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High prices offset low coffee production

Costa Rica’s coffee fields will yield a smaller harvest than expected this year, but high coffee prices may compensate for the loss. Ronald Peters, executive director of the Coffee Institute of Costa Rica (ICAFE), said that heavy rains were the main cause of the decline.

“We projected that this year’s harvest was going to be better than what it’s going to be,” Peters said. “We expected 2.2 million quintales [100 pounds], and it’ll actually be 300,000 [quintales] less because of climatic conditions… [But] the price is very good, and at least that compensates for some of the drop [in production].”

The New York Stock Exchange projects coffee prices for March at $2.35 per pound, an 88 percent increase from the $1.25 price per pound in March 2010. If coffee producers are lucky, high prices will make up for a lack of production this year.

Coffee growers across the country are feeling the effects of the harvest’s decline in volume. Carlos Vargas, financial manager of Coopetarrazu, a cooperative of 228 small coffee farmers in San Marcos de Tarrazú, said that this year’s harvest will be significantly smaller than last year’s. “It appears that the volume of the harvest is about 10 to 15 percent lower than last year’s,” he said. As of this week, the volume of harvested coffee is down 10 percent compared to last year, he said.

Vargas also said that the effects of this year’s bad weather would likely extend into next year’s harvest. “Because of the conditions of the coffee plantations, we’re not going to be able to adequately recuperate the loss next harvest,” he said.

Last August, the government created the National Coffee Growers Revitalization Project, an initiative intended to create growth in Costa Rica’s coffee sector. The project, a joint effort of the Agriculture Ministry, the National Bank, the Development Bank System and ICAFE, has begun distributing loans to farmers in different regions, Peters said. So far, $2 million in funds have been approved (TT, Dec. 3, 2010).

The benefits of the government plan, however, will not likely be seen in this year’s crop, and many coffee industry experts believe that Costa Rica’s waning harvest cannot be solved by financing alone.

Pablo Vargas, CEO of Café Britt, said that the aging tree population and a lack of investment are major factors in the crop’s decline.

“The aging of the tree population in Costa Rica is a problem, and there hasn’t been much investment in the previous years. So the coffee crop is going to be pretty much either the same or below the level of last year’s. That’s the problem, there’s less coffee every year in Costa Rica and that’s been happening for the past 10 years,” he said.

Pablo Vargas said that the future market price for coffee in March 2012 – projected to drop to $2.25 – means that efforts to invest in coffee now, when prices are high, will ultimately result in a high risk for farmers.

“The farmer is going to invest now in increasing capacity,” Pablo Vargas said. “But if you renew your coffee fields now you have to wait a couple of years to get the crop. So when that crop comes through, what will the price be?” he asked.  “So, the farmer once again is going to take on the price risk.”

Unlike its coffee-producing counterparts Colombia and Vietnam, which provide government subsidies to their coffee growers, Costa Rica does not provide any price guarantees.

“Prices are high now, so everybody grows coffee,” Pablo Vargas said. “Then there’s a lot of coffee two years down the road in the world, and then the prices go down. And then people stop investing in coffee.”

Pablo Vargas recommends more government policies to help absorb the blow of severe price fluctuations.

Carlos Vargas, from Coopetarrazu, is optimistic that coffee producers will benefit from the increase in this year’s prices. “In the past, coffee prices would rise in the world market, but sometimes not for producers, because the coffee was already bought … When the prices had risen, producers had already sold their coffee,” he said.

“This time, it appears that producers are going to be able to benefit more from the rise in prices,” he added.

The $2.35 a pound quote for coffee is the highest market price the cash crop has seen since June 1997. Vargas predicts that the soaring price will allow coffee growers to recuperate money that’s been lost in past seasons.

And while consumers can expect to pay more for coffee, Vargas said it’s important for them to know that the higher price is making its way to coffee growers. “It’s not just a rise in prices in the industry or intermediaries,” Coopetarrazu’s Vargas said. “It’s a rise in price that’s really making its way to coffee producers.”

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