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Brazil Coffee Aid May Fund Crop Switching as Prices Slump

Coffee farmers in Brazil, the top producer, may get funds to grow other crops and the option to sell more of their output at subsidized prices as part of aid measures the government is considering after prices plummeted.

The country’s coffee policy panel is discussing a program to offer growers as much as 1 billion reais ($430 million) of funding to diversify crops or raise cattle, the Agriculture Ministry’s coffee director, Janio Zeferino da Silva, said in an interview. The amount of coffee the government will offer to buy through option contracts may increase to 5 million bags in the next harvest from 3 million this season, he said.

“We want these growers to maintain their coffee output levels in a smaller area through productivity gains so that they can add new activities to their farm and get additional income,” Silva said in an interview late yesterday in Santos, Brazil.

Coffee has plunged 51 percent in two years as record crops in Brazil and Vietnam are compounding a surplus. Brazil’s aid is unlikely to significantly pare supplies to push up prices, Citigroup Inc. futures specialist Sterling Smith said.

“I don’t see this changing the market supply dynamics in the near term,” Smith said in a telephone interview from Chicago. “You won’t see any producer yanking productive trees.”

Global Glut

Global inventories will rise to 76.7 million bags in the year ending September 2014, enough to cover 54 percent of estimated consumption in that span, the highest ratio since at least 2008, Macquarie Bank Ltd. said in an Oct. 4 report. A bag of coffee weighs 60 kilograms, or 132 pounds.

The plan to help coffee farmers grow anything from fruit to vegetables would encompass about 1 million hectares (2.5 million acres), an area bigger than Delaware, according to Silva’s estimates. He declined to estimate what percentage of that coffee area is expected to be taken by other farm activities.

The coffee policy panel, which includes Agriculture Ministry officials and industry leaders, will submit the aid program proposal to the Finance Ministry for approval once a draft is ready, he said.

To contact the reporters on this story: Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net; Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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