Print Edition - 2019-03-07 | MONEY
Hit by a price crash, Colombia wants to break its coffee free from NYSE
Mar 7, 2019-
Colombia’s coffee may be known as the best in the world, but that doesn’t mean the South American country can ask top dollar for it.Coffee prices are regulated by the New York Stock Exchange, which growers blame for the crash that has devastated their industry.
“We want to offer our coffee at a fair price, which covers the production costs and a reasonable profit,” Jose Sierra, manager of the National Coffee Growers Federation (FNC), told AFP.
The problem is that being tied to a stock exchange not only restricts the ability to set your own prices, but also leaves you at the mercy of traders.
“Stock market speculators who buy coffee securities... can dump them the moment they like, which then sends the price tumbling to the floor,” said Sierra.
“That’s why we want to stop using the New York price as a reference.”
Colombia is the third largest coffee producer in the world, after Brazil and Vietnam, and number one amongst those known for their high quality soft beans.
The international reference price for coffee has dropped from a high of $1.5 per pound in 2016 to less than a dollar in February.
And while Colombian coffee has a 20-cent premium due to its high quality, that’s not enough.
“I’ve never seen such a dramatic situation as this,” said Sierra, who has been FNC’s manager for 25 years.
“They’re paying us 640,000 pesos for a 125kg shipment of coffee and the production costs are 790,000 pesos,” said Sierra.
That’s a loss of $53.60 for every transaction.
The price crash is also a result of surplus. According to the International Coffee Organisation (OIC), production—measured in 60-kilogram bags—in 2018/19 should hit 167 million bags compared to the expected worldwide consumption of 165 million.
At $1.20 per pound the current price for Colombian coffee is less than the $1.40 it fetched in 1983, said Fernando Morales-De La Cruz, from the Cafe for Change organisation campaigning for a greater distribution of coffee profits going to those working in its production.
He says that a pound of coffee produces 55 cups, but while “the consumer pays $1-$3, depending on the country, for a cup of coffee, the producer is sacrificing the value of his land.”
The FNC says the coffee market generates around $200 billion a year, but producers see only 10 percent of that.
In order to break away from the stock exchange, Colombia needs to find allies amongst other soft coffee producers in Central America and Africa whose quality would allow them to negotiate their own prices, the FNC says.
Colombian coffee has been priced on the New York Stock Exchange for decades, and such a radical change must first find approval amongst the country’s coffee growers.
If such a consensus is found, it would then need to be discussed at the OIC meeting at the end of March in Kenya and then a meeting of producers in Brazil in July.
In Colombia, 540,000 families work in the coffee sector. It’s the country’s top export, ahead of oil and mining.
The government has announced some drastic measures to help, including the revision of debts, potential refinancing, support to purchase fertilisers and the renovation of coffee plantations, while also reactivating a subsidies fund.
But the coffee growers insist it’s not enough.
“Coffee growers should be paid more than three times the current price,” said Morales-De La Cruz.
He says coffee producers need to organise themselves into an equivalent of the Organisation of the Petroleum Exporting Countries (OPEC), which sets its own prices and coordinates production.
Only then could Colombia reap the rewards of its prime export.
“Colombia’s soft coffee is the best of its type in the world,” said Sierra.
“Those who want to drink a cup of soft coffee should recognise its value” and pay a price that providers producers with “a worthy profit.
Published: 07-03-2019 12:23