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Colombia expects loss in export earnings.

Colombia expects loss in export earnings

Colombia's coffee industry is shaken. As feared, the ICA pact has floundered and Milds prices have plummeted on the newly free market. Now Andean planters and exporters are nervously awaiting further developments.

Bogota economists have predicted that Colombia could lose anything between $150 million and $700 million a year in Milds export earnings because of the price slump that has resulted from the collapse of the ICA quota system. In the opinion of most crystal-gazers, the annual loss is likely in fact to be between at least $200 million and $300 million.

Admittedly this would not be a catastrophic shortfall for a country whose total exports (including intangibles) bring in nearly $6 billion a year. Equally important, coffee dollar earnings these days constitute only about a third of the country's overall export income from commodities and manufactured items. Accordingly the demise of the ICA will not affect Colombia as much as it will certain Central American and African countries which are perilously dependent on coffee as a foreign exchange earner and which lack the infrastructure and expertise required to stay afloat on a free-for-all market.

But for Colombians it comes as cold comfort to be told that others will be worse off than them in the new world marketing situation. The inescapable fact remains that, without the ICA, Colombia's coffee income will suffer seriously.

The Growers' Federation, long a supporter of the ICA, fought strenuously to preserve the coffee pact. Its delegates at the abortive London negotiations this summer tried to find a compromise solution that would have satisfied both exporters and importers. But all in vain and, once the talks had collapsed, Colombian representatives had hard words or for the Bush administration which they hold largely responsible for the failure of the coffee pact negotiations.

Colombians assert that the US seemed determined to torpedo the ICA London talks and, as such, it apparently went out of its way to block all paths that could have led to an accord to prolong the pact's export-quota system. The Americans have denied this; they claim they negotiated in good faith in London. But, in Bogota at least, nobody believes them.

In the Colombians' opinion, the US evidently regarded the ICA as an outdated political mechanism which merely served to distort, rather than regulate, the world coffee market. So the Americans wanted out of the pact, say the Colombians, despite the fact that the ICA for more than 20 years was an important political instrument insofar as it safeguarded the dollar income of numerous Third World nations, many of them allies of Washington.

But in the London ICA talks, "economic interests prevailed over political considerations," El Tiempo, Colombia's leading newspaper editorialized. "The U.S. attitude," the editorial concluded, "was always negative ... and with such an attitude there can be no international economic cooperation."

For most Bogota newspapers, then the U.S. was the villain of the piece in London where its Intransigent stand, incidentally, has significantly damaged its long-term relations with countries such as Colombia. But so much for international politics.

At home, on the national front, the Growers' Federation is now preparing an emergency economic program in a bid to soften the financial effect of the ICA collapse. In the program, coffee transportation problems are being accorded high priority because Colombia must swiftly augment the annual volume of its Milds exports in order to compensate, at least in part, for the slump in coffee prices.

According to the Federation, Colombia should be able to export at least 12.5 million bags of coffee a year because it has ample stocks and because foreign demand for choice Milds is expected to remain strong for the foreseeable future.

However, cargo handling procedures in the country's ports will have to be improved if this quantity of coffee is to be shipped out rapidly enough to meet importers' schedules. For instance, to cite just one example, coffee is currently warehoused for as long as 15 days in harbors such as Buenaventura before it can be loaded onto vessels.

The problem is not just physical limitations in the nation's small and inefficient ports. In addition, the bureaucratic procedures governing the sale and export of coffee generally are cumbersome and time consuming. Red tape will thus have to be streamlined to speed up the Milds export process, and Federation and government officials will be meeting to examine the issue.

As for the ports themselves, the state harbor administration, Colpuertos, is confident it should be able to increase annual coffee export shipments to a volume well in excess of the present yearly figure of under 10 million bags. The port system currently working at under-capacity (reports Colpuertos) is Barranquilla port, for example, has in the past handled only limited quantities of coffee, despite the fact it has facilities to ship out large volumes of Milds.

For geographical reasons, Buenaventura on the Pacific coast is likely to remain the country's main coffee-export outlet. Last year it shipped out nearly 3.8 million bags compared to the 2.0 million and 1.6 million bags that were exported from the Caribbean harbors of Cartagena and Santa Marta.

The two latter ports should augment shipment volumes without undue difficulty if Barranquilla is utilized in earnest to relieve pressure on them. The snag at Barranquilla, however, has been frequent silting of the river channel to its port. This has occasioned serious shipping delays in the past. But attempts are being made to overcome the problem.

There has also been talk of upgrading cargo rail services to the ports of Santa Marta and Buenaventura to expedite the outflow of exports. In Colombia, most foreign-bound coffee is trucked by road to ports, and during peak periods, grave highway congestion can occur, with dozens of vehicles lining up to unload Milds for shipment.

It has been suggested that special "coffee trains" may be regularly scheduled to expedite delivery times. But as Colombia has one of the world's most inefficient rail networks, it remains to be seen whether this will be a practicable solution.

One problem, though, which appears to have been solved, or for the time being, is labor unrest in the harbors. The unions and Colpuertos recently reached an accord to modernize the ports, and long-shoremen's strikers are therefore unlikely short-term.

Meanwhile, in the overseas sales sphere, The Federation is to hike its promotion budget as part of its drive to aggressively seek out and capture new Milds markets, particularly in the Far East. Though the Colombians predict that in the near future they should be able to sell all the choice coffee they can export, long-term they may have to increasingly scramble for their share of foreign markets which sooner or later could be saturated by excess supplies.

But as the bigger promotion budget indicates, Colombia is not going to sit back passively and permit its competitors to pre-empt potential markets. In the months to come, it seems, Colombians plan to be in the thick of the international sales fight that has already started to get under way.

As a corollary to the planned export drive, the Federation will do everything it can to ensure firm domestic prices for planters. The authorities are uneasily aware that Milds output and quality could fall if growers were to become discouraged by diminishing returns.

There will also be a crack-down on coffee smuggling. It is estimated that each year as many as 500,000 bags of Colombian coffee are bootlegged out to Venezuela. Colombia today needs every kilo of top-grade coffee it can muster for export, and a concerted effort will therefore be made to counter tea contraband. Finally, in another planned initiative, marketing campaigns will be intensified to boost Milds sales on the home market, which now accounts for only some 1.7 million bags per year.
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Author:Nares, Peter
Publication:Tea & Coffee Trade Journal
Date:Sep 1, 1989
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