Americas > South America > Colombia > Colombian coffee sector under pressure

Colombia: Colombian coffee sector under pressure

2016/07/08

Rising costs and adverse weather conditions are eroding crop quality and earnings in Colombia’s coffee industry, though government plans to establish a new fund to support local farmers is set to reverse the recent effects of El Niño.

Projections issued by the National Federation of Coffee Growers (Federación Nacional de Cafeteros de Colombia, FNC) in mid May suggest yields will be down to between 13m and 13.5m 60-kg bags this year due to weather changes stemming from the El Niño weather pattern.

This is down from the 14.2m 60-kg bags in 2015, marking a 23-year high. If not for El Niño, output could have reached between 14.5m and 15m 60-kg bags this year, according to Roberto Vélez Vallejo, general manager of FNC.

In the first part of the year, however, Colombia’s coffee production continued to rise – with monthly production reaching 1.2m 60-kg bags in May – although the effects of El Niño did impact bean quality resulting in a reduction of coffee exports.

Challenges further afield

The FNC has warned about the increased likelihood that La Niña, which brings wetter and cooler weather and is expected to hit later this year, could threaten next year’s yields, on the back of the dryer conditions caused by El Niño.

The US Department of Agriculture (DoA) bureau in Bogotá reported that local growers and officials remain cautious over El Niño’s potential impact on the output from the mitaca harvest, the second and smaller of Colombia’s two peak harvest periods, which is currently underway.

The flowering period for the 2016-17 mitaca harvest could also be affected by the heavy rains brought on by La Niña, which is expected to continue into the first half of next year, according to the DoA.

Lower prices, higher input costs

Falling returns and a steady rise in input costs, combined with pest damage and concerns over crop quality, are all impacting Colombia’s coffee industry.

A decline in yearly output from Colombia – the world’s leading producer of mild-washed arabica coffee – as well as in other major coffee producers such as Vietnam and Indonesia, could see wholesale and retail prices come under pressure this year.

As of mid-May, arabica futures on the New York commodities market were down some 9% in the last year.

A labour shortage has further impacted earnings, with the DoA suggesting that the industry is approaching unprofitability.

“A shortage in agricultural labour and a higher minimum wage have increased production costs for medium and large-scale producers,” the DoA report stated.

There are also concerns about pest damage, with the coffee berry borer more prevalent in dryer seasons, raising the risk of infestation and crop losses if the El Niño effect is extended. Borer infestations have reached 10% in central growing areas, threatening both crop quality and output, according to the DoA.

Although production was up 8% year-on-year (y-o-y) in May due to crop renovation initiatives spearheaded by the FNC, concerns over El Niño’s effects on crop quality are being borne out.

Exports dipped 8% y-o-y to 920,000 60-kg bags in May, a result of a shortage of premium beans and an increase in the stockpile of lower-quality product, which could further restrict earnings in the months to come.

Despite the yearly decline, exports in May were up from 906,000 60-kg bags in April.

The sector remains resilient, with year-to-date exports up 6% y-o-y from 4.8m 60-kg bags to 5.1m 60-kg bags at the end of May.

Stabilisation fund

The FNC plays a central role in the Colombian coffee industry, acting as a guaranteed buyer – at market prices – to the country’s 500,000 small producers.

The FNC is moving to protect growers in the face of lower international prices, with the federation announcing in mid-May it would launch a new fund to stabilise coffee prices paid to producers.

Set to begin operations in 2017, the fund aims to implement support mechanisms to ensure growers have a sustainable income, as well as an incentive to remain in the industry, though Vélez Vallejo told local media the fund would not set a minimum price for local product.

The FNC is holding talks with the government, as well as international agencies such as the World Bank and the Inter-American Development Bank, to provide external funding.

In early March Vélez Vallejo renewed a call to improve productivity and profitability at the 4th World Coffee Conference in Ethiopia, emphasising that all links in the coffee supply chain should benefit from the industry’s revenues.

“As producers, we have nothing against a profitable global industry characterised by positive margins and utilities. However, the entire chain has to be profitable, starting with the coffee growers,” Vélez Vallejo said at the conference. 

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