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Drop in coffee prices frustrates Costa Rica's new president.

Drop in coffee prices frustrates Costa Rica's new president

Within 20 minutes of assuming the presidency of Costa Rica last month (May 8), Rafael Angel Calderon Fournier was already talking about the coffee crisis.

"Starting today," he told thousands of supporters gathered at San Jose's National Stadium, "we will reduce the fiscal deficit without neglecting the social development programs designed to help low-income households, continue with the gradual and careful processing of economic modernization - paying special attention to the distressing problems of our small farmers who have been the traditional bulwark of Costa Rican democracy - and and advance a program of agrarian recovery, including emergency measures for the expansion of credit and technical assistance, and the fixing of just prices for agricultural products."

More than seven percent of the labor force of this nation of 2.7 million people works in coffee, and some 30 percent of the country's foreign-exchange earnings come from coffee exports to Europe, the U.S. and Japan.

Yet Costa Rican coffee exports despite a worldwide reputation for quality and high sophistication, are undergoing one of its worst moments in a long time. The coffee crop this year will come to 2.5 million 60 kg sacks, down nine percent from the previous year's production. This year, Costa Rica will lose some $90 million in revenues because of low world prices spawned by the collapse of the International Coffee Agreement.

"Coffee growers are facing a very difficult situation," says Mario Mara, sales manager for Costa Rica's Federation de Cooperatives de Caficultores, which represents 40 percent of the country's total production. "Besides the low prices, this year's crop was one of the worst ever. The cost of production is rising, and the coffee grower can't get ahead because the margin of profit is too small."

Costa Rica produces 2.7 percent of the world supply of coffee, and is the fifth largest coffee producer in Latin America after Brazil, Colombia, Mexico and Guatemala. "At this moment," says Mora, "coffee represents 30 percent of export earnings, though that depends on prices. This fiscal year, bananas surpassed coffee in importance."

Edgar Rojas, assistant executive director of ICAFE, the government's coffee regulatory body, told the Tea & Coffee Trade Journal that this year, Costa Rican producers are selling coffee for $102.95 per 60-kilogram sack, down from $163 per sack last year. At the same time, production has dropped 9 percent from the 1988-89 crop.

"A drop in coffee prices has an enormous effect on the economy," he said. "The $90 million loss in income causes grave problems, not only in coffee but in other sectors of the economy, such as the industries that manufacture agri-chemicals."

Costa Rica sells 16 percent of its production to West Germany, followed by the U.S., which takes 11 percent, and Poland, which buys 7 percent.

The country is known for having one of the most productive industries in the world. According to a publication prepared by ICAFE for the 18th International Coffee Congress in San Jose last August, Costa Rica produced 1,795 kgs/hectares, exceeded only by Zimbabwe. Yet low prices hurt gourmet coffee sales too.

Miguel Eppe, export manager for Peters & Co., which represents 10 percent of the industry, says the industry clearly is in trouble. "We're losing dollars we need urgently. In addition, it's extremely difficult for the producers to maintain their fincas. Raw material for fertilizer is imported, and they can't afford it. The farmer is not making enough money now to spend on maintenance of the farms."

Complains Mora: "The government has taxes on traditional exports such as coffee, bananas and meat, while non-traditional exports such as flowers have a series of incentives."

The ad valorem tax on coffee, used back as far as the 19th century to finance the country's road system, was recently at 7.5 percent. It's just been reduced to one percent and, says Mora, "if the price goes down even further, the tax will disappear."

The coffee crisis comes just as Costa Rica's general economic picture worsens, despite the peaceful governments that have taken over in the country's two neighboring countries, Nicaragua and Panama.

"Costa Rica has not been spared the negative consequences of Central America's regional crisis," said Calderon, whose inauguration was attended by six other Central American heads of state as well as by Venezuelan President Carlos Andres Perez and by the U.S. First Lady Barbara Bush.

"We find an empty treasury. We are given a nation burdened by a fiscal deficit of $4 billion, which amounts to six percent of our gross national product. There can be no doubt that this is one of the largest deficits in our national history."

Eppe says as a result of lower prices, "Costa Rica is steadily increasing, but the production will drop in smaller farms."

Indeed Costa Rica's ambassador to the U.S., Danilo Jimenez, said that despite an increase in yield per hectare, the country's coffee industry will be in trouble for the foreseeable future, as long as prices are low.

"The collapse of world coffee prices has been extremely costly to coffee producers in Latin America. In Costa Rica alone, the associated decline in fiscal revenues may amount to as much as two percent of our GNP" Danilo said. "We need a new agreement consistent with supply and demand, reflecting more adequately export capacities of countries like mine. We certainly appreciate what a good crop of coffee at a good export price can do for our region."
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Title Annotation:fall in coffee prices brings economic hardship; Rafael Angel Calderon Fournier
Author:Luxner, Larry
Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1990
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