Rising cost of coffee growing cuts profits

Posted on: 2016-09-22 9:33 AM

Brazil's coffee farmers are being "strangled alive" by the failure of bean prices to keep up with costs, a leading sector figure said, blaming free market reforms 26 years ago for fuelling the sector's decline.
 
Carlos Melles - a former congressman for Minas Gerais, Brazil's top coffee growing state, and ex-chairman of Cimbra, the country's biggest growers' co-operative – warned producers against continuing to increase yields, without more guarantee over prices.
 
"Increasing productivity must increase risk [for producers] without any commitment from the other side," Mr Melles told the International Coffee Organization's forum on coffee sector finance.
 
Raising yields meant increased investment in the likes of labour, agrichemicals and fertilizers, the costs of which have soared far faster than the increase in bean prices.
 
According to Mr Melles, since 1994, Brazil's minimum wage has risen by 1,400%, fuel prices by 871%, those of crop inputs, such as nutrients, by 700% - while bean prices have increased far slower, by 261%.
 
Separately, Marcela Urena, the ICO's head of operations, told the forum that variable costs for Brazilian coffee producers had grown by 8.6% between 2006 and 2015, compared with a 1.45% increase in bean values, as measured by the organization's price index.
 
'Strangled alive'
 
"Producers are being strangled alive," Mr Melles said, flagging what he saw as the failure of free market reforms in 1990, when the international coffee market was deregulated, to protect farmers' incomes.
 
"Producers are much poorer" since the reforms were introduced.
 
"There is no fair price in the free market – we have no fair price," he said, urging action by the ICO to boost prospects.
 
However, Mr Melles, a former chairman of Brazili's parliamentary coffee front, stopped short of demanding the reintroduction of the strict controls in place before the 1990s, saying that "we do not want quotas".
 
Expensive labour
 
Brazil's average coffee yields have risen to some 25 bags per hectare, from 14 bags per hectare 15 years ago, driving a 50% surge in the country's output, Carlos Brando, a coffee expert who advises bodies including the World Bank, told the forum.
 
However, he cautioned against putting the brakes on investment – seeing measures such as mechanization as key to defending growers' margins by cutting production costs, while improving quality will allow them tap into premiums.
 
Mechanization could involve terracing at high altitude coffee plantations, to allow use of harvesters, and cutting down on labour which he said "accounts for 60% of total production costs".
 
According to Mr Melles, labour costs $800-1,000 per month, with social contributions on top.