A coffee crisis that does not distinguish borders

María Alejandra Medina / @alejandra_mdn.

– How many of you drink a cup of coffee in the morning or during the day? – the President of Honduras, Juan Orlando Hernández, asked the United Nations General Assembly (UN) on 26 September in New York. Without anyone having to say anything, it is easy to think that some or most of them do.

– Do you know that there is a very great chance that you, without knowing it, are part of a huge injustice? – he went on.

Also read: Colombian coffee families will receive $ 100 billion due to falling domestic grain prices

Hernandez explained his point with a simple example. Ticket in hand, said of the five dollars that on average costs a cup of coffee in New York, the small producers of his country, "after having worked hard, under sun and rain, by hand collecting each of the grains", They receive only two cents. Two cents of five hundred.

-Is it not injustice? -. There was applause in the room, perhaps because there are people who acknowledge that it is a problem that affects not only the 90,000 families in Honduras, the first producer in Central America, who live on harvesting coffee. Neither for the 541,000 who do it in Colombia, but also for 25 million who work worldwide, so that one of the most popular drinks in the world exists.

The debate about the prices paid to coffee growers is not new. However, Hernandez put the problem on the table to ask for consistency. If the UN is on the agenda of the Sustainable Development Goals (SDG), in which the eradication of poverty is one of the goals, then there is a call for attention for the income of producers. On the same day of that speech, in the same city, the kilo of coffee closed with a value of 97.75 cents, almost 25% less than a year ago.

In Colombia, the price of internal costs paid to the producer, which takes into account the exchange rate, reached $ 664,000 on September 26th. According to Roberto Vélez, manager of the national federation of coffee growers, the production costs amount to about $ 760,000. It is clear that coffee cultivation is not a profitable activity at the moment.

The value of the pound of grain was almost two weeks below the dollar, until last Friday it recovered a little again to US $ 1.02.

How does the market work?

Coffee is one of the raw materials traded on the world markets. There are vendors, intermediaries and buyers who can be, for example, rosters and investment funds. Futures contracts, financial instruments that bet on coffee prices in the coming months and even semesters are what is sold.

The performance of these assets depends to a great extent on the current and future market conditions: for example, the three-month contract can rise if less production is expected in the world.

The main markets in which futures contracts are traded are the BM & F of Brazil, where it only sells Arabica coffee (such as Colombia); SICOM Singapore, specialized in robusta, and bags such as Tokyo (TGE) and Europe (Euronext), in which both types of grain can be sold. It is clear that one of the markets that most accurately marks prices is New York, both the stock market (NYSE) and the commercial market (NYME).

Despite the slight rebound in the price on Friday, indicating that the coffee delivered in December is around US $ 1.02, it is a low level that could affect Colombia more drastically if the dollar were lower than the current $ 3,000. There are those who confirm that the increase may be due to the intention of the speculators to generate profits at the end of the quarter, ie to collect their profits from the implemented strategies.

For Rafael Mejía, president of the Mercantile Exchange of Colombia, coffee prices are expected to slowly recover. The behavior of the quotation will depend almost entirely on external factors, due to market problems, such as production in Brazil (the largest producer in the world), so that Colombia can not have a greater influence on this asset. "The expert also says that there are no indications that the fall in prices is due to speculators, as the manager of the federation has said.

Juan David Ballén, head of economic research at Casa de Bolsa, explains that "the devaluation of more than 20% of the Brazilian real (the currency of that country) against the dollar has made the sector more competitive. and the exchange rate is an additional motivation for producers to export their products and bring them to the international market. "In this respect, there is an expectation that, after the political uncertainty about the elections in the neighboring country, the real will be strengthened.

"On the other hand, we must understand that the commoditiesexcept oil, they tend to move together. Some assets, such as gold, copper and even soybeans, have also fallen. It can be an effect that influences the downward trend of grain, "says Ballén.

Also read: Start global campaign to warn of crisis due to low coffee prices

International efforts

This October 1 was the date that had to start with a global awareness campaign around the crisis of coffee prices, including the consumer. The decision was the result of the last meeting of the Supreme Authority of the International Coffee Organization (ICO), which brings together countries representing about 98% of world production and 67% of consumption. At that meeting, the director of the ICO was "urged" to enter into a dialogue with the most important burners in the world to support the efforts of the organization.

The Forum of Coffee Producing Countries, which met for the first time in Medellín last year, is trying to do the same, such as sending letters directly to the leaders of the main purchasing companies, "highlighting the situation and inviting what we wear proclaimed a while ago: a dialogue between all members of the chain to find solutions to the problems, in this case, of prices, "said Roberto Vélez.

The plans are also to bring the matter to a diplomatic level. The manager of the coffee union says that he has an appointment with Foreign Minister Carlos Trujillo, "to propose Colombia to lead a campaign internationally": the idea is to seek the dedication of other countries and that this is a priority problem. to resolve in the national calendar.

Local opportunities

The week that starts is special, because the Cafés de Colombia Expo is held in Bogotá, an event that brings the entire value chain together. According to Vélez, this is the end result of more than 80 special coffee shows that were held at the producing departments this year. "The situation is so poignant that we might not go into it, but we continue to work on the issue of the profitability of coffee and coffee. Expo Colombia is incorporated in that strategy", the manager says in a kind of reflection on the scenario today, the medium and long-term visions can not be blurred.

The environment in which the event will start has a little more oxygen because of the mechanism that the national government has regulated last Friday to give $ 100,000 million direct support to the prices paid to the producer. They are up to $ 25,000 per load of 125 pounds, as long as the domestic price is less than $ 700,000. "As coffee growers, we appreciate the support of the government and we recognize that in such a complex tax situation, extracting these funds was a support for coffee cultivation," Vélez said. However, both the manager and the steering group of the Federation emphasized that the incentive does not cover production costs (since they are on average $ 760,000 for this year).

The new trade union representation (municipal and departmental), chosen during the polls on 8 and 9 September, will take office in November to attend the first national conference in December. A work "from shoulder to shoulder" with mayors, governors, councils and meetings to attract investments that benefit the sector is one of the tasks that the newly elected are to take, says Roberto Vélez.

Short, medium and long term insurance strategies will be discussed to reinforce a coffee plantation that currently does not have the right conditions to get the best harvest next year, and not just in Colombia.

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An activity that is not profitable does not allow (or motivates) to pay and care for the crop. According to Vélez, a lower Brazilian harvest is expected in 2019, which would affect prices in favor of producers. The question is whether the country, whose annual output will be about 14 million bags, will be able to make the best of it if the first signs of recovery appear.

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