SUNS4508 Wednesday 15 September 1999

Central America: Plunging coffee prices mean economic crisis

Tegucigalpa, Sep 13 (IPS/Thelma Meja) -- Central America will lose a half billion dollars this year as a result of plummeting coffee prices on the international market, warned experts meeting in Honduras.

Coffee experts from Central America, Jamaica and the Dominican Republic debated over the weekend how to prevent economic crisis from arising out of the dramatic drop in coffee prices, which are currently lower than 100 dollars per 46 kg bag.

The Programme for the Improvement and Modernisation of Coffee Production (Promecafe) organised this meeting of the coffee policy taskforce.

Guillermo Canet Brenes, Promecafe's executive secretary, said that reports by Central America's central banks indicate a decrease of more than 506 million dollars in this year's coffee export value, due to the increased production without a corresponding increase in demand.

Since the 1996-1997 harvest, world production has been increasing as a result of expanded arabica coffee cultivation in Brazil and in Southeast Asian countries. "Predictions are not encouraging. We must define strategies in order to prevent the collapse of coffee production," stated Brenes.

Central American coffee producers search for alternatives for improving coffee quality, diversifying production, regulating exports, as well as ways to convince governments to reduce taxes and provide subsidies.

Adolfo Sevilla, of the government-run Honduran Coffee Institute, said overproduction of the bean internationally has caused important losses for Central American countries because coffee exports are fundamental to their economies.

Coffee exports have allowed countries like Guatemala, Honduras and Nicaragua to overcome the devastation from natural phenomena, such as Hurricane Mitch in late 1998.

"We believe the trend to allow the market to act freely will worsen the crisis, and it is essential that we have responses to any market movement. Among them, we are considering the regulation and retention of coffee exports," affirmed Sevilla.

Honduras will lose nearly 150 million dollars this year, and "considering that it is the principal export we have, with this substantial drop, we will certainly feel it," he added.

In communities such as Santa Barbara and El Paraiso, the impacts of falling prices were felt especially by smaller producers, who are responsible for the majority of the nation's coffee production. More than 70,000 Honduran families depend on coffee growing.

El Paraiso's coffee growers have demanded greater government involvement, alleging that they have been denied soft credits. Many of their crops have already been mortgaged and they cannot pay the interest rates on their loans from private banks and individual creditors.

Mauricio Mossi, a political-economy expert from Honduras, told IPS, "the government has yet to respond" to the drastic fall in coffee prices, and that "there is no defined strategy to improve production technology or provide assistance for coffee growers."

"It seems nobody realises the serious nature of this crisis," involving the nation's principal export, commented Mossi.

"This is not something temporary. We need a creative response to adequately address the crisis," he added.

According to Mossi, Asian countries are now involved in large- scale coffee production, and even though their labour costs are relatively higher than in Central America, "it is also true that their productivity is much higher."

The experts meeting in Honduras under the auspices of Promecafe maintained that Central American countries must develop aggressive and steadfast strategies, establish alliances and look for ways to diversify production in agro-forest systems.