Market Reports

On Colombia’s stand-off

If the adverse conditions leading to the Colombian coffee growers’ strike were a perfect storm affecting the industry, it is not yet clear whether the relief package that ended the strike can ever be anything more than an umbrella. The Chief Executive of the Colombian Coffee Growers Federation (FNC), Luis Munoz, tells the Global Coffee Review that it is hoped that the US$450 million agreement will see the country’s 560,000 farmers through to better times. “This commitment shows that coffee is an industry in which Colombia believes as a business with opportunities for our rural society,” he says. The agreement was reached between the FNC, the growers themselves and the Colombian Government in early March, ending an 11-day strike that brought the world’s fourth largest coffee producer to a standstill. But given the problem was caused by a confluence of external factors – falling international coffee prices, an appreciating local currency and still recovering harvests – there is no guarantee this current agreement will be the definitive solution to the problem. However, with the coffee industry holding such an integral place in the Colombian economy, it is more than just the growers who are hoping for an end to this challenge. “The local rural economies, not only coffee growers, are directly or indirectly affected when coffee income comes down, so many supported this movement,” Munoz says. “The authorities estimate that on average 40,000 people were protesting.” The new agreement will see coffee growers receive an increased subsidy of US$80 per 125 kilograms of parchment until at least December this year, and increase of around US$18. The FNC has also committed an additional US$116 million to research, technical assistance and the renovation of crops. At least part of this money will help the farmers in their continuing efforts against roya, or leaf rust. The FNC has already invested in a US$1.4 billion replanting program that has been running since 2008. In that time, some 574,000 hectares have been renovated, with 2.1 billion new trees planted. Munoz is confident that the bulk of the problem is now behind them, and farmers can expect increased yields beginning this year. While the nadir of the rust crisis has passed – the 2010-11 crop year saw total production of just 7.5 million bags – at 10 million bags, the projected output for this year is still short of the country’s historical 11 million bag yields. Boosting the impact of this recovery will be the work the FNC has put into improving the technical skills and capabilities of Colombia’s coffee farmers. Part of the program has been to introduce new technologies such as tablet computers to improve communications and information delivery to farmers. They have also increased monitoring of climatic conditions in growing areas to make the industry as a whole more responsive to new weather patterns caused by climate change. However, with the international coffee price being set in US dollars, the struggles of the American economy continue to be bad news for coffee growers the world over. Add to that the fact that the Colombian peso has fared well over the same period, and the grim backdrop for this recent drama was cast. These two circumstances alone have combined to reduce Colombian growers’ incomes by more than 40 per cent over the past four years. More significant, however, is the fact that these underlying circumstances have not yet improved. Now the FNC is turning its attention to longer-term strategies for improving the prospects of its farmers. “We believe that quality and differentiation, compounded with higher productivity and adaptation strategies for climate change, are our best strategy,” Munoz says. “Mild Arabica producers in general may be in different conditions to pursue these strategies all at once, but thanks to the FNC, Colombia can work on all of these at the same time.” The FNC is also enabling farmers to hedge their prices against the risk of future volatility. The Price Protection Contract (CPP) was introduced last year and will combine with the government’s support to provide the farmers with more certainty when selling their produce. The CPP allows the country’s coffee growers to set a load price for the second, third and fourth month after the date they enter into the contract. None of this, however, can alter the reality of low market coffee prices, which will continue to put pressure not just on Colombian farmers, but coffee producers the world over. This is a problem that Munoz says must be addressed by the industry as a whole. “Growers are actors in the global industry that need to be recognised and appreciated,” he says. “If the industry wants quality coffee, it cannot ignore what goes on in producing countries and the role institutions play in these countries.”

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