Colombia’s coffee sector seen needing complete overhaul

Bogota | Reuters –– Colombia’s coffee sector needs a complete overhaul to recover from a huge loss of global market share, says a government-commissioned report, seen by Reuters, in which the recommendations include deregulation of exports and the introduction of a minimum price.

Despite the undisputed quality of its mild arabica coffees, Colombia now supplies only a tenth of global exports versus 18 per cent around 1990, prompting fierce debate over what steps one of the country’s largest employment providers should take to regain share.

The study, carried out over two years, recommends scrapping the minimum quality standard for exportable beans so growers can enter the fast-growing low-end coffee segment, where prices are higher abroad.

The report, to be delivered this week or next to President Juan Manuel Santos, was commissioned to address Colombia’s marginalization in global coffee.

Controversially, it advocates a smaller role for the National Coffee Growers’ Federation, which exports about a quarter of Colombia’s coffee, a suggestion that has drawn a fierce response from federation members when raised in the past.

The report suggests splitting the farmer-funded entity into a private trading arm and one that would provide technical support to growers. It argues growers may earn more by dealing with a more competitive, exclusively private, export sector.

Private exporters complain the federation, which publishes its fluctuating guaranteed purchase price daily to set a market floor, competes unfairly because it is tax-exempt and because its shipments face fewer bureaucratic hurdles.

The federation says its presence ensures growers receive a better price, while the study says it is a drain on government funds, which are used to supplement the six cents per pound the federation earns from a tax paid on coffee shipped by private exporters.

Growing Colombia’s prestigious high-altitude beans provides a livelihood for 350,000 families and provides important social cohesion in a country where a 50-year war with leftist guerrillas has been fought mostly in rural areas.

The federation has opposed tampering with the sector’s economic model, while private exporters say that lack of flexibility has led to Colombia’s decline, as the industry has not adapted to new trends in global coffee.

Instead of the federation’s price guarantee, the report recommends government-funded support for growers when prices drop low enough. This would emulate the mechanism used in the world’s top coffee grower, Brazil, to ensure growers’ variable costs are always met.

— Peter Murphy reports for Reuters from Bogota, Colombia.

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