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Cardenas aims heavy warnings at industry.

Jorge Cardenas, the manager of Colombia's Growers' Federation, is as discreet as he is averse to hyperbole. Milds importers, then, might take note of what Cardenas had to say recently when he spoke of coffee marketing prospects. "The way we are going," he reportedly declared, "we are heading for bankruptcy.....In two years, there will be no coffee... With these prices, nobody is going to produce."

And for good measure, Cardenas added: "If (coffee importers) want a full scale crisis, then let's carry on as we're doing at presdent."

When the normally soft-spoken overlord of the Colombian coffee sector speaks on doomsday line such as these, there can be only one conclusion: the situation facing Andean Milds producers could hardly be worse than it is today.

Of course Cardenas may have been misquoted by the Bogata press. This could explain why he appears to have overstated the case. In two years' time, there still will be in fact coffee on offer, though how much of it will be of choice quality remains to be seen. But Cardenas did not over-state the case with his warning that the Colombian coffee sector could be heading for rough water.

Because of over-supply, milds prices slumped in summer to way below 90 cents the pound and-in the face of market saturation -- Colombia had to reduce its coffee exports. Production, however, had risen. Output in the 1990/91 season should be close on 15 million bags and, given slack overseas demand, stakes are therefore likely to rise some 7 million bags.

Meanwhile, the state National Coffee Fund, the planters' treasury, is running low on cash. By year's end, its deficit could amount to over $150 million. How, then long-term are coffee growers going to be adequately paid?

Since the collapsed of the ICA accord in 1989, Colombian planters have been largely cushioned against the price slump by the industry's financial reserves. Despite the depressed market, growers have still received a reasonable return for their crop because the authorities have been able to fall back on their cash reserve and, drawing on them, pay acceptable prices to planters.

But what happens if the money finally runs out? Will the domestic process paid to planters have to be reduced? Or will the government have to print money to fund the purchase of coffee?

If the first course is adopted, then plans to augment Milds output could be doomed. Lower prices for planters will threaten the future of many farms, already faced with spiralling costs. Others might have to reduce production and overheads, and both crop quantity and quality would suffer.

If the second alternative, printing money to maintain coffee prices, is adopted, the result would be even higher inflation than Colombian suffers today, and this too, in time would blight coffee production, already threatened by rust disease and the broca parasite.

Against this background, Cardenas can be excused for his less than sanguine view of the future. There is little chance of a new coffee accord within the foreseeable future. According, world prices will remain depressed until such time as the stocks held by importers run down and demand revives.

To resuscitate demand, Latin American producers have been examining the possibility of a voluntary retention system, under which they would hold back a proportion of their coffee destined for export, possibly 10% or so, in order to limit supply and so push up prices.

Bogota exporters, though not opposed to the idea, are nevertheless skeptical about its chances of success. They recall that the Brazilian and Central Americans were in the past incapable of closing ranks sufficiently to keep the ICA accord alive. They also recall that at least some exporters cheated in ICA rules and failed to honor quota obligations.

In view of these precedents, exporters ask what chances are there of a voluntary retention pact surviving if the disunited producers were unable to keep even a mandatory accord such as the ICA alive. And even if a voluntary pact were to be agreed, how would it be financed? Who would provide the funds to enable, for instance, the Central Americans to stockpile coffee until such time as market conditions improve? Also, who would police the pact? And how effective?

Admittedly, in theory at least, a voluntary retention accord could reduce world over-supply and, as a result, prices might return to tolerable levels within a year of two. "But I'll believe it when I see it," commented one Bogota broker.

Like not a few Colombians, he views the voluntary retention proposal as a product of desperation. Exporters, in the absence of any other alternative, are toying with it because they have nothing to lose. Optimists, however, argue that is is precisely because exporters are today so desperate that they may finally be forced into a common front that could be the preclude to the formation of a producers' cartel, on the lines of the oil industry. Colombia officials, though, refute suggestions that they are thinking in confederational terms of a cartel.

For importers, none of this is of too dire concern for as long as their bulging inventories remain replete. But what happens in five to ten years' time, if matters continue as at present? If neither a new ICA accord or a retention pact materialize, just how many Colombians are going to continue growing top-notch Milds? They have no obligation to bankrupt themselves for the sake of importers who want the impossible: choice quality at trash process.

And myopic importers who argue that Colombians will always grow coffee, regardless of prices, because they have no alternative, should visit plantation zones. Year by year, diversification programs are gathering strength. The coffee zones today are producing everything from fruit to fish and silkworms in an ever-increasingly successful bid to reduce their dependence on Milds.

This trends is reflected in the nation's export figures. Coffee, which once accounted for half or more of dollar revenue, today barely represents a fifth of income, and this proportion will continue to decline.

The Colombians are also hedging their bets against green coffee over-supply. In the latest development in this context, the new decafe coffee extract frozen has been inaugurated in Manizales. It will export frozen extract for the manufacture of canned coffee.

But though such factories generate new coffee income, they nonetheless do not in any way compensate for the slump in Milds export earnings, suffered by Colombians since the demise of the ICA. It is estimated that the collapse of the accord has cost the country nearly $600 million in lost revenue.

Aggravating difficulties, planters face increasing problems in the disease-control front. Roya, of coffee rush, continues to take its expensive toll, while the broca parasite is also spreading. The Grower's Federation, strapped for funds, continues to finance control programs which are meeting with some success.

Also on the positive side, another threat to coffee output has been averted. Communist-led guerrillas, who have been wreaking havoc in costal regions by blowing up power lines, have now called off their offensive against the energy sector. It has been feared that the rebels, in their efforts to undermine the economy, would extend sabotage operations to coffee plantation zones. Had they done so, Milds output could have been hard hit.

In regions where the guerrillas have been active, they have occasioned multi-million dollar losses by blacking out extensive zones, in one raid after another. Fortunately for planters, though, the guerrillas have ceased to blast electricity installations because, in the summer, their attacks provoked mass protests by millions of Colombians, exasperated by the power cuts caused by the insurgents. In the face of the protest demonstrations, the guerrillas had to back down and call it a day.

Hence the coffee regions remain largely peaceful, with one isolated rebel activity in a limited number of localities. For most planters, the problem today is financial rather than physical security.
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Title Annotation:Jorge Cardenas, manager Colombia's Growers' Federation
Author:Nares, Peter
Publication:Tea & Coffee Trade Journal
Date:Oct 1, 1991
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