Financial Times
October 25, 2001
By James Wilson

Coffee income - boosted by advertisements featuring the mustachioed Juan Valdez - brought a measure of social cohesion to regions wracked by four decades of civil conflict in Colombia.

But the latest price drop has led to an upsurge in kidnappings, violence and farming of drug crops.

UN drug and coffee officials note that some farmers are trying to supplement declining incomes by sowing opium poppies, used to produce heroin. "I have seen farms where there are poppies and coffee," says Fernando Osorio, executive director of the national federation of coffee-growers' committee in Tolima, a central province that grows 12 per cent of Colombia's coffee.

Klaus Nyholm, the UN Drug Control Programme representative for Colombia and Ecuador, says officials promoting alternative development are also finding more coffee-growers in Tolima producing poppies.

"People are not cutting down their coffee, at least not yet - though this may happen in a year or two when people feel that coffee prices are going to stay low," says Mr Nyholm. "But they don't tend the coffee as well as previously."

Mr Osorio says poppies are four times as profitable as coffee per hectare. "The coffee grower does not want to get into illegal businesses, with a lot of risk," says Mr Osorio. "But he accepts that risk because there is nothing else to do."

The trend could confound international efforts to control heroin trafficking. Colombia remains a small player, producing 2-3 per cent of the world's total, but it already supplies most of the heroin on the US east coast.

It is unclear how the US-led war in Afghanistan will affect that country's heroin output, but Colombian officials already fear a rise at home.

"We were already worried about a rise before September 11," says Mr Nyholm.

Colombia has small farms with high production costs: 90 per cent of coffee farms are of 5 hectares or less. Vietnam has lower costs and has overtaken Colombia as the world's second-largest coffee exporter over the last decade. In Brazil, the world leader, farmers have also increased productivity.

Coffee production in the year ending in September was at an all-time high of more than 115m bags, according to the Association of Coffee Producing Countries. The increase in global output outstripped the slow rise in demand, driving down market prices. Many farmers are not even covering their production costs despite the buoyant prices in cafes and gourmet shops.

Efforts to persuade countries to restrict output, led by Colombia, have failed. "Casualties are inevitable," says Karen St-Jean Kafour, the ACPC's senior economist. Already many Colombian growers are cutting back amid the crisis. Bernardo Londõo, manager of Agroinsumos del Café, which supplies three-quarters of the fertiliser sold to Colombia's coffee co-operatives, says sales this year are down 40 per cent. That indicates declining investment by growers, which will cut output and quality, says Pedro Luis Ramírez, coffee director at a 3,000-member co-operative in the important coffee-growing province of Central Huila. "People can afford to fertilise or eat," he says.

John Naranjo, commercial manager of the national coffee-growers' federation (Fedecafe) says unemployment in Colombia's traditional coffee zones is among the country's highest, contributing to unrest. Jorge Lozano, president of the coffee exporters' association, says: "Our industry has been perhaps one of the last to be affected directly by the insecurity that plagues the country. But for months now extortion and robbery have been another negative factor."

The government last month promised the industry aid worth 350bn pesos ($150m) over the next two years. But President Andrés Pastrana joined the chorus of critics demanding that growers and their federation abandon marginal production areas and modernise.

Some reformers point out that growth in the world coffee market has overwhelmingly benefited companies at the consumer end of the chain, not producer countries. Santiago Montenegro, an economist and president of the National Association of Financial Institutions, says Colombian coffee has a good reputation and the country should do more to win consumers to its own processed brands.

There are also efforts to promote higher-value organic and speciality coffees.

Mr Osorio says fighting in Colombia's civil conflict has already caused farmers to abandon some coffee land. Mr Pastrana himself has recognised that former coffee-pickers have had to turn to drug crops.

With world demand expected to slow, and low returns leading to less investment and lower quality coffee, further deterring consumption, finding a model that can revive the fortunes of Colombia's most emblematic product will not be easy.