Market Reports

Nicaragua’s coffee growing industry: survival of the fittest

Nicaragua‚Äôs coffee growing industry bears a history of political and economic setbacks. The resilient country is fighting its way back as a developing coffee growing nation.’,’none’,’ It was the sweet, clean and complex fruit profile that drew Fraser Lovell from New Zealand’s Coffee Supreme to Finca Santa’s Maragogype. The Maragogype was grown by farmer Mario Urbina at his farm, Finca Santa Gema in the verdant Nueva Segovia highland region. “I have a soft spot for good quality Maragogype from Nicaragua,” says Lovell. “They tend to display exceptional sweetness.” Lovell travelled to Nicaragua in 2008 as a Cup of Excellence judge, and was struck by the warmth of the hardworking farmers he met. “They made me feel completely welcome on their farms and in their country,” he says. “The main growing regions of Nicaragua are in the mountains in the north of the county. When I was there I stayed in a small town called Jinotega. It was a beautiful place surrounded by lakes and home to a number of different types of coffee production, ranging from large family estates to small cooperatives.” The common theme among the different producers, says Lovell, “was the farmers’ passion for coffee and the struggles that they had been through”. These struggles have encompassed a civil war, global coffee market crises, and more than one natural disaster. Nicaragua’s growing reputation as a producer of premium quality coffee reflects the resilience of its industry. The story of coffee in Nicaragua begins with Christopher Columbus, who arrived in the area in 1502. Spanish colonisation followed, with the first permanent Spanish settlement, Granada, founded in 1524 by Conquistador Francisco Hernández de Córdoba. Córdoba is considered to be the founder of modern Nicaragua and gives his name to the national currency. By 1529 the Spanish invaders had overcome the local Indigenous population, who were treated cruelly by the foreigners, and settled the region. The Californian Gold Rush of 1848 brought a flood of foreigners looking for a new life to the Americas, and it was enterprising German settlers who first developed the coffee industry around this time in Nicaragua. Their descendants still farm land in the highlands around the northern city of Matagalpa. Among them is the Kühl family, who run the Selva Negra Coffee Estate, a picturesque organic farm set among wild cloud forest at around 1200 metres elevation. By the 1870s the coffee industry in Nicaragua was booming, but it was heavily subsidised by foreign investment – the Subsidy Laws passed in 1879 gave large landowners five US cents a tree – which meant that by the end of the 19th Century, Nicaragua was effectively a banana republic. Few taxes were placed on the coffee industry, and the significant foreign ownership of coffee farms saw profits flow offshore unchecked. Economic diversification in the years following the Second World War lessened Nicaragua’s dependence on coffee. Nicaraguan cotton found an insatiable market in the Korean War, and industrialisation pushed the economy forward until the Central American Common Market collapsed at the end of the sixties. The next decade saw an economic decline caused in part by indebtedness exacerbated by the 1972 earthquake that devastated the capital Managua, as well as an increasing concentration of the country’s wealth into the hands of a few. It was this economic disparity that set the scene for the Sandinista Revolution of the late seventies. The powerful Somoza family dominated Nicaragua’s political and economic life throughout the 20th Century, until anti-Somoza forces replaced the government in 1979 after a draining civil war that left up to 50,000 dead and the country’s economy and infrastructure in ruins. The left-leaning Sandinistas stayed in government until 1990, and after confiscating the Somoza’s land after taking power, undertook a program of wealth redistribution. However a trade embargo set in 1985 by the US, Nicaragua’s biggest trading partner until that point, stifled any further economic growth in the 1980s. Eddy Kühl, who has published a book about coffee in Nicaragua, recalls the decline of the coffee industry in the 1980s. “By 1978, the last year before the 1979 revolution, Nicaragua was getting to export almost 2 million hundredweight sacks,” he says. “By 1986 it dropped to 600,000.” No coffee was exported to the US, Eddy says. Most was sold to communist-aligned countries in Eastern Europe such as East Germany and Soviet Russia, who often paid with trucks and other goods.  The moribund state of the Nicaraguan economy in the 1980s was put under further stress by the 1989 coffee crisis, triggered by the collapse of the International Coffee Agreement, which until that time had regulated the global coffee market with an export quota system that was designed to limit overproduction. Coffee prices dropped from 124 cents per pound in December 1988 to 62 cents in December the following year, and continued to fall until the market hit a record low in 1999.
During this time new producers including Vietnam and Indonesia entered the market. Vietnam’s production of mainly Robusta beans rose from 2 million bags in the 1990s to 15 million bags in the early 2000s. This abundance of cheap coffee further depressed coffee prices, until global oversupply caused the price of coffee to drop to its lowest level in 30 years. Central American coffee exports suffered a 44 per cent decline in revenue in 12 months. In Nicaragua, exports dropped from US$170 million in 1999/2000 to $85 million in 2000/2001. At the same time, production was increasing, doubling in the decade between 1990 and 2000. Nicaragua’s coffee industry was delivered a further hit when Hurricane Mitch struck Central America in the last few days of October in 1998. While it never landed in Nicaragua, the storm dropped 127 centimetres of rain on the country. The deluge caused an enormous mudslide at the Casita volcano and widespread flooding around the country, and as well as causing an estimated US$1 billion worth of damage. Mitch cost at least 3800 lives in Nicaragua and left thousands homeless. It was the deadliest Atlantic hurricane to hit the Americas in 200 years. The effect on the coffee industry was terrible, with up to 30 per cent of the coffee crop destroyed. Roads and bridges were washed away, hindering the coffee growers’ attempts to tend to what was left of their harvest and to rebuild. This quick succession of blows to the coffee industry laid even lower a rural population already living in poverty. “A lot of Nicaraguan families are dependent on coffee,” says Peter Ross, Senior Lecturer at Australia’s University of NSW’s Americas Studies Program. “Just witness the dire conditions, including starvation, created by the crises of the late 1990s early 2000s, in part caused by hurricane and droughts, but also due to the collapse of world coffee prices – a result of the World Bank encouraging Vietnam to get into coffee production in a big way.” Today the coffee industry is still an important player in the Nicaraguan economy. According to the International Coffee Organisation (ICO), in 2009 Nicaragua produced 1.925 million bags of coffee. Coffee accounted for 18 per cent of all exports (valued at US$251.27 million) and 4 per cent of the GDP. The recovery from the 2001 crisis required the implementation of one of two strategies, or a mix of the two. One is increased competitiveness, which may be achieved through improved production and post-harvest technologies, or moving into differentiated markets. The second is diversification, which may mean farmers supplement their income with different crops, or non-competitive farmers leaving the industry entirely. Programmes like Cup of Excellence, an annual auction which promotes the production of premium coffee, are part of the strategy aiming to improve the economic prospects of farmers through increased competition. In 2010, for example, the winning Nicaraguan coffee grown by Norlan Daniel Matute Tercero at El Esfuerzo sold for US$35.65 a pound, exponentially higher than market value. In a travel diary he kept when he visited Nicaragua in 2005 as a COE judge, Steve Leighton, who owns UK roaster Has Bean, noted that “the Cup of Excellence is the opportunity for the roasters and customers to give something back, without it being charity. Rewarding the farmer who goes that extra mile is the perfect way to encourage everyone to try that little bit harder.” Leighton returned to Nicaragua in 2008 to visit Erwin Mierisch, a coffee farmer whose family has been growing coffee in Nicaragua for over 100 years. In 2007 Leighton bought Finca Mierisch’s Limoncillo, a coffee that the next year won second place at the Cup of Excellence. Leighton loved Mierisch’s coffee and clearly respected the Mierisch family operation. “I think they need more growers like Erwin,” he says. “He is a progressive producer who understands that it’s good to produce small interesting lots along with the bigger lots that make money. He is constantly questioning what is good and always tasting his coffee. “Importantly he also looks after his employees, with healthcare, education and paying a good wage, trying to make things better for everyone – including me and my customers.” Fraser Lovell echoes Leighton’s positive assessment of the Cup of Excellence. Of the investment in award-winning beans that he says: “absolutely pays off, in a number of ways”. “Firstly the farmer receives 80 per cent of the total auction price which is significantly more than any other mode of coffee trade. This not only financially rewards him for all the hard work he put into producing his coffee but it also gives him recognition amongst his peers and exposure to coffee buyers such as ourselves who may of not heard of him otherwise,” Lovell says. “This is one of the great things about Cup of Excellence – it builds relationships between producers and roasters that otherwise might have never existed.”    For farmers looking to diversify, tourism is an increasingly viable option. Coffee and eco-tourism offers coffee growers, usually the owners of larger estates, a reprieve from the vagaries of the global coffee market. The Kühl family have diversified into tourism and run a successful ecolodge at their estate, Selva Negra. “The resort was started in 1975 and is now about 40 per cent of our business,” says Karen Kühl, who helps run the estate with her parents Eddy and Mausi, and her four sisters. Selva Negra’s sustainable practices and nature preservation are strong selling points to tourists visiting Nicaragua. Visitors can go on hikes into the secondary and primary rainforest, go horseback riding in the coffee plantation, and take educational tours covering the coffee industry, sustainable practices and cattle ranching. The Kühls have capitalised on their farm’s beautiful rainforest setting, and guests are housed in bungalows built from fallen plantation timber or simple hotel-style rooms, which are serviced by solar water heaters and spring water. Looking forward, one of the most serious challenges facing coffee growers in Nicaragua is the threat of climate change. The Kühls at Selva Negra are conscious of the changes that may be wrought by climate change, and have started to plan for it.  “We have been planting alternative crops at the lower area of the farm, such as avocado as shade and cacao as crop,” says Karen. “This will give us a continuity of crop in areas where coffee will not yield the quality that is expected out of Selva Negra coffee.” The Kühls are also planting more high altitude trees such as oaks, Karen says, to add an upper layer of shade that will cool the coffee under it. These extra trees will also help with the strong winds that are expected to accompany the changing climate. Worldwide demand for coffee is growing, at the moment 2.5 per cent a year, and the Nicaraguan coffee industry is well-positioned to build on its place as a major producer of a quality product. The resilience of the industry will, however, ultimately be tested by the whims of the weather. 

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