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Central America's coffee crisis: Nicaragua report.

Nicaragua is finally shedding one of the last vestiges of Sandinista control over its coffee industry with the end of Encafe's monopoly and the opening up of coffee exports to competition for the first time in years. But low world prices are having a serious impact on the economy of Nicaragua, currently Central America's poorest nation. While private coffee exporting companies are thrilled about being able to compete with the state, some observers say the new capitalist system provides no safety net for the country's longsuffering campesinos.

According to an article in the October 1992 issue of Envio, a magazine dedicated to Central American affairs, "investment in coffee has increased enormously as a result of a credit program, financed by the state banks, for the renovation of coffee plantations. By the end of the first semester (of 1992), more than 14,000 acres had been financed, equivalent to the area renovated with bank credit in the past four years combined. Almost all of this credit has gone to the big export growers, to the neglect of the majority of small coffee farmers."

The article adds: "This policy is counterproductive since mountain coffee is currently more profitable for the country, is more labor intensive and needs minimal financing for reactivation and expansion."

Encafe (an acronym for Empresa Nicaraguense de Care S.A.), which enjoyed its monopoly status until two years ago, nevertheless managed to export 322,000 quintales of coffee last season, or 45% of the country's total exports of 767,711 qq. In second place was the cooperative Ecodepa, with 118,060 qq, virtually tied with third-place CISA (Comercial International Exportadora S.A.), which exported 117,049 qq.

Dania Baltodano de Alvarez, manager of CISA, said up to 15 private companies now compete with Encafe in the domestic and export market. But she conceded that Encafe still enjoys a good reputation and has experience that no private company in Nicaragua can match.

"Last year was the first year coffee exports were opened up. Given that situation, it was a challenge for all of us to enter a market that had been monopolized for such a long time," she said in an interview at her office near Managua's Augusto Cesar Sandino International Airport.

"The government had a line of credit from Bladex (a consortium of banks). They guaranteed the credit. All the other exporters operated on their own merits. We believe that should have not been 100% allocated to Encafe, but according to volume."

Despite the end of Encafe's monopoly, Baltodano said "a lot of people are neglecting their farms this year. The banks are not disbursing the money because there isn't any. With the cutoff of U.S. aid, they're having a lot of problems. Since last year, there's been an internal credit crunch. We had funds in our account, but banks won't pay, which is unheard of in any other country."

David Robieto, director of Nicaragua's Comision Nacional de Care (Concare), said the country at the moment has no money for investment in the coffee sector. "What we're trying to do is sustain production. We need money on a long-term basis to diversify," he said, estimating that coffee maintains 200,000 Nicaraguan workers and last year brought in $47 million, or 30% of the country's export earnings.

In 1991-92, Nicaragua produced 1.3 million quintales, compared to 660,000 qq the year before. Robleto said his organization was born in 1988, during the Sandinista revolution, as a consulting group made up of both pro- and anti-Sandinista elements. It operates on an annual budget of eight million cordobas (USS 1.6 million).

"Since then, we've seen a transformation. Before, we were part of the Ministry of Agriculture. Today it's practically an institution," he said. "We still have relations with the government, and we expect that soon, we'll be completely privatized."

As for Encafe, there's talk about privatizing that institution as well, but nobody knows when that will happen, given Nicaragua's current economic chaos.

"They're talking about it, but there's nothing concrete yet," said Encafe's general manager, Dr. Armando Jarquin, hinting that if his company is going to be privatized, it likely wouldn't happen until the 1994-95 season. "I'm in favor of it. But it's not a question of whether or not I like it. It all depends on how it's organized."

Jarquin, who has run Encafe since 1985, said "one of the goals of the Sandinista revolution was the nationalization of foreign trade, not just in coffee but in cotton, sugar, meat, seafood, and banks.""

Was this a good idea? "I'm a technocrat, not a politician," the official said. '"I can't give an opinion." Jarquin admits that in some ways, the monopoly was bad. "Sometimes the coffee growers didn't always receive a fair price," he said. But he also justified the previous system. "This government isn't doing anything for the coffee growers, unlike Honduras and El Salvador. It's trying to overcome its own crisis. There are no resources, no hard currency. Before, we guaranteed coffee growers prices in dollars. It was an advantage being a monopoly."

Encafe currently has 65 employees and 35 collection centers in all of Nicaragua's coffee-growing areas. Jarquin said this is the main reason the company has maintained its lead position.

"Small producers who can't transport their coffee find Encafe to be advantageous, since we're close to them," he noted. "The roads are bad. They come in burros, horses. The other companies don't have this kind of coverage."

Jarquin says that, at least in the short term, Nicaragua's coffee future looks grim --mainly because of world overproduction. "There are 34.1 million bags of coffee in inventory. Exports come to 68.5 million sacks. If you add this up, it's 102.6 million. Annual consumption is 72 million; that leaves 30.7 million. Dealers and third party middlemen won't want a quota because the current situation is great for them."

"With high production and low costs, many people will get out of the business," he adds. "It's a very serious crisis for many growers. Their know-how is in coffee, and it's psychologically difficult for them to change to something else."

According to Robleto, "Prices have been depressed since 1989, when the ICO Agreement came apart. Soon they'll be more demand and less supply, so prices have to go up. We think there should be quotas. There are some countries where producers don't want an agreement and the government does, and other countries where it is the reverse."

Another factor hurting Nicaragua is the sorry state of its ports, particularly Puerto Corinto on the Pacific Ocean. Robieto says that's one reason Nicaragua ships only 6% of its coffee to the U.S. "Puerto Corinto is not very well drained. Many ships don't want to dock there, and port costs are high. That's why U.S. ships don't come," he said.

Baltodano agrees with that assessment. "The companies that come to Nicaragua to pick up coffee charge a premium because costs here are higher than at Puerto Caldera (Honduras) or Puerto Limon (Costa Rica)." She said this adds as much as $2/qq to the final price, leading U.S. companies to wonder why they should buy Nicaraguan coffee when they can purchase similar beans more cheaply from El Salvador.

However, Uriel Arguello, director of Nicaragua's national port system, disputes those charges. He blames poor Nicaraguan coffee sales to the U.S. on former President Reagan's embargo, which permanently shifted Nicaraguan trading patterns in favor of Europe.

Another problem confronting Nicaraguan coffee growers is what they see as an overvalued currency. The newly created "gold cordoba" is officially fixed at five to the dollar. Yet Robleto said it should be eight to one. "This has obviously had a negative impact on growers, since coffee is sold in dollars, so the growers receive less cordobas," he said.

Whether the cordoba will be further devalued is unknown, just as no one knows whether Nicaragua's economic recovery program will work. Much depends on the release of $100 million in U.S. aid. Sen. Jesse Helms, R-N.C., has demanded that Washington stop helping President Violeta Chamorro until she takes stronger action against the Sandinistas who still control the army and the police force. But the government is reluctant to provoke a confrontation with its adversaries. Stuck in the middle are thousands of Nicaraguans--coffee farmers among them--who have no idea where their country is headed.

What does Baltodano think about Nicaragua a coffee future?

"We believe the private sector will start doing more volume and the government is going to decrease in importance," she concluded. "There is going to be a tradeoff. And it's a matter of time until Encafe disappears as an institution."
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Author:Luxner, Larry
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1993
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