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Colombia coffee growers face loss, despite subsidy

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US officials highlighted the losses still facing Colombian coffee growers despite a government subsidy programme, and the prospect of a return to levels of production unseen for six years.

Colombian coffee, recognised as some of the best in the world, costs some $168-204 per 60-kilogramme bag to produce, equivalent to 127-154 cents per pound the US Department of Agriculture's Bogota bureau said.

The average price paid to growers last month was, in dollar terms, $103 per bag, or 78 cents per pound, depressed by the strength of Colombia's peso besides by the slide in international values of the arabica coffee beans of which the country is the second-ranked producer, after Brazil.

That means that even after government support payments of some $38 per bag, equivalent to 29 cents per pound, "the subsidy falls short of ensuring that growers will earn a profit or even break even," the bureau said in a report, highlighting that low prices "have led to income instability for all growers".

The caution follows a report from USDA staff last week highlighting that in Brazil, output costs have risen to well over twice the price growers receive for arabica beans in the top producing state of Minas Gerais.

While Brazil has attempted to support its growers through an options programme offering a guaranteed price, Colombia has opted for direct subsidy, following protests by producers in February.

Price signal muted

Production costs are closely watched by agricultural commodity investors as they typically indicate a likely floor level for prices, with low values typically prompting farm cutbacks which tighten supplies and revive the market.

However, the long production cycle for coffee, with trees taking perhaps four years to give a viable crop, mutes the signal from lower prices to curtail output,spurring expectations of a further drop in benchmark New York futures.

Indeed, pressure on world arabica prices is being enhanced by the boost to Colombia production from a programme of replanting with rust resistant trees which has covered 373,000 hectares since 2008, with a further 130,000 hectares or so resown with other varieties.

Trees planted in 2010, or before, are now reaching economic productivity, with replanting at higher densities, of 5,000-5,700 trees per hectare, also boosting harvest prospects.

Rebounding exports

Indeed, the bureau pegged the 2012-13 harvest at 9.95m bags, well above the USDA's official estimate, and the highest for five years, since before the start of the replanting programme following an outbreak of coffee rust, a debilitating fungus.

In 2013-14, Colombia will produce 10.9m bags of coffee, enough, now stocks have been replenished, to lift exports by 12% to a six-year high of 10.8m bags.

Colombia's ability to raise exports even in an oversupplied market reflects the quality of its beans, with growers attempting to improve their finances by tapping into premiums.

"Colombia continues to promote product differentiation, either through denomination of origin geographical branding and/or through a variety of environmental/social certifications that support more value added," the bureau said.

In the south of the country in particular, "typical coffee farms are small-scale and managed by families, so the premiums from producing high quality coffee are critical to their economic wellbeing".

By Agrimoney.com

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