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The Coffee Crisis in the Andean Region within the Framework of Alternative Development:
A Proposal

Carlos Gustavo Cano[*]

  1. It would be unrealistic to consider, or think of, reestablishing the International Coffee Agreement which collapsed in 1989 basically due to consumers’ reluctance to finance growing coffee stocks. Indeed, a renewal of this type of global pact between consumer and producer countries does not seem feasible; nor is it likely that it can be substituted by generalized systems which would keep world market prices within consensually-determined margins. Changes in trading practices, open-market strategies, integration processes, and fragmentation of production into multiple technological and labor tasks would make it unfeasible.

  3. Additionally, members of the Association of Coffee Producing Countries (ACPC) ¾among others, Brazil, Colombia and Costa Rica¾ recently officially interrupted the agreement to regulate supply, which was a last attempt at recovering prices. Association members had hoped that by reducing exports by 20%, prices would rise to over US$0.95 per pound. Valdemar Leao, Brazilian ad hoc president of the ACPC argued that the system had simply failed. The ACPC is made up of 14 member countries ¾out of a total of 50 coffee producing countries¾ and Vietnam, the world’s second coffee producer is not a member.

  5. Mexico and some Central American countries have proposed an alternative price-reducing plan, namely, that of destroying low quality coffee varieties instead of stocking them. India and Indonesia, however, have rejected this plan as has Brazil, the largest exporter.

  7. In the year 2000, 150 million bags were put on the market and similar figures are expected for 2001. In fact, even if production for the 2000-2001 harvest will fall to 110.4 million bags, as compared to 114.7 million for the previous harvest, the International Coffee Organization (ICO) estimates that current oversupply will hold, mainly due to stagnating consumption. What’s more, demand from importing countries fell by 3% in 2000, plummeting to 76.7 million, while consumption per capita fell by 3.6%, going from 4.68 kilograms in 1999 to 4.41 in 2000.

  9. Demand for higher quality “gourmet” coffee is, in fact, increasing world wide, particularly in the USA which is the top buyer with a total market of US$7.000 millions per year. As refers to high value added specialty coffee, espresso-based beverages (latte, espresso, café mocha, cappuccino) or frozen and iced coffee beverages, its consumption in the North American market rose by 14% in the year 2000 while “traditional” coffee consumption fell by 2%. Nonetheless, the volume of specialty coffee is still small. For Brazil, second top consumer, this segment represents a mere 5% of its yearly US$1.020 millions market although expectations are that it will rise by 400% in the coming five years.

  11. Notwithstanding, these new conditions are competitively unfavorable for the Andean Region in the mid term. As concerns supply due to Vietnam’s and Indonesia’s commercial expansion into the coffee market with prices which fluctuate from US$0.25 to US$0.30 per pound while the five Andean countries highest-productivity prices reach, at most, approximately US$0.70; Central America’s cost reduction processes and noticeable quality improvement; mass mechanization in Brazil with the corresponding favorable impact on farming and post harvesting expenses, particularly in the fertile Cerrado region which is furthermore not vulnerable to frost damage and where, according to estimates, prices have been reduced to US$0.36 per pound. As refers to demand due to virtual stagnation of per capita consumption; growing competition from other natural beverages, particularly among young people; and increasing market presence of oligoposonistic interests held by a small group of transnational companies which control the sector from production and distribution to wholesale and retail coffee sales.

  13. Consequently, without disregarding the importance of continuing efforts in the Andean countries towards reducing costs; increasing productivity; guaranteeing quality; and promoting specialty coffee ¾organic, “gourmet”, brand names, and fair trade coffee¾ as well as developing domestic markets, the best measures to adopt would be a joint long term five-year policy aimed at reconverting the coffee economy. This policy would have to at least consider substantially reducing planted areas and changing uses of soil; finding and promoting alternative agricultural and non agricultural employment opportunities; creating special investment incentives; building new technologies and training geared towards current economic structures required by producer zones according to the corresponding agroecological, social and economic characteristics by case, river basin, region and country.

  15. This process has to be a gradual and concerted effort between producer communities and local governments; it has to have from its outset a tool to deal with the transition, namely, an Andean Price Support System (Sistema Andino de Sustentación de Precios) which should cover at least ¾under optimum quality and efficiency standards¾ direct production costs subject to the strict and verifiable fulfillment of Reconversion Pacts (Pactos de Reconversión) derived from the aforementioned policy and prior to sponsoring of producers and respect of a certain number of requisites such as seniority, reliability, stability, and experience in coffee growing.

  17. During the past decade, Mexico has undergone a similar experience ¾with a good number of mistakes which should serve as lessons so as not to repeat them¾ with the program called Procampo, which was designed to adjust the productive structure of its traditional agriculture ¾particularly, corn, kidney beans, oleaginous plants¾ to opening its markets to international competition, and to economic integration within the NAFTA framework.

  19. The main source of funding for this policy and to cover the difference between the “subsidized” price and world market prices ¾when there is one as is the case today¾ would come from international cooperation for Alternative Development, mostly from the US Andean Regional Initiative, from the European Union and from the UN. The goal was not to substitute Coca and poppy with coffee but to keep current coffee planting from being substituted by Coca and poppy. In fact, this would truly be a Preventive Alternative Development program.

  21. In Perú, ¾in the valleys of Quillabamba, Chanchamayo and the Apurímac river¾ where coffee, as in Colombia, is the main licit agricultural export product, the price crash (2.5 soles per kilo vs. double the costs) which seems more and more like a structural and not merely passing situation, it is obviously contributing to a resurgence of Coca plantations and the emergence of poppy, until then unknown to the region. The Peruvian people know that this is so, and magazines such as The Economist have written on the subject. In Bolivia, in the Yungas region, this phenomenon’s incidence in increasing poverty is one of the most serious threats to public peace and to the applicability of a “Zero Coca” policy.

  23. Under the circumstances, the Andean nations should negotiate jointly the use of these international cooperation for Alternative Development resources, under the consideration that the relation benefits-costs of transforming their coffee economies would definitely be more productive than what has been up to now disbursed for the upkeep of the War on Drugs declared by President Nixon 29 years ago.

  25. The fact is that coffee, despite all the upheavals suffered, still represents the most important rural source of employment in the Andean Region since its production provides direct income for over 1.2 million homes, not counting the migrant and itinerant laborers hired during the harvest period. That is, until there are other feasible alternatives in the short term which can stem –if only transitionally- the exodus of the region’s peoples towards the clandestine, informal economy and, eventually, the fringes of the law.

  27. Accordingly, we are dealing with a serious regional security issue which requires common and urgent response so that, within at the least a decade from now, the region’s rural workers and their families will have the funds they require to gradually reduce their areas, reconvert them, and find other legal sources of income without sacrificing their survival and fracturing their communities’ social stability.

  29. Lastly, a forum that brings together the Andean Region’s Foreign Affairs and Agricultural Ministers should constitute the ideal arena to discuss this proposal, within the framework of the Andean Plan for Cooperating in the War on Drugs signed by the region’s presidents on June the 24th 2001 in Valencia, Venezuela.
Lima, October 2001

*Translated by María Mercedes Moreno, Mama Coca

[*] Former president of the Colombian National Rice Federation (FEDEARROZ), Society of Colombian Farmers (SAC), the Caja Agraria (agricultural sector bank) and El Espectador newspaper; and member of the Colombia National Coffee Gowers Committee. He currently coordinates The IICA Alternative Development Unit for the Andean Region, headquartered in Lima. E mail: carlosgcano@hotmail.com
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