Central American Coffee Growers Seek Ways to Dilute Bitter Taste of Rising Costs

Fertilizer and export cost increases, added to production hit by climate change, are pushing up prices of the grain as the region’s producers seek to keep prices accessible to consumers

Fertilizer and export cost increases, added to production hit by climate change, are pushing up prices of the grain as the region’s producers seek to keep prices accessible to consumers.
May 27, 2022 | 02:12 PM

San José — The cost of enjoying a cup of coffee is rising, not only due to inflation affecting all markets, but also because of a series of environmental and supply factors that have caused Central American and Caribbean producers to seek solutions to prevent a bitter taste for consumers.

Coffee production in the Central America and Caribbean region has now seen almost three years of being impacted by multiple external factors that are exerting pressure on the final price of the bean to consumers, as well as adverse effects on production.

Data from Bloomberg News show that in terms of production, Brazil, Vietnam and Colombia continue to lead the market, but behind their leadership is Honduras, which is one of the world’s top-five producers.

A table of world coffee forecasts by country shows that, in 2020 and 2021, both production and consumption have dropped during the last three years. This fact is confirmed by coffee producers of the region interviewed by Bloomberg Linea.

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Jorge Brenes, a coffee producer, exporter and partner of Hacienda Tobosi explained that a series of factors have affected coffee production, but recently the shortage of containers and fertilizers have put additional pressure on the market, a situation that many producers have attempted to mitigate by selling more premium coffee.

During 2020, during the pandemic, consumption was reduced, leading to a drop in demand, but the supply of the product was also affected.

By 2021, the world seemed to be recovering from the pandemic, and exports increased, tourism was reactivated, which were good omens, until climatic conditions hit the region and caused a reduction in harvests.

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In the case of coffee, Colombia has had problems due to the La Niña climatic phenomenon, while Brazil also has also reported a difficult climatic situation due to frost, and as a result some buyers are beginning to look at sourcing Guatemalan coffee.

The weather situation in Brazil, which is the world’s largest producer, and in Colombia, may set a trend toward better quotations of contracts, due to the effects of supply and demand.

Inflation, fertilizers and containers

The main difficulties currently faced by coffee growers are also the result of the increase in the prices of raw materials, including fertilizers, as growers are in the process of fertilizing plantations.

Russia is the world’s largest exporter of fertilizers, and exports are practically paralyzed by the war in Ukraine and the subsequent international sanctions.

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Dulce Romero of Café Ambrosía and a member of the board of directors of the coffee varieties committee of the Guatemalan Association of Exporters (Agexport), told Bloomberg Línea that the prices of raw materials are on the rise and which are likely to remain high

For his part, Brenes explained that the last three years have been particularly hard for producers, and in 2022 it has been inevitable that the price increases would be transferred to final consumers because demand continues to rise, while supply is being affected by the increase in raw material prices.

And when it comes to exports, the container crisis has also increased costs, making it even more expensive to ship the product.

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The Situation By Country

Costa Rica

During 2020 there was a decrease in the area planted, mainly within the capital’s greater metropolitan area, because the land was being given over to real estate, as it is more profitable to build than to produce coffee.

“There was a lot of change from agricultural land use to real estate, which is a trend that had been occurring in Costa Rica,” Brenes added.

And in 2021 there were two specific factors that affected the harvest, the first and most important was the weather. There were a series of flowering difficulties, because usually from December to March there is no rain, but during 2021 the country suffered a series of natural phenomena that affected production, which resulted in lower supply.

“Last year there was no water stress, and because there was no water stress there was no good flowering, so in some sectors of Costa Rica production fell by up to 40%,” Brenes said.

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He also said that from September 2021 to date the demand for coffee has increased considerably in the country, but in turn the increase in fertilizer prices directly impacted production.

The solution has been to resort to the sale of more premium coffees.

High-end coffees are more expensive in the foreign market, which allows coffee growers to partially recover their investment in agrochemicals.

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Dominican Republic

In terms of production and exports, the Dominican Republic is not a country whose economy depends heavily on coffee. However, it does represent a portion of the country’s income.

Customs authority data shows that coffee exports have been increasing slowly but steadily in recent years, with year-on-year growth of 1%, 2% or even 4%. However, in 2020 coffee exports declined by 35% as a result of the pandemic.

Currently, production remains stable, but continues to increase in cost as a result of higher prices for fertilizers, raw materials and transportation.

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El Salvador

Estimates for El Salvador show that during 2018 and 2019 production remained unchanged. In 2019, production increased, but since 2021, amid a series of socio-political incidents in the country, production has decreased. According to the Salvadoran Coffee Council (CSC) exports dropped by 13.5% during the first eight months of the 2020-2021 cycle.

Currently, production remains stable, but as in all the other countries in the region, Salvadoran coffee is also facing a series of difficulties in terms of rising production costs due to the above mentioned factors.

Guatemala

Guatemalan coffee exports reported $328.5 million in revenues in first quarter, S$127 million more (63%) than in the same quarter of 2021, and the upward trend is likely to continue given that many customers are looking for products that are traded on the spot market.

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Juan Luis Barrios, president of the country’s National Coffee Association (Anacafé), explained during a presentation that greater foreign currency revenues are being observed for coffee sale, associated with a possible global shortage, and which is a natural reaction by international clients to guarantee their supplies through transactions in the spot market.

Barrios said that the year could close with more than $900 million in foreign currency revenues from coffee exports, and with an average reference price of $220 per sack, given the climatic conditions observed in other producing countries. Meanwhile, the effects of the increase in fertilizer prices due to the Russia-Ukraine war could continue during the next two harvests.

Mainor Hernández, president of Coffee Trade, told Bloomberg Línea that Guatemala depends on the international prices of the Stock Exchange, both in London and the U.S., and observed that the current prices of coffee represent a recovery for the sector, providing an incentive not seen in several years.

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In spite of the inflation added to the increase in the price of coffee supplies, he says there could be benefits if international coffee prices remain stable or increase.

Guatemalan exporters that are shipping ready-to-consume coffee to international markets have garnered added value, he said.

Sergio Mazariegos, coordinator of the the coffee committee of Agexport, added that for a year they have observed stability in international prices, after a bad streak that did not cover production costs, due to a shortage of coffee in large consumer countries, such as Brazil, among others.

Honduras

Honduras is the largest producer of coffee in Central America, and the fifth-largest producer in the world, and in December 2021 the country’s total harvest was estimated at 6.8 million 60kg bags.

One of the measures implemented by the country to improve profits and production was to exempt the industry from sales tax, as, according to legislators, some 5,000 people abandon coffee farming each day in Honduras, due to its low profitability amid the high fertilizer prices.

Coffee generated $1.16 billion for Honduras’ economy from exports of 7.6 million bags during the 2020-2021 harvest. For this season, which runs from October 1, 2021 to September 30, 2022, the Honduran Coffee Institute (Ihcafé) estimates revenues of $1.5 billion.

However, coffee exports fell 26.5% in April compared to the same month last year, to 551,317 60 kg bags, due to the effects of mildew and the biannual harvest cycle, according to Ihcafé.

Translated from the Spanish by Adam Critchley