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Falling coffee prices weigh on Brazil producers

In order to support its 290,000 coffee growers, the Brazilian government decided in August to buy arabica at about $132 a bag.

Brazil coffee beansEnlarge
(Sean Gallup/AFP/Getty Images)

The husks, baked dry and black in the hot Brazilian sun, crumble in the hand, revealing pale green beans. But those coffee beans could go to waste, as world prices falter.

"It's good coffee — they should be drying it and getting it ready for export," says Celso Scanavachi, an engineer at the Coopinhal farm cooperative in Santo Espiritu do Pinhal, north of Sao Paulo.

"The producer has abandoned 40 percent of the crop; the retail price doesn't cover the cost of harvesting," he says.

Forecasts of record output in several main coffee-producing countries — Brazil, Colombia and Vietnam — have sent the price of arabica plummeting on world markets in recent weeks.

Earlier this month in New York, the price of a pound of coffee sank to $1.01 (0.75 euros) — a seven-year low.

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That has hit Brazil — the world's biggest grower and exporter of coffee — hard, with producers taking home just $95 per 132-pound bag while facing production costs of more than $150 a bag around Santo Espirito do Pinhal.

Coopinhal boss Daniel Bertelli blames politicians — especially the administration of former president Luiz Inacio Lula da Silva — for pushing up salaries thanks to new labor laws.

"The large-scale producers further north were able to mechanize their harvest and produce for 280 reais ($120) but here the plots are too small and hilly," Bertelli said.

"The producers carry on here as they don't have any choice but they are weighed down by debt," he added.

No money to protect crops

The financial problems have affected quality.

Scanavachi shakes the plants hard and dozens of little butterflies fly out.

"This parasite would have disappeared had we sprayed with insecticide in time but there's not enough money to buy phytosanitary products," says Scanavachi.

According to fertilizer association Anda, Brazilian producers must sell 77 percent more coffee than they did in 2011 to pay for a ton of fertilizer.

Scanavachi picks up some pitted beans, evidence of another problem producers are having to battle — bark beetles attacking the crops.

"It proliferates among all the abandoned coffee and that will affect the next harvest," he said.

"There is a serious risk of going back 10 years, to when quality was mediocre and there was more (plant) sickness," he added.

"Many family-owned operations will disappear over the next five years."

Price guarantees

In order to support its 290,000 coffee growers, the Brazilian government decided in August to buy arabica at about $132 a bag, guaranteeing a market floor price in the country.

If the market price stays in the doldrums, the three million bags concerned will be bought from producers at $149 each from March.

"That is better than the market price but will still cause problems," as exporters go up against foreign producers taking the price falls on the chin, says Bertelli.

At a recent demonstration, several cooperatives demanded government help to manage their debts via improved banking and credit facilities.

"If the producers were less strangled by debt, they would stock their coffee and wait for the price to go back up," says Bertelli.

Analysts however say they do not see that happening in the short term.

Buoyed by the high prices of recent years, producers around the world raced to plant new crops, while Brazil and Colombia made major investments to boost productivity.

"Unlike crops such as soybean, coffee plants are not harvested then replanted each year, so it can take a long time before supply falls because of low prices," Thomas Pugh, an economist with Capital Economics, told AFP.

"Given that chronic excess supply is likely to continue into 2014-2015, prices will remain under pressure, between 90 cents and $1.20 a pound," adds Kona Haque, chief agricultural commodities analyst with Macquarie.

The International Coffee Organization (ICO) estimates that from October 2013 to next September, arabica supply will exceed demand by 4 million bags, or 240,000 tons.

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http://www.globalpost.com/dispatch/news/afp/131122/falling-coffee-prices-weigh-brazil-producers