Glut depresses prices, could threaten stability in Latin America

By BRENDAN M. CASE / The Dallas Morning News

CORDOBA, Mexico – Although U.S. consumers are paying top dollar for decaf lattes and mocha cappuccinos, coffee farmers such as José Inés Caballero are
careening toward bankruptcy.

"Four or five years ago we got $180 for a [132-pound] sack of coffee beans," said Mr. Caballero, 55, dropping off a coffee shipment at a warehouse in Córdoba, a
mountain town in the Gulf Coast state of Veracruz. "Now we get about $42. ... For most of us, that's not enough to live on."

Coffee has reigned as Latin America's largest legal cash crop for decades, fueling fortunes and social rebellions alike, depending on price swings and government
support programs. Now, with the world's supply of coffee beans outstripping demand, prices have plummeted – and a social crisis is brewing.

Misery is spreading through coffee farms in Africa and Asia as well.

But in Latin America – which accounts for about 60 percent of world coffee output – low prices are undermining such U.S. goals as slowing the flow of illicit drugs,
stemming illegal immigration and fostering economic development to accompany the region's young democracies.

"Political stability is at stake, that's what's at issue here," said Larry Birns, the director of the Council on Hemispheric Affairs, a think tank in Washington, D.C. "The
coffee crisis produces a kind of political volatility that could open the door to populist solutions."

Coffee has long been an economic mainstay in dozens of countries with tropical and subtropical climates. But it has also been subject to volatile price swings, leading
to a perpetual cycle of boom and bust.

Prices reached $1.80 a pound in 1997, and farmers from Guatemala to Kenya planted more bushes to boost their sales. Growers increased their output with
improved production methods.

Meanwhile, international development agencies helped finance coffee production in Vietnam. The Southeast Asian nation, long a negligible force in the coffee market,
vaulted into the No. 2 slot in global coffee production, behind Brazil.

Now, there's a lot more coffee in the world than people are drinking. The International Coffee Organization's benchmark composite price has slipped below 45 cents
a pound. Many small-time coffee farmers receive somewhat less than that for their crops of unprocessed coffee.

Coffee is no longer profitable throughout large swaths of Latin America and dozens of countries in other developing regions.

"This is the worst crisis in the history of the coffee industry – not just in Mexico, but in the whole world," said Roberto Giesemann, executive president of the Mexican
Coffee Council, a government agency that looks after that nation's 280,000 coffee growers.

In Nicaragua's Matagalpa region, Eddy Kühl Aráuz has to spend $75 to fill a sack with his high-end Selva Negra coffee. But the sack is worth less than $65 these
days, despite its premium status.

"That's very, very low," he said, adding that he can make ends meet only by dipping into his savings.

Coffee-producing countries have implemented schemes to destroy part of their crop, in a bid to reduce the supply. Many farmers are simply leaving coffee beans on
the bush because harvesting has become too expensive.

In Colombia, unemployed coffee worker Marcos Cortez recently moved to the part of the country controlled by the rebels of the Revolutionary Armed Forces of
Colombia in order to work in a feed lot for cattle.

"Coffee was our life, but there's no market now, so we came here to work on cattle ranches," said Mr. Cortez, 28, who now works in San Vicente del Caguán.

Bigger profits

Low prices have proved a boon to U.S. coffee importers, which have boosted their stockpiles of coffee beans and widened their profits.

Among coffee producers, a few determined entities are trying to weather the storm by changing the way they do business. Some are even trying to copy Starbucks
Corp. on a small scale.

In the southern Mexican state of Chiapas, for instance, a growers' cooperative formed a company called La Selva a few years ago to market their coffee at upscale
cafes in Mexico City and elsewhere. Other farmers are shifting to certified organic coffee in hopes of earning premium prices.

A budding "fair trade" movement in the United States and Europe aims to connect farmers in poor countries with socially minded consumers in rich countries who are
willing to pay a little extra for their morning cup of joe.

U.S. imports of such fair-trade coffee has risen from about 2 million pounds in 1999 to more than 7 million pounds last year, according to TransFair USA, a
fair-trade group in Oakland, Calif.

Equal Exchange Inc., a fair-trade coffee importer near Boston, now pays $1.26 a pound to its suppliers, providing a much-needed lifeline to devastated growers in
poor countries. Last fall, the Northwest Texas United Methodist Conference in Amarillo passed a resolution calling on members to serve Equal Exchange coffee at
church functions.

"For farmers, we're always the best deal in town," said Rodney North, an Equal Exchange executive.

Governments are developing solutions of their own.

Mr. Giesemann of the Mexican Coffee Council is shelling out tens of millions of dollars in emergency aid and low-interest loans to coffee growers. He also
spearheaded a joint effort with Central American nations to destroy 5 percent of their total harvest.

Now he's launching a campaign to boost the image of Mexican coffee abroad, and increase consumption at home by installing coffee machines in government offices,
prisons and military bases. He even wants to add coffee to the breakfast menu for school children as young as 8 years old.

"Studies in Brazil showed that children who drink coffee and milk do better in school," he said. "Besides, coffee is more nutritious than soft drinks."

Seeking new ways

But such steps take time and expertise, and success is far from guaranteed. Meanwhile, millions of farmers are seeking other alternatives, many of which fly in the
face of some of the U.S. government's chief goals in Latin America.

In Colombia – the home of marketing icons Juan Valdez and his coffee-carrying mule – law enforcement agents suspect that displaced coffee workers and small-time
farmers might be abandoning coffee to sow another stimulant: the coca plant.

According to a report last year by the United Nations, the acreage devoted to coca fields in Colombia jumped 60 percent. Other farmers might be turning to poppies
for heroin production, analysts said.

"Those people are looking for other ways to make money, and it seems other crops don't have the market troubles that are affecting the coffee business," said John
Narango, commercial director of the country's National Coffee Federation.

"Coffee once provided people with a good income, higher than elsewhere in Colombian agriculture. ... So it is tough for many now to have to give that up."

In Mexico, coffee farmers are streaming off the farm to urban shantytowns and the United States.

Donato Cortés, 25, says most of his peers have left the coffee-growing areas around Zoquitlán, Puebla, to crowd into the slums of Mexico City.

Pedro Castro, a 52-year-old grower in El Paraíso, Veracruz, reported that many of his neighbors have moved to Texas, Colorado and California. Gustavo Luna said
he is one of the few men left in the hamlet of La Charca, Veracruz.

"There are 180 families in my village, and 150 family fathers are working in the United States," said Mr. Luna, 43. "We're only surviving thanks to the money they
send us from up north."

Others aren't so lucky. Throughout Latin America, low coffee prices are deepening rural poverty and creating a large class of bankrupt farmers and unemployed
workers, even as many nations are still taking their first steps toward democracy.

"People who once lived on the farms and worked in the fields have gone to the city to beg or to ask for temporary government jobs," said Juan Francisco Chavirria,
37, a Nicaraguan who earns $1 a day picking coffee. "This whole region is dead; there is no economic lift."

Staff writers Laurence Iliff in Nicaragua and Ricardo Sandoval in Colombia contributed to this report.