Beyond Colombia’s push for quality is a growing penchant for precise origins and more complex flavour profiles among increasing variables and vulnerable producers. Gordon Feller explains.
Global coffee prices have been under downward pressure for several years, a challenging fact facing many producing countries. A slight readjustment of prices in March broke a 17-month price streak according to the International Coffee Organization (ICO), however for prices to remain sustainable, it will be critical to bring about an improved balance between supply and demand.
Caught in the middle of this fluctuating commodity situation is Colombia, the world’s leading producer of mild coffee and specialty coffee. According to the President of the government’s ProColombia organisation, Flavia Santoro, Colombia’s coffee “stands out for its origin, planting technique and premium quality”.
Arabica is the national variety, which Santoro says is exceptional for several reasons: greater acidity and softness, better quality of the infusion, intense aroma, and lower concentration of caffeine.
When asked about the country’s national advantages as a superior producing country, Santoro said that Colombia “has the privilege of having separate harvests in the first and second semesters, which allows for a reliable and good quality supply”. The country is also committed to environmental sustainability and the wellbeing of local communities linked to coffee production, with connections to certified Organic, UTZ, Fair Trade and Rain Forest Alliance.
Maria Carolina Buitrago, an Analytical Manager at S&P Global Ratings, an American credit rating agency, says in 2021 “the production and processing of coffee products contributed in 0.99 per cent to the Colombian Gross Domestic Product and its contribution to the aggregate agricultural product was 12.29 per cent, which marked a maximum in historical terms”.
“Colombian coffee production shows good growth perspectives in the future, however there are important challenges that must be tackled to get the expected results for the sector,” Buitrago says.
In the same period, the FNC says the internal per capita consumption of coffee was estimated at 2.8 kilograms, higher than the average of 2.2 kilograms for the past three years. However, when comparing this result with other countries worldwide, Buitrago, says the volume is still low.
“However, there are factors that could lead to an increase in the coming years: on the one hand, such as the increase in consumption at a younger age, and a greater frequency of consumption of coffee-based beverages,” Buitrago says.
The external market is also very important for Colombia. According to the FNC, at the end of 2021, the country sold 12.4 million 60-kilogram bags of green coffee, a figure similar to that of 2020. Sales went predominately to the United States, which received 41.9 per cent of the total, followed by Germany at 7 per cent and Japan with 6.9 per cent. In the first five months of coffee year 2021/22, the ICO reports Colombia’s exports fell by 10.5 per cent to 5.34 million bags, from 5.97 million bags in the same period a year ago.
Despite its strength and recovery, S&P Global Ratings says that in Colombia, the variables which can continue to affect coffee production include the impact of defaults on coffee futures contracts, the price of fertilisers on production in the medium-term, and the exchange rate.
In Colombia, and most major producing countries the three big costs – fertilisers, machinery, labour – have all nearly doubled over the past decade, according to S&P Global data. More recently, during COVID-19, Colombia has seen rising production costs due to higher labour costs and input prices.
S&P says the supply challenges with access to fertilisers is “due to the suspension of exports from Russia and China, and the increase in the price of natural gas, a key ingredient in their production”. The Agricultural Inputs Index of the Colombian Ministry of Agriculture says that, while the price of fertilisers has increased 70.9 per cent between June and December 2021, the price of pesticides rose only 13.9 per cent.
Another element of the picture is the impact of foreign currency exchange rate changes. It favours the value of the exported product, but it could also aggravate the fertiliser price situation, further affecting a producer’s cash flows.
According to Dr. Edward Fischer of Vanderbilt University’s Institute for Coffee Studies, the premiums these days, however, are for quality. “Everybody, Colombia included, is trying to play the quality game,” Fischer says.
He notes that Colombia pioneered the quality game, with the establishment of Café de Colombia and then Juan Valdez campaigns. It was, in Fischer’s view, a widely successful strategy for many years. “The whole country’s production was branded as ‘quality’, a lot of money was spent on marketing that brand, backed up by an exceedingly powerful producers’ association,” Fischer says.
Beyond the push for quality, Fischer says a growing number of coffee drinkers are “looking for more specific and precise origins and more complex flavour profiles that just a solid washed Arabica”.
“[Colombia is] behind the curve on the third wave micro-lot market, based on its success with first/second wave quality branding, but it is catching up, and the producers’ association is adapting,” Fischer says.
Farms such as La Palma & El Tucan have produced sought-after micro-lots and has experimented with processing methods. The farm’s co-founders Felipe Sardi and Elisa María Madriña recognize the microbial diversity within their natural environment as a unique business opportunity. As such, bio-innovation has been this farm’s focus of attention for the last two years.
Fischer says the question remains if Colombia can reorient its market, rethink its commitment to national branding, or combine both approaches?
Colombia’s climate focus
According to Roberto Vélez Vallejo, CEO of the FNC, Colombia’s decrease production of mild washed Arabica in 2021 over previous years can be attributed “mainly to logistical restrictions and unfavourable weather conditions”.
From 2016 to 2020, the country produced on average 14.1 million bags. “The current coffee area in Colombia is over 840,000 hectares, a historic low,” he says. However, Vélez explains the quality-driven result is “thanks to good agricultural practices – including more trees per hectare – that have increased productivity and maintained production at stable levels”.
Vélez praises the quality premium for Colombian coffee and the COP/USD exchange rate. This translates into a historic domestic price, and Vélez notes approvingly that this allows producers not only to cover their costs, but be profitable, a situation which he considers to be “a fair and long-awaited situation”.
FNC’s view is that the current high price is due to coffee shortages. According to Vélez, FNC and its members, “[it is important for] roasters, coffee chains and brands to continuously pay fair prices to producers – thus ensuring sustainability of the whole supply chain”.
Before the pandemic, international prices were very low, even below USD $1 per pound. “Producers didn’t manage to cover their costs. Hence, we continuously insist on the importance of shared responsibility along the whole value chain, as producers are the most vulnerable link,” Vélez says.
During the 1960s, Vallejo says when everybody was betting on blends, Colombia was a pioneer in betting on coffee quality and single-origin differentiation. He thinks this is why Café de Colombia has earned its title as “as the richest coffee in the world”.
Vélez lauds the FNC’s “quality and differentiation strategy” which has resulted in an increasingly wide offer of specialty coffees. For growers this translates into additional quality premiums and better income for coffee farmers. “That’s the focus of our commercial strategy,” Vélez notes.
FNC’s philosophy focus has been on high-quality premiums. The strategy behind their programs is that these, in addition to industrialised and added-value coffees, “help to protect producers from the market ups and downs”. It also shields them from “financial speculators that seek only a profit in coffee futures, without caring for the living conditions of the families that produce this commodity”.
The UN Food and Agriculture Organization (FAO)’s Senior Economist El Mamoun Amrouk says that over the past decade, world coffee production has increased annually by nearly 3 per cent to about 10.7 million tonnes in 2020. Among key producing countries, significant production upturns were recorded in Colombia, mainly as a result of the replanting of coffee rust resistant varieties, which also boosted crop productivity by reducing the average age of coffee trees and increasing plant density.
The challenge, however, remains the risk of unpredictable climate change.
“[Climate change is] one of the main threats to Colombian coffee production. We have worked hard on developing climate-smart coffee farming, with varieties resistant to rust and more resilient to climate variability,” Vélez says.
Taking a page from the global concept of “Nationally Appropriate Mitigation Action”, FNC calculates that Colombia’s coffee farming captures 5.2 times the amount of carbon which it emits. The country’s coffee farmers have planted (and continue to plant) millions of native trees in order to protect the environment and biodiversity. But, at this particular moment in time, Vallejo believes that “more decisive actions are required –from all actors”.
Climate adaptation strategies are being developed. The use of improved coffee varieties, enhanced management of soil and water resources and better access to climate information are a few examples that could help build a more sustainable and resilient coffee sector in light of climate change. In September 2021, the national government approved a sustainability growth strategy for Colombian coffee sector. It features an initial fund of USD$9 million, used over a period of nine years. This strategy aims to address farmers’ limited access to productive assets, income instability, market barriers to trade, insufficient public infrastructure affecting coffee’s supply chain, including inadequate road networks, and low digital connectivity in farming areas.
FNC’s experts predict that coffee production will continue to increase in Colombia over the next decade. However, the economic sustainability of coffee production stands out as key uncertain factor.
In order to ensure the profitability and sustainability of the sector, Vélez says it is crucial to develop and adopt innovation and new technologies that can contribute to reduce production costs while increasing productivity.
Current and future threats to Colombia’s coffee industry, however, remain numerous. FNC has been laser-focused on what Vallejo calls “truly sustainable coffee farming, with important and concrete actions in the environmental, economic and social dimensions. Environmental sustainability is a ‘must’ in the face of the climate emergency”.
This article was first published in the May/June 2022 edition of Global Coffee Report. Read more HERE.