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Colombia's Coffee Federation aims to placate farmers during these trying times.

Colombia's Coffee Federation aims to placate farmers during these trying times

Colombia's new president, Dr. Cesar Gaviria, and the Growers' Federation have a trickly problem to resolve: When and by how much should they increase domestic prices paid to coffee growers? The question is of interest to both Milds exporters and importers because the domestic price issue may well determine whether Colombia will have sufficient top-notch stocks to ship out in the next few years.

Already some pundits are warning that production could fall to only 10 million bags in the 1990/91 season, largely because of the poor prices paid to growers. According to the Growers' Federation, though, output in 1990/91 should be between 13.3 million and 13.5 million bags. Subsequently, predicts the organization, it should rise to around 15 million bags in 1991/92 and to some 15.5 million the following season.

If the Federation, sanguine as ever, proves to be correct, then importers of Colombian Milds have no particular cause for concern. There should be supplies available to cover demand, though as new markets are opened up, there may be scant spare margin in case of emergency.

But, warn planters, if the Federation's buoyant projections are to be fulfilled, then growers must be accorded a substantial price hike swiftly. They caution that if domestic prices are not raised sufficiently to keep pace with spiraling costs, then output could decline from the 1989/90 level of 13.2 million bags because many planters will be too discouraged to maintain production let alone boost it.

Growers argue that, in real terms, their earnings have lagged behind rising living and production costs since 1986. According to one study, the gap for some planters could be as much as 30%. The Growers' Federation, which has been reluctant to accept this figure, nevertheless acknowledges that there has been an earnings gap and that planters are therefore due for a rise.

The key question, then, is by how much will internal prices be hiked? The answer will be determined jointly by the government and the Federation which, on such matters, work hand in hand.

The price issue is a prickly problem for the new Colombian president, Dr. Gaviria, who assumed office in August. As an economist and former Finance Minister, he is only too aware that domestic prices must be improved to sustain both output and quality. But he is also uneasily conscious of the fact that annual inflation could reach as much as 30% this year in Colombia. One of his priorities will therefore be to try to cut the inflationary rate, and endorsing a hefty hike in prices paid to planters is no way to go about this.

Any major increase in growers' income will add to inflationary pressures by augmenting the money supply. That apart, there simply is not all that cash on hand to fund a substantial price hike. Because of the collapse of the ICA accord, the Growers' Federation has had to eat into its financial reserves to buttress planters, at least to an extent, against the effects of the world price slump.

No revival of the ICA pact is in sight. Hence world prices are unlikely to firm notably any time soon, barring unpredictables such as frosts in Brazil. So, against this background, the authorities cannot afford to be overgenerous to planters.

The betting, then, is that growers will receive a rise, but one that falls short of their aspirations. As a result, in many regions production may at best be maintained rather than augmented, and it is an open question whether Colombia will in fact be able to satisfy all overseas demand in two or three years' time on an open market, without ICA quotas.

By then, of course, with choice Milds likely to be increasingly scarce, world prices should pick up, and planters should once again be motivated to expand output. But it would take them several years to do so and, in the interim, importers could be hard put to scrape together choice supplies to cover their needs.

Already, as it is, Colombia's stocks are down to only some 5 million bags, of which only 3 million may be exportable, according to one estimate. The stocks could fall further.

Mario Gomez, a member of the National Coffee Growers' Committee, estimates that, in theory, Colombia should be able to export between 14 and 15 million bags annually on a free market, if it can raise its yearly output to between 16 and 17 million bags.

But will it be able to increase production to this level? In an interview with the Bogota newspaper, La Republica, Gomez spoke of the industry's difficulties: "Costs have shot up," he warned, "while (planters') prices have shrunk ever more. Any sector, whose costs have soared while its income has plummeted 30% in four years, ends up in a very poor shape."

For example, added Gomez, many planters are no longer renewing their coffee bushes with the new Colombia variety which is largely resistant to plantation rust disease. In the first half of the year, it had been planned to replant 15,000 hectares with the new variety. But, in fact, less than half this amount was attained because farmers hit by diminishing returns no longer consider it worthwhile to finance such programs.

For the same reason, Gomez continued, numerous planters are no longer fumigating their crop adequately, and consequently output could drop alarmingly next year. Other growers' representatives have sounded similar warnings.

But the Growers' Federation, unruffled, affirms all is well, and it is pressing on confidently with plans to penetrate new markets in the Far East and Eastern Europe. But, ask skeptics, what avail will be new markets if there is insufficient top-grade coffee available to supply them over the long haul?

Only time will tell whether the Federation's optimism or the skeptics' pessimism is justified. Meanwhile, gourmet outlets, dependent on Andean Milds, may have little to lose, and possibly much to gain, by preparing for the worst now rather than later.

In any event, on the subject of planning for the future, not a few Colombian planters are already hedging their bets. In the central coffee-growing Pereira zone, for instance, a new crop diversification program is now getting under way to produce natural silk thread. By 1992, 1,000 hectares in the area will be dedicated to the industry which will provide a new income for 500 farmers.

Likewise, in another coffee area, Manizales, plans have been announced for an apple-growing project, initially comprising only 250 hectares but with ample development scope. Other diversification programs are getting off--or rather into--the ground elsewhere in the coffee highlands--and Milds importers could perhaps do worse than bear this in mind.

Colombian coffee planters, like anyone else, have only so much patience. Sooner or later, if they are not paid enough for their Milds, they are going to turn to other, more profitable and less demanding crops. And coffee importers and their representatives, who have forced down planters' prices short-term, may long-term find themselves high and dry, without adequate choice supplies on offer--or at least of coffee. Silk and apples there should be in abundance.
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Author:Nares, Peter
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1991
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