Coffee has traditionally been the most important cash crop in Colombia, accounting for 50% of agricultural exports. Its Arabica type is recognised as one of the world’s highest quality coffees, earning itself a benchmark on international commodity exchanges where buyers pay a handsome premium for it. The country’s location near the equator, its plentiful slopes and fertile soils provide farmers with globally competitive conditions for year-round coffee cultivation.
On average, around 90% of production finds its way to the international market. In the central departments of Caldas, Risaralda and Quindío, in the so-called Coffee Triangle, or Eje Cafetero, large producers have modernised their plantations to such an extent that trees can be harvested multiple times per year. Until recently this placed Colombia in a solid position as the world’s fourth-largest coffee exporter after Brazil, Vietnam and Indonesia. The sector also has a high socio-economic value, with more than 560,000 families directly dependent on the cultivation of the crop for their livelihood. Moreover, in a country where armed struggle between guerrillas, drug-traffickers and government troops has led to high levels of urbanisation, coffee production has provided the government with an incentive to repopulate and develop rural areas.
CHALLENGES: As a result of its strategic importance, a deterioration of the sector’s performance over the past three years has led to concern among policymakers and farmers. A string of adverse climatic conditions combined with an aging crop, lack of modern production techniques and appreciating currency, has led to a drop in production and export revenues. High levels of precipitation have caused flooding and mudslides, prevented flowering, and facilitated a region-wide outbreak of leaf rust, a crop disease which has damaged producing trees and yields. As a result, production was recorded at 7.7m 60-kg bags at the end of 2012, a 2.5% drop from 2011 but a 32% decrease on the average production from 2000 to 2008 – a situation Juan Camilo Restrepo, former minister for agriculture and rural development called “troubling and disappointing”. For the first time, domestic buyers, such as Colcafé, a leading producer of ground coffee, found themselves importing up to 10% of their annual requirement from neighbouring countries. Meanwhile, matters were exacerbated by a 42% drop in coffee futures on the New York Commodity Exchange (NYCE), lowering export revenues from $2.85bn in 2011 to $2.13bn in 2012. The financial losses were further worsened by the peso’s rise which climbed 8% over that year.
In February 2012 thousands of producers took to the streets, calling for an increase in production subsidies and debt relief. President Juan Manuel Santos initially referred to the claims as “inconvenient, unnecessary and unjust”. However, his administration relented a few days later by granting an unprecedented subsidy of $80 per 125 kg to all producers, regardless of size, while acting to keep prices between $266 and $388.
Meanwhile, subsidies for farmers with less than 20 ha were raised from $33 to $63.
To restore profitability, the government, in collaboration with the National Federation of Coffee Growers (Federación Nacional de Cafeteros, FNC), has spent the past three years implementing a variety of measures to encourage production and diversify into high-end specialty niches. The first priority is to complete a nationwide crop renovation campaign. Low international prices and a strong local currency since the start of the 2000s led to a drop in investment, causing a large portion of the 900,000 ha of planted surface to age beyond optimum productivity.
CLIMATE: In addition, global climate change is affecting some of Colombia’s unique growing conditions. A more frequent occurrence of La Niña, a recurring climatic cycle that lowers the temperature of the sea and increases rainfall across South America, has led to floods and higher humidity in coffee-growing regions.
This has resulted in lower yields and encouraged the spread of leaf rust. According to the National Coffee Research Centre (Centro Nacional de Investigaciones de Café, CENICAFE), temperatures in some coffee regions have risen by 1°C in the past 30 years. While this may seem marginal, the quality and yields of coffee trees hinge, among other things, on the cool air of the Andean region. Meanwhile, rainfall has gone up by 25% in these regions. A further rise in temperatures risks the trees’ fruit ripening too quickly for optimum quality, while heavy rains could damage the fragile blossoms and shorten the flowering period.
SOLUTIONS: Anticipating the ageing crops and changing climatic conditions, the FNC and CENICAFE have developed a coffee seed, known as Castillo, which is more resistant to humidity and leaf rust and has a better yield than traditional types. The process of replacing the national crop with the new seed started in 2010 and is scheduled for completion in 2013. Additionally, greater use of fertiliser is being encouraged. Under the Fertifuturo programme, the government provides discounts of up to 20% on fertiliser purchases. New trees take up to three years to produce their first crop and 2013 has started to show signs of recovery. By the end of the first semester, production had increased 26% from 2012, to reach 2.12m 60-kg bags, a number that could have been higher but for the strikes in February.
Efforts are also under way to review growing techniques in line with region-specific climatic changes. Country-wide rainfall has increased 37% in recent years, whereas the north of Santander – home to a large number of coffee growers – has seen an increase of around 85%. While new techniques can consist of little more than longer branches to shield crop from rainfall, optimum adaptation requires further study. “A shift in the output of various producing regions seems inevitable, but the goal is to adapt as our farmers have always had to do,” Luis Genaro Muñoz, general manager of the FNC, told local media.
NICHE MARKET: Besides production measures, the FNC is also seeking to develop Colombia’s potential as a producer of high-quality, specialty coffees. In a recent statement to local press, Muñoz highlighted the appeal of this niche, which is rapidly expanding its current 12% market share of global consumption. As a result of more sophisticated production methods and globally growing awareness of fair trade and organic produce, demand for specialty coffee is on the rise, particularly among younger generations in developed markets such as the US, Japan, Canada, Italy and Sweden.
The FNC has launched a nationwide campaign to assist producers in getting certified in a number of ways, including international organisations advocating sustainable farming such as the Rainforest Alliance and Fair Trade, as well as UTZ, a global quality certification agency for agricultural produce. The federation is also looking to promote these products overseas through roadshows and trade fairs, as well as through their internationally sold Juan Valdez coffee brands.
“Colombia understands that the focus needs to be on gourmet, fine coffee, which can be sold at a higher price, allowing it to be competitive with smaller volumes,” Mauricio Bernal, general manager of Laumayer, a Colombia-based coffee trader, told OBG. Hopes are high that the multi-pronged approach to recover production levels and secure farmers’ income will pay off in 2013. While the renovation campaign is set to gradually increase production, few predictions can be made as much will depend on weather conditions. One result that seems inevitable is a rise in imports among local buyers as the replanted Castillo seed is predominantly destined for the export market.
THE ROAD AHEAD: Meanwhile, the effectiveness of subsidies, which are being pumped into the sector in ever-growing quantities, has been called into question by some critics. While it has addressed farmers’ shortterm concerns, it does very little to encourage the productivity and efficiency needed to secure the country’s position as a leading exporter. Rather than a sheer focus on subsidising production, critics argue that a portion of the funds should go into improving research and development, education, and physical infrastructure.
Despite the risk variables the sector faces, 2013 to date has seen an improvement in price developments. Since January, prices at the NYCE have shown a relative stabilisation fluctuating at between $1.40 and $1.45 per pound of coffee. While this is still a far cry from the favourable 2011 rates, it brings farmers as well as treasurers a short sigh of relief.
The entire worldwide coffee industry currently stands to benefit from problems in Indonesia, which pushed Colombia from its position as the third-biggest global producer. The replacement of ageing coffee trees in the archipelagic nation will take several years to produce results and, if Colombia can rapidly solve some of its own problems, may be able to regain its former spot.
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