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Brazil, Colombia growers demand action over low coffee price


By Peter Murphy

New York| Thu Jul 4, 2013 12:32pm EDT


* Brazil growers burn coffee at protest, demand gov't help

* Coffee prices near four-year lows on ample supply

* Colombia growers now paid subsidy after March strike

BRASILIA/BOGOTA, July 4 (Reuters) - Pressure is mounting on governments in the world's top arabica coffee nations to come to the rescue of their growers as prices slump below production costs, with Brazilian farmers staging a protest on Thursday and Colombians threatening to strike.

Producers in one Brazilian coffee belt town, Tres Pontas, began an "Awaken" protest march, borrowing a well-worn slogan from recent nationwide political protests, to press for state help after prices halved in the space of two years.

"We are in an unprecedented crisis," said Eduardo Chaves, 43, a fourth-generation coffee grower in Tres Pontas after farmers set fire to a mound of coffee and threw up roadblocks. "We want other towns to do the same so that our voice is heard."

Colombian growers are threatening a stoppage in August - their second since February - unhappy over the way a new coffee subsidy is being distributed. Meanwhile, the country's farming sector as a whole is calling for more aid against low prices and cheap imports resulting from free trade agreements.

Fueling producers' anger is the steady slide in arabica prices, now hovering near the four-year low of $1.17 per lb hit in July 2009, with global stocks at five-year highs and likely to swell with another large Brazil crop being harvested.

"This market right now is really hurting producers," said Brazil-based coffee trader John Wolthers at exporter Comexim. "It might show in the next crop because of less fertilizer use and lack of incentives" to cultivate coffee, he said.

Coffee trees yield more beans when the soil is fed with fertilizer and chemicals are used to fend off bugs and fungi.

Arabica coffee is a smoother tasting, more expensive bean than cheaper-to-grow robusta, which is used more in instant coffee. Many roasters flocked to robusta in 2011, when quality arabicas were scarce and shot to more than $3 per lb. But roasters are now returning to richer arabica blends as prices fall.

But even as arabica demand picks up, surplus supplies look unlikely to unwind soon. The 2013 Brazil crop is estimated by traders at about 53 million bags, and Colombia's output is recovering after a run of disappointing, weather-beaten crops.

New Colombian coffee bushes will become productive in the coming year or so after a costly renovation program replaced aging and lower yielding plants, likely boosting output by several million bags.

Any government intervention aiming to push up coffee prices would need to be aggressive after the world futures market barely blinked at forecast losses of 2.7 million 60-kg bags of Central American coffee, nearly a fifth of its crop, which fell victim to the "roya" fungus.

But Brazil, by far the world's biggest coffee grower, has still to offer help to growers months after the government recognized a need for it. Agriculture Minister Antonio Andrade's proposal of $176 million in subsidies looks paltry in the face of exports of roughly $6 billion a year even in these lean times.

"We're really trading at a level that is not sustainable, at least not for high quality arabica. No one is making any money growing that stuff," said Shawn Hackett of Hackett Financial Advisors in New York.

"For arabica there will be a big problem if it stays down here for too long in terms of supply."


BOTTOMLESS COFFEE

Brazilian government data for 2012 says it cost an average 338 reais ($150) to produce a 60-kg bag of arabica in Minas Gerais state's town of Guaxupe, where the country's biggest coffee cooperative is based. But local brokers are quoting a price of only 320 reais for the best quality beans.

Colombian growers, known for their famous Juan Valdez brand, are now roughly breaking even, data from the country's coffee federation shows, after the government granted a 145,000 peso ($75.62) subsidy per 125-kg bag following a nationwide coffee producers' strike that ended in March. The subsidy expires at the end of 2013, potentially deepening the crisis in the sector.

Wages are the biggest production cost for both countries, which between them grow nearly three quarters of the world's arabica.

Colombia, forecast to produce about 10 million bags this year, earns a premium over Brazilian beans because of its quality produce grown at high altitude. Flatter terrain that enables machine harvesting has helped Brazil to cut costs, however.

The implications of low prices for both countries extend beyond lower investments that could cut output. Coffee remains a major employer and an important generator of income in rural areas where some of the poorest segments of the population reside.

With Brazil's government already on edge after fierce protests over how it runs the country, averting a crisis in its coffee sector, which says it is the country's single biggest agricultural employer, may now have become a bigger political priority.

Though a plunge in production does not look plausible in a sector that has weathered price volatility many times in the past, thin profits or outright losses are prompting growers in Brazil at least, to consider alternatives.

"I have already seen a lot of people thinking of switching to cattle and planting eucalyptus trees," said trader Lucio Dias from cooperative Cooxupe. "Keeping your coffee farm means you've got to keep investing just to keep it going."

 

 

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