Coffee Economics at Origin-

From the news wires. I am not too familiar with the Central and South American coffee agricultural systems. I assume that because most growing areas are not as inaccessible as they are here, and in Africa, fertilisers are an important part of the micro-system. In Indonesia 'organic'- using natural means of fertilising the land- is part and parcel of the industry here by default.

The thinning trees of El Salvador's coffee orchards are the most visible signs of strain on an industry that should be booming.


Coffee prices are near their highest since a global coffee crisis earlier this decade, but growers say fertilizer costs are rising even faster, hurting their ability to nurture plants.

In Latin America, home to some 60 percent of global production, farmers say output will suffer.

"With fertilizer prices so high, we haven't been able to fertilize, and we'll feel the effects in the next harvest," said Luis Roque, an agronomist at the UNEX coffee exporting company that grows arabica beans in El Salvador.

Gazing at the coffee trees lining the slopes of a nearby volcano, in the town of Santiago de Maria, Roque points at stunted branches of usually robust trees, where thinning leaves show sub-standard nutrition.

Fertilizer prices, stable for almost a decade, have skyrocketed in the last year on high demand and as oil and natural gas prices rose.

Governments in Latin America are paying attention because coffee is a major source of export revenue for many countries in the region, where the green trees and red cherries typically adorn many steep mountainsides.

With less nutrients, trees will bare fewer beans than usual next year, likely pushing up prices of the world's second most traded commodity after oil.

Prices for common phosphate fertilizers have increased five-fold in the past 15 months to an unprecedented US$1,230 per tonne. At that level, farmers must use close to a third of what they earn per pound of coffee just to pay for fertilizers.

In Colombia, the world's third largest coffee producer famous for its high-quality beans, the government has earmarked $50 million in fertilizer subsidies this year.

"The government has been very conscious of the situation. It is supporting the farmers with fertilizer subsidies on a per-hectare basis," said Jorge Lozano, head of the Association of Colombian Coffee Exporters.

Poor countries like Nicaragua supply some farmers with lower-priced fertilizers sold at cost to the country by their oil-rich, political ally Venezuela.

The support is welcomed by small farmers still recovering from a protracted period of slumping prices between 2000 and 2004 that saw some abandon their estates and many more to stop investing in crop maintenance.

Prices have since recovered, reaching multi-year highs this year, but operating costs are erasing profits.

"What has been recovered in prices to a great extent has been lost because of the increasing costs," said Nestor Osorio, the head of the International Coffee Organisation during a recent visit to El Salvador.

The pinch on production, farmers say, will be felt in coming years, when trees produce less for lack of nutrients.

"There will be a good harvest (next year). . . but the one after that will be affected. It will be quite compromised," said Paulo Gontijo, a coffee specialist at the agricultural research firm Epamig in Brazil's main coffee state Minas Gerais.

Brazil, the world's leading coffee producer, is expecting a bumper crop in 2008/09 because of the biennial upswing in production.

The fertilizer problem is global, and is hitting both high-quality Arabica producers and growers of Robusta, beans that are mostly used in blends.

No 2 producer Vietnam said its 2008/09 harvest would fall well short of industry estimates at 15 million bags, largely due to droughts and high fertilizer costs.

In Costa Rica, which has one of the region's most sophisticated coffee industries, overall production costs rose 20 percent this year compared with the previous harvest, the local coffee institute said in a study.

While labour and other inputs were more expensive, the largest jump came from fertilizer, pesticide and fungicide prices.

"Producers have not yet realized the extent of the problem, they still have stocks (of fertilizers) in their warehouses," said Rodrigo Vargas, who heads one of Costa Rica's largest growers groups.

"I see lower yields coming," he said.
 

GreenDude

New member
Feb 14, 2008
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Los Angeles, CA
Very interesting article, thanks for posting :)
I am curious as to the extent of the price increases in percentages in the next few years, anyone have any ideas? It would be good to gauge in advance the necessary steps to take to offset this loss (in terms of raising prices for customers)....

Suppose I have contracted out until 12-09, 320 bags / month of Costa Rican coffee's....If the supply is diminished would the producer still be able to honor the contract? Or would he demand a higher price all of the sudden?

Just curious :p
 
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Well a contract is....a contract! Nothing hacks off roasters or brokers outside the producing countries more than suppliers/incounty brokers who renege on contracts. It sadly happens a lot where I am- I have a lot of friends who are brokers in Europe who cc me in on black-list/renege on contract letters they send out everytime a contract gets broken. Essentially this does not happen when prices are stabil (or falling) but when they are going in the opposite direction, it happens a lot! Mind you this really applies more to big bulk buying of greens (ie; 30 containers of Lintong for instance) not the more specialised 1 container or less buying, where it is assumed you have a 1-on-1 relatonship with the growers. In this instance, if my growers came to me with increases I would look into it and obviously adjust the agreed price, if justified. Otherwise you ust end up either screwing up the relationship, or getting crap- in which case you then have to reject it...which obviously ends up in dispute.
 
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