Low coffee prices threaten El Salvador's post-war economic recovery.

El Salvador, more dependent on coffee exports than any other country in Latin America, could face increasing social unrest if worldwide coffee prices don't recover soon, warn industry and government officials here.

The country, whose economy was devastated by a 12-year civil war that ended in January, earned only $219 million in coffee exports during 1991, down from $260 million during 1990. Volume was down too, from 148 million kilograms in 1990 to 127 million kg in 1991. During that same period, coffee prices dropped 50%, to levels not seen since the early 1970's.

"This is a disaster for El Salvador and all of Central America," declared Ruben Ernesto Pineda, executive director of the Salvadoran Coffee Council, a mixed public-private organization headed by the Ministry of Economy. "Coffee growers are in panic. They're not working, and they're in danger of losing their property. Right now, we're looking at every measure possible to help the farmers."

In an interview at his San Salvador office last week, Pineda said that the government - in addition to offering special loans to coffee farmers - is considering subsidizing the price of coffee at $80 per quintal (compared to the current price of $52/q) and having growers pay back the difference when prices recover.

Yet El Salvador has decided not to emulate Costa Rica, which suspended coffee exports last May in a symbolic protest against sliding prices and the collapse of the International Coffee Organization.

"We cannot legally (suspend) coffee sales," Pineda explained. "El Salvador did consider a unilateral move as did Costa Rica, but the president didn't get any signs of support from the private sector. Guatemala is definitely not going to do it, Honduras can't because of legal problems, and Nicaragua is unsure."

At the moment, coffee represents 37% of all Salvadoran exports by value, though that percentage continues to drop with the rise of non-traditional exports such as garments, fruits, vegetables and seafood.

Ricardo Hill, president of Fusades, a Salvadoran export promotion agency funded by the U.S. Agency for International Development, said that last year non-traditional exports surpassed coffee earnings for the first time.

"This coffee crisis will affect all (Central American) countries, said Hill, a coffee producer with plantations in Santa Ana. "We used to produce around 5-6 million bags a year. When agrarian reform came, production dropped 50%. We were forced to sell to the state." Hill and other critics of the late President Jose Napoleon Duarte say the Duarte administration helped destroy El Salvador's coffee industry by nationalizing it in a political concession to FMLN guerrillas who were trying to topple the government.

Armando Chavez, general manager of Productos de Cafe S.A., the country's only soluble coffee exporter, says even with the collapse of the ICO and ensuing low prices, El Salvador's current situation under President Alfredo Cristiani is far better than under Duarte.

"The guerrillas were demanding a war tax. They would even kill farm administrators and pickers who refused to pay them or obey their orders," he said. Chavez added that coffee farmers in the eastern zone - San Miguel, Morazan and Usulutan - were the most affected by the war, though the country's major coffee-growing regions are in western El Salvador, near the Guatemalan border.

According to Pedro Arriagada, an economic analyst for Fusades, "All exports of coffee and sugar were in the hands of the state. Coffee growers had to sell to IN-CAFE, which bought 100% of the crop. In the 1985-86 season, the international price increased from $145 per quintal to $192/q, a 32% increase. The price that producers received went up from 35 colones/q to 52 colones, a 48% increase. The previous season, the price went up 10%, but the price received by growers dropped 10%.

"There was no correlation between the international price and local price," said Arriagada. "That's why nobody invested in coffee here during the 1980's. One of the first things Cristiani did when he was elected in 1989 was to denationalize the coffee and sugar industries."

In addition to low prices and a crippling drought that has forced severe electricity rationing, Salvadoran coffee exporters are still dealing with the lingering effects of a boycott organized by Neighborto-Neighbor, a San Francisco group opposed to U.S. military aid to El Salvador. The boycott against Folgers and other buyers of Salvadoran coffee was called off following the signing of the Chapultepec peace accords, but growers say it dealt a severe blow to the industry.

"From reading a U.S. newspaper, I recall that Neighbor-to-Neighbor said that, because the U.S. was supporting the Salvadoran government which was exploiting and violating human rights of coffee pickers, it was therefore not proper for the U.S. to buy coffee from El Salvador," said Chavez. "Since the group was based in San Francisco, I think they convinced the We, Coast longshoremen not to unload any cargo coming from El Salvador to the West Coast. One Salvadoran had bought a container of watermelons. It arrived in Long Beach and wasn't unloaded because of the protest. He lost all his savings."

During the height of the Neighbor-to-Neighbor boycott against the Salvadoran coffee industry, an appeal was posted on a nationwide computer network sympathetic to left-leaning causes. The notice read as follows: "If we can force Folgers, which is owned by Proctor & Gamble, to stop buying Salvadoran coffee, this alone will cause a tremendous drop in Salvadoran coffee sales. Then, we can concentrate on Nestle and General Foods, the other big U.S. coffee companies. Meanwhile, you can buy coffees such as Stewarts, Jewel 100% Colombian and Eight O'clock with a clear conscience."

Says Luis Cardenal, president of the Centros de Estudios Democraticos, a conservative think tank: "I'm sure certain liberal Hollywood celebrities had good intentions in their hearts, but they were used by the left. If you want to help the people, you don't help by hurting the economy, blowing up bridges and killing their freedoms."

Chavez, whose office was machine-gunned during a 1989 FMLN offensive, said his company buys raw materials from producers and millers. Chavez manufactures, among other things, frozen coffee extract for export mainly to Japan. Like all Salvadoran coffee exporters, Productos de Cafe S.A. trucks its products from San Salvador to the Guatemalan port of Santo Tomas de Castilla for shipment across the Gulf of Mexico to New Orleans and other U.S. ports. Decaf coffee is shipped in 69-kg bags directly from El Salvador to the U.S.

"Three years ago, many people started investing again in their plantations, even with the threat of continued hostilities. When President Cristiani took office, they began harvesting again. Before, everything was controlled by the government."

Costa Rica suspends, then renews coffee exports in protest move

SAN JOSE - Costa Rica temporarily suspended coffee exports in May to protest falling world prices and the breakup of the International Coffee Organization.

A San Jose newspaper, the English-language Tico Times, said the move expected to cost Cost Rican Coffee Exporters $150 million, though it was called off only two weeks after it was declared. No other Central American nation joined Costa Rica in suspending coffee exports.

Costa Rican Trade Minister Roberto Rojas justified his country's unusual action, saying it had the desired effect of pushing coffee prices up $4-5 a pound.

"We though that, at prices below the $60 level, it would be irrational for our coffee growers to sell coffee," Rojas told The Tea & Coffee Journal in an interview. "The measure was temporary. It has already been discarded, but it did have an effects."

The trade minister said that, normally, Costa Rica earns 20% of is foreign exchange from coffee, but that with low prices, coffee now accounts for only 15%.

"We think Central America in general has a competitive advantage in coffee because we have the right climate and the right altitude for a very high-quality coffee," he explained. "However, with time, less efficient producers are going to stop production."