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Argentina, Brazil, Uruguay, and Paraguay set plans to be linked together in Mercosur.

Argentina, Brazil, Uruguay and Paraguay will soon be linked together in Mercosur, a common market comprising 183 million people, 11,863 square kms, a joint gross domestic product of 403,327 million dollars and a per capita yearly income of 2,197 dollars.

Reverberations from this four-way merger-due for 1995-are being felt by industry leaders and farmers who view the prospect of free trade in the region with both confidence and alarm.

The presidents of the four Mercosur countries met in Argentina on June 27th, in the first scheduled meeting of 1992. The meeting was dubbed the Southern Cone Summit because of the added presence of the Chilean and Bolivian presidents who attended as observers.

The Mercosur chiefs discussed the schedule of economic measures that must be taken to prepare for the complete integration of the common market beginning on January 1, 1995. An official press release stated that the coordination of of the region's macroeconomic policies will take place gradually and parallel to the implementation of schemes to lift export tariffs and eliminate non-tariff barriers. One of the project's goals is "to provide credibility and predictability in the economic areas, issues that are crucial to attracting investments from other countries."

The Mercosur agreement has a specific loophole designed for Chile but Chilean President Aylwin pointed out that he would prefer to wait until the members of the pact reach the "more advanced stage" of Chile's economy.

The elimination of trade barriers between the four countries will have far-ranging consequences specially on countries like Paraguay. Economists estimate that about 40% of Paraguay's trade is contraband. This includes coffee.

Industry sources say that while it is very difficult to estimate exactly how much coffee Paraguay exports, it sold almost double its production in 1990. The additional coffee enters from Brazil and is exported as Paraguayan. 1990/91 production of Arabic coffee in Paraguay was 400,000 (60 kg) sacks; 1991/92 435,000 sacks and it is estimated that this will increase to 670,000 sacks in 1992/93.

Until recently 24,000 hectares was under cultivation to coffee with 29 million bearing tress and 3 million non-bearing. This is being increased by a further 2,750 to 3,000 hectares on one plantation containing 9 million trees and belonging to Abdel Jamil Georges of Eximpora Cafetalera S.A..

Fernando Mendonca, head of the Paraguayan Coffee Exporters Association says "In two years these new plantations will come into full production increasing Paraguayan production substantially." Referring to Paraguayan green exports for 1992 he said, "So far only 100,000 bags have been exported this year because of low coffee prices. Argentina continues to be the principal importer if Paraguayan coffee followed by EEC countries but we have made significant exports to Russia."

Paraguay has one soluble coffee processing plant, Meyer and Cia Instant Foods which has recently increased its capacity to 2,000 tons annually. Operating since 1986 the company buys green coffee locally, processes the coffee and exports. Alberto Meyer, director of the company, said "Our main exports are to Eastern bloc countries followed by Argentina, the U.S. and the EEC. We are also beginning the manufacture of instant tea and yerba mate."

During 1991, Paraguay supplied Argentina with 2,577 tons of green coffee at a CIF value of US$3,206,244. Brazil was Argentina's main supplier with 24,432 tons at a value of US$29,713,433 followed by Colombia with 6,457 tons at US$8,774,663.

While Argentina is an importer of coffee, it is also an exporter of tea. The U.S. is Argentina's main customer. According to official figures published by the Argentine Tea and Coffee Association, Argentina exported 36,029 tons of tea during 1991. The U.S. continued to be Argentina's main customer importing 16,548 tons followed by Chile with 8,711 tons. Germany and the Low Countries imported 2,570 and 2,859 tons respectively. Poland more than doubled its imports from 650 tons of 1,316 tons.

High production costs and low sales prices continue to affect Argentine tea production but one company which has shown confidence in the government's privatization program and the future of the tea business is Ceticom S.R.L. formed in June 1992 with the purchase of the tea government owned Tecavi tea factory. Substantial investments have been made in updating and reactivating the factory which will go on line in October 1992 in time for the Argentine tea export business since 1973.

The Argentine tea industry works closely with INTA, The National Institute of Agriculture. INTA estimates the total 1992/93 crop to be in the region of 37,500 to 40,000 tons. So far this season, the weather has been perfect and so a larger crop is expected. Around 67,000 tons of tea is consumed annually in Argentina and 33,000 tons of coffee. Other suppliers of coffee to Argentina are Peru with 226 tons in 1991 and Bolivia with 32 tons.

Although Bolivia has close historical and other ties with Peru, two-thirds of its trade is with Brazil and Argentina. It is faced with a major political decision between Mercosur and the Andean Pact.

Latin American representatives of small coffee producer organizations and German buyers met in Germany in September 1992 at a symposium organized by the Friedrichh Esbert Foundation the theme of which was "Cheap coffee signifies more misery."

Experts and representatives discussed the dramatic consequences suffered by many small coffee producers in the Third World, especially Latin America, as a result of low coffee prices. Thousands had been brought to virtual financial ruin; possible alternatives and solutions to the crisis were suggested. Most of Peru and Bolivia's coffee growers are small producers.

Bolivia and Peru are the world's largest producers of coca from which cocaine is produced. Both countries also produce coffee which grows in the same coca producing areas. Coffee has long been suggested as a substitute crop of coca but with the low coffee price it is nowhere near as lucrative for the small coffee producer.

Bolivian President Kaime Paz Samora speaking in San Antonio, Texas, in February, 1992, at the sequel to the 1990 Cartagena Andean Drug Summit presented a plan calling for the creation of a fund for peasant farmers who give up production of the coca plant and another to ease the impact of Bolivia's economy for the loss of money brought in by cocaine.

Total Bolivian coffee production for 1990/92 was 226,000 (60 kilo) bags and 243,000 bags are expected from the 1991/92 crop. 50,000 (70 kg) bags are still in stock. Exports amounted to 85,000 bags in 1991 and should increase substantially to 130,000 during 1992. Exports receive a 32% reimbursement. Germany and the Middle East are the principle markets for Bolivian coffee. Of the 42 registered Bolivian coffee exporters, 27 are actually exporting.

Bolivia and Peru are also tea producers; Bolivian tea production dropped from 300 tons in 1990/91 to 200 tons in 1991/92.

1991/92 production figures for Bolivia are estimated at around 150,000 bags. Peruvian production was badly affected by drought conditions from September 1991 to March 1992, production for 1992/93 will probably drop to its lowest level since 1975/76 at around 900,000 bags. 1991/92 production should be a little over a million bags of which over 90% is exported.

Low market prices and terrorist activities also continued to affect Peruvian coffee production. Observers feel that the latter could be curbed with the September arrest of the guerrilla movement Shining Path's leader Abimael Guzman. The capture was a political victory for President Alberto Fujimori who seized decree powers in April with the support of the armed forces. While Fujimori's aggressive program of privatization, deregulation and cutbacks in government spending has reduced inflation and helped reassure the international financial community, it has done little to help the legions of poor which include most of Peru's coffee producers.

A big, question mark over Mercosur's future continues to be Brazil which bulges disproportionately large among the four countries with more than three-quarters of their population. This is largely because of its current political and economic crises. Winding up the June summit, President Menem of Argentina discounted the possibility that this could delay integration. He reiterated this position speaking in Germany on September 30th, the day after the Brazilian Congress voted to impeach Brazilian President Collor de Mello.

Speaking of September 7th, the occasion of Brazil's 170th anniversary of independence, Brazil's ambassador to Argentina referred to Brazil's present crisis and its effect on Mercosur. "I do not think it has even affected Mercosur in any significant way. All mechanisms that we have set in place are moving ahead at a very fast pace... I look forward to Brazil being out of the current recession as soon as possible so that we can absorb immediately all the exports of Argentina, Paraguay and Uruguay."

Inflation in Brazil for August was 23% while all the Spanish-speaking South American countries between them added up to 18.1%. Total inflation for 1992 topped 1,150%. As the world's fifth largest country with the eighth largest population, it is the world's largest coffee producer with an estimated production of 27.4 million bags for 1991-92 and 23.0 million bags for 1992-93--it can be hoped that it is a country much bigger than its crisis.

Referring to Brazilian and Colombian coffee production on January 9, 1993, Colombian President, Cesar Gaviria, anticipated that coffee exports would fall below demand as a result of the two countries reducing their sales. In a message to the National Coffee Congress, he invoked the help of U.S. President Clinton in the formation of a new coffee agreement.

In December 1992, Paraguay became another Mercosur incognito when it threatened to boycott the common market as a result of Argentina's increase from 3% to 10% in the statistics fee on imports. Referring to this, Paraguayan Chancellor, Dr. Alexis Freutos Vaesken said in late 1992, "It breaks not only the spirit of the Treaty of Asuncion signed at the formation of Mercosur in January 1991, but also the law. We are not obliged to continue within Mercosur but by withdrawing we would be swimming against the tide of economic integration."

This survived the December 1992 Mercosur summit of the four presidents but hangs in the balance especially as Paraguayan President Andres Rodgriguez' heir was defeated for the governing Colorado party nomination by Luis Maria Aranga who is hostile to Mercosur and feels Paraguay's terms should be renegotiated.

Despite the underlying tensions of the year-end Mercosur summit, it was marked by important points of agreement. If it can achieve the necessary stability, its main aim is for union with NAFTA.
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Title Annotation:plan common market
Author:Misdorp, Sheila
Publication:Tea & Coffee Trade Journal
Date:Feb 1, 1993
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