costs of producing coffee, it's just not worth it for us."

That's because Chaparro--and Colombia's more than half a million coffee farmers as well as millions more around the world--are suffering from a collapse in coffee prices brought about by overproduction from leading suppliers Vietnam and Brazil. Coffee's problems began with the dissolution of the International Coffee Agreement in 1989, leading producers to abandon quotas the coffee-producing countries had previously relied upon to regulate production. Coffee prices plunged.

Prices on the international market, which now hover between $0.60 cents and $0.70 cents per pound, remain low as production continues to outpace consumption. Ira the 2002-03 coffee harvest, production hit 125 million 60-kilogram sacks while consumption was 115 million sacks. In 2003, Colombia alone produced 11.6 million 60-kilogram sacks, slightly down on the year before. Exports were also slightly down, to 10.2 million sacks. Initial forecasts predict consumption may over take production in 2004, leading to a light recovery.

The collapse in prices has been catastrophic for Colombia's coffee industry. with 2 million people depending directly or indirectly on coffee, some 30% of rural employment. The Colombian coffee federation says poverty and child malnourishment has spiked in coffee-growing regions. Rising poverty in Colombia's coffee belt also means some of the country's more violent problems are reaching those areas. "We have seen in some marginal areas in the Columbian coffee region farmers switching to illegal crops" such as coca, the base ingredient refined into the drug cocaine, says Gabriel Silva, president of the National Federation of Coffee Growers of Colombia.

Much of the Colombian civil war revolves around territorial fights between right-wing death squads and Marxist guerrillas for control of coca and poppies, the raw ingredient of the street drug heroin. An increasing drug trade in traditionally coffee-producing regions means that at some point the civil war is likely to encroach on these areas, too. In the prosperous past, coffee-producing areas, especially in the Colombia's western regions, had been pockets of peace because of the high coffee income that trickled down throughout these parts.

As prices have fallen, coffee's role in the Colombian economy, too, has fallen. Thirty years ago cerise exports accounted for half of sales abroad, but in the past couple of years the commodity has slipped to third place, behind oil and coal. In the first 11 months of 2003, coffee exports totaled $716 million, compared with $3.1 billion for oil and $1.4 billion for coal. Coffee in 2003 accounted for about 6% of all of Colombia's exports.

Some argue that the diminishing weight of coffee in the export picture is a healthy sign for the overall economy. "As economies grow, and become more diversified, the production of primary goods becomes less important," says Panes Varangis, lead economist in the World Bank's agriculture and rural development department. "This is not bad news, probably good news, showing that the economy has diversified."

Slimming down. The collapse of coffee prices nevertheless has affected the finances of the coffee federation, the trade group that represents the majority of Colombia's coffee growers and the largest rural non-governmental organization in the world.

Silva, who was unanimously elected to head the federation in 2002, was the first non-member of the federation to become president, ending a line of coffee patriarchs. His predecessor was criticized for simply trying to wait the crisis out.

Silva took office and began slashing costs and selling assets the federation had accumulated since its founding in 1927. One of his first acts was to ask all the federation's executives to Lake a 10% reduction in pay. He also cut spending on pro grams; funding for infrastructure in coffee regions was almost eliminated. The coffee group is still hoping to sell its majority stake in Colombia's second-largest airline, ACES. In Silva's words, it's only waiting for a "reasonable price."

The cutbacks helped the federation turn a surplus in the third quarter of 2003 of more than $20 million, compared with a deficit of $44 million in the first three quarters of 2002. Besides cleaning up finances, Silva sees his role as promoting Colombian coffee and finding a way out of the crisis. One solution is to boost exports of specialty coffees, something within five years Silva hopes will have doubled on international recognition of Colombian coffee as a superior brand to that produced elsewhere.

The federation also is cutting out the middleman, selling coffee directly to consumers. Silva has overseen the creation of a new chain of federation coffee shops, branded with Colombia's longstanding pitchman, the iconic grower Juan Valdez, standing alongside his mule. "We have opened 10 Juan Valdez coffee shops in Colombia's main cities," Silva says. "The project for 2004 includes the inauguration of 10 more outside the country, particularly in the main consuming countries."

Silva is pushing for programs to increase consumption. He also will lead an attempt to reform the international coffee market, urging the U.S. to join the International Coffee Organization (ICO) and lobbying for governments to cut price supports for farmers in both the United States and in the European Union.

Silva has at least one powerful ally in the United States in Robert Nelson, CEO of the U.S. National Coffee Association. Nelson supports bringing the United States into the international group, despite his country's longstanding dislike of joining most existing international trade organizations. "We believe we are significant in the global coffee industry and that the U.S. needs to have a seat at the table," says Nelson, whose group represents the U.S. coffee industry and is responsible for 90% of the coffee business in the United States.

Nelson hopes U.S. membership will raise global coffee bean quality. Emerging market farmers squeezed by low prices can't afford fertilizers and now produce lower-quality products. That means prices in the near future will likely have to rise--but probably nut fast enough to change the minds of Indians in Colombia's back country. According to Colombia's coffee federation, coffee-producing countries' exports fell by half to $5.5 billion in 2002, down from $10 billion to $12 billion during the 1990s. During the same period, coffee retail sales in the developed world nevertheless more than doubled to $70 billion from $30 billion.

TOBY MUSE * PUEBLO BELLO, COLOMBIA