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The risky business of producing coffee.

The coffee farmer, like all farmers worldwide, is in a risky business. There are a number of things over which he has no control. First is the weather, which is responsible for how well crops develop, what the yield is, how much is produced, and therefore has a large impact oil final fiscal results.

In coffee, this could mean drought or excessive rainfall. In addition, there are other problems in coffee, for example insect/pests such as weevils, the coffee borer, and leaf rust. All of these can be combated with chemicals and other materials, but this is costly and the farmers' ability to do this depends on his out-turn and the prices he receives for his coffee. In addition, in at least one country, frost is also a possibility.

As we all know, frost has happened many times in Brazil and, in some instances, has destroyed the major part of a crop. Since coffee is grown in 50 different countries around the world, the world coffee price is also a big factor over which the coffee farmer in any one given country has little or no control.

Coffee, unlike wheat, potatoes, vegetables, etc. is not a cash crop. Coffee farming is a long term investment. All of us know that when a coffee seedling is planted, it takes anywhere from three to five years before the farmer achieves a full crop and benefits from his investment.

Once the tree produces a full harvest, it can keep on producing for approximately 20 to 25 years with proper care. This care represents a tremendous undertaking for the farmer, including annual pruning and trimming of the trees, fertilization, and weeding. Keeping the tree in a healthy condition is vital for producing a maximum yield.

In this respect, growing conditions vary largely from country to country. Large producing countries, such as Brazil, Colombia, Mexico, the Central American countries, and some African countries, maintain government agricultural installations and supervision. These organizations make sure the farmers are supplied with information as to how to care for their crops and how to get maximum yields. Some of these enterprises are quite sophisticated and have provided a great deal of help to the coffee farmer, particularly in the last decade.

However, there are other countries where the farmer is pretty much on his own and farming becomes a small family enterprise. In some countries, a coffee farmer may only have between 50 and 100 trees. In other countries, coffee farms comprise many thousands of trees, and, in some instances, even in the millions.

In the post-war era of the 1950's, coffee had somewhat of a boom and bust cycle in terms of world prices. This fluctuation was, of course, difficult for world coffee farmers and producers to cope with. Several frosts during the 1950's drove prices up sharply, thus encouraging increased acreage for coffee and good care of plantations. This resulted in large crops a few years later, causing prices to fall just as sharply as they had risen.

A coffee glut then developed early in the 1960's, leading to the establishment of the International Coffee Organization and the International Coffee Agreements which lasted until 1989. These Agreements, through artificial quota and price mechanisms, maintained coffee prices at a level that encouraged production worldwide.

This production resulted in over-supplies being constantly available and kept the prices up only through the artificial mechanisms of the International Coffee Organization and the Agreements. When producers and consumers could no longer agree on extending the Coffee Agreement in 1989, prices fell sharply reflecting the oversupply in the world.

As of this moment, we are still struggling with this oversupply, which has now resulted in unprecedented consumers stocks, probably twice as large as they would be in normal times. Here again, the farmer has suffered tremendously. It is this writer's estimate that in some countries, price levels reached early in 1993 were probably close to or below the cost of production, causing farmers to actually lose money.

Even if farmers still were able to survive with some small profit, it certainly did not encourage them to do all the work to achieve maximum yield. Obviously, they had to cut down on the cost of fertilization, trimming, pruning, combating insect/pests, etc. causing lower yields. In the long run, this would have meant, once again, lower production cycles and higher prices.

Since that time, we are seeing the advent of a producer cartel trying to artificially raise coffee prices by withholding a certain amount of coffee from the market. Obviously, the farmers have to be very much in favor of this as it will, once again, enable them to obtain better prices and take better care of their plantations.

Several other things should be noted. One of these is the government involvement in the coffee business in almost all major coffee producing countries. Very rarely does the coffee producer get the full price for coffee, such as for export. There are a number of middlemen who often come in-between the farmer who is not an exporter, but must sell the coffee to exporters. In some countries, there are even other middlemen who collect the coffee from farmers and then sell it to the exporter's.

Therefore, the farmer gets a price considerably lower than the price actually achieved in exporting the coffee. Additionally, governments very often maintain minimum registration prices to assure themselves of the hard currency which coffee fetches. Also, some countries include an excise or other tax which flows into the government treasuries to help the coffee industry in that particular country. These funds have helped to subsidize coffee prices through the government purchasing coffee that could not be exported and storing it until market conditions improved.

Another important matter is what has happened in Brazil since 1975. During that year, a killer frost wiped out nearly 80% of the crop potential for the 1976 calendar year. The State of Parana, which had been the largest coffee producing state in Brazil, was the hardest hit by this frost. These frosts finally caused the Brazilian government to provide subsidies to the coffee farmers to switch to other crops. Additional subsidies were also provided to new potential farmers in areas further away from the frost prone zones.

Over a period of years, the Brazilian government achieved the objective of making the State of Parana a very minor coffee producing state and increasing production in the State of Sao Paulo and, more importantly, the State of Minas Gerais. These two states are now the largest producing states in Brazil and, while frost can still occur in these states, they are much more rare and not as intensive.

In conclusion, coffee producing and coffee farming is a dangerous and risky business. It can sometimes be very rewarding and at other times, very frustrating. We must thank the farmers who grow coffee throughout the world for staying with their endeavor to provide us with many fine qualities of coffee. These coffees are important for maintaining our blend structures and providing consumers with the type of coffee they love.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Coffee Break
Author:Heuman, John
Publication:Tea & Coffee Trade Journal
Article Type:Column
Date:Nov 1, 1993
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