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Colombia: exporters content, growers unhappy.

Colombia: Exporters content, growers unhappy

Today, more than a year after the collapse of the ICA quota accord, Colombians are still as divided as ever in their opinions regarding the coffee pact. Exporters of processed Milds and some green coffee shippers are content with the current free market, while the Growers' Federation and most planters would like to see the ICA quota system resurrected.

There appears to be broad agreement in Bogota. It is felt ICA quotas are unlikely to be revived any time soon--or at least not in their previous form; and, analysts concur the major problem that could face Colombia long-term is plantation output. In short, with prices as depressed as they are, will the Andean republic have sufficient choice beans to satisfy overseas demand?

In the short term, the answer is affirmative. In the 1989/90 season, Colombia should produce something like 13 million bags, compared to 10.5 million in 1988/89, and it should therefore be able to meet export commitments.

There is currently no major dispute at issue in the ports; hence labor unrest is not expected to delay shipments. Nor have communistled guerrillas been able to make good their recent threat to disrupt plantation production and transportation. Also, weather conditions generally have been favorable. So, barring unpredictables, there should be no undue supply difficulties this year.

But unless prices pick up, the supply situation could deteriorate thereafter. True, according to the more sanguine crystal-gazers, production should top 13 million bags in 1990/91 and should then remain above that level.

However, even if output is as bountiful as predicted, some importers may still be unable to acquire all the top-quality Andean supplies they require because Colombia is pressing on with plans to open up new markets in the Far East and the newly democratized socialist nations. Colombia's processed coffee sector, too, with its expansion plans, will also be on the hunt for increased supplies.

Thus there may not be all that surplus top coffee available for export, even if production does grow to projection. Nor will there be that much on stockpile. The total of warehoused coffee will be down to some 5.3 million bags by September, predicts the National Coffee Exporters' Association. There is little to suggest that stocks will subsequently rise.

Other considerations: How long can the hard-pressed ports go on handling continuously rising consignment volumes? Though there have been no shipping headaches to date, presumably sooner or later there will be a handling limit on the quays?

Further, will the security situation in plantation regions, at present tranquil, remain so long-term? At the very least, transportation snags could result from incursions by either guerrillas or drug traffickers, whose gunmen so far have steered clear of plantations.

But matters such as possible port congestion and insecurity may prove to be less important in determining the supply situation than the key consideration: prices. Colombian planters today, though they have been less affected by the market depression than growers elsewhere, are nevertheless in a pessimistic mood.

The return they receive for their crop enables many of them to do little more than barely cover their costs. Their profits are in numerous cases absorbed by mounting costs. For lack of cash, many small-holders are now unable to expand output significantly; and when they replant or prune aging or diseased bushes, it is often only on a limited scale.

Obviously, wealthy, capitalized planters are not in such financial straits. They can and do replant sizeable areas. But wealthy growers are a minority in Colombia. In any event, even prosperous farmers may think twice before embarking on costly expansion projects if coffee prices stay low and if planters can earn more by switching to other crops.

Fortunately for importers, however, many owners of big plantations are in fact planning to continue in coffee because, they argue, prices eventually will have to recover when choice Milds become scarce on the world market. In the meantime, large-scale growers are holding out for better times, and, despite poor profit margins, they are maintaining their output and quality.

So too, for the moment, are most smallholders. But in a year or two this position could change, and for the worse. The Growers' Federation, for example, reently warned that numerous planters are no longer fumigating against the defoliating disease, rust. If this situation persists, planters who fail to spray could in time lose 15% or more of their present output annually. On an extended scale, losses of this magnitude could largely cancel out the effect of plantation expansion programs.

In those circumstances, national output might at best increase only minimally or remain static over the years; at the worst, it could fall. Also, coffee rust is hardly calculated to improve quality. The disease today affects nearly 90% of the country's coffee acreage and, it seems, it is impossible to check its dissemination.

Aggravating matters, a second problem--the "broca" parasite that destroys berries--is also intensifying. It has now been reported in nearly 450 localities in western regions. Taken together, rust, broca and low prices could combine long-term to put not a few small-holders out of business. And the survivors scrambling for a meager living may well be in neither the financial position nor mood to produce choicest-quality coffee.

Psychological as well as economic factors explain why so many growers have stopped fumigating their crop. In the case of coffee rust, for instance, planters have been lulled into a sense of false security after months of living with the disease on their farms. As rust does not cause an immediate fall-off in output, numerous planters have decided to ignore the disease as harmless. A perilous attitude, as they will in due course discover when rust takes hold in earnest. But by then it may be too late to adopt effective remedial action.

Another reason for the decline in fumigation is that the Growers' Federation used to supply planters with a spraying subsidy and a free anti-rust chemical. But in the wake of the market slump, this aid had to be suspended, though in compensation domestic prices were improved.

The idea was that, with the new price, growers would be able to finance their own fumigation programs. But in practice many planters have not done so because they feel that, even with the adjusted price, it is not worthwhile economically to fumigate a crop that is being marketed overseas at virtually gift tags.

Planters justify their attitude by quoting the following arithmetic. Colombia, in a year of free marketing conditions, augmented its coffee exports 37%. Because of poor prices, it received in that period 14.3% less than its average annual income from the commodity.

Given the figures, many Colombians and the Growers' Federation would welcome a speedy return to the ICA quota system and its buttressed prices. But some Colombian private exporters have fared handsomely on the free market, and they have no regrets for the ICA demise.

Nor are the Colombian exporters of processed coffees complaining. Without quotas, they are able to ship out all the coffee they can handle, and foreign demand continues to grow.

Reflecting this up-beat situation, two processing factories are currently under construction in Manizales by Descafecol, which is to export decaffeinated coffee, and by Decafe, which is to manufacture coffee extract for overseas.

The Descafecol plant, a $22-million venture, will have a yearly production capacity of 10,000 tons and, in view of promising marketing prospects, this could be doubled within the not too distant future. Not all, then, is gloom in post-pact Colombia. Some people, at least, are still smiling.

Peter Nares Colombia Correspondent
COPYRIGHT 1990 Lockwood Trade Journal Co., Inc.
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Author:Nares, Peter
Publication:Tea & Coffee Trade Journal
Date:Sep 1, 1990
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