Gulping Peace Dividend: Colombia Deal May Mean More Coffee

  • End of FARC-linked violence opens up farms to more investments
  • Accelerating target for 41% expansion of bean harvests by 2020

For coffee growers in Colombia, which supplies premium beans used by the likes of Starbucks Corp. and Nestle SA, peace at the end of a 52-year civil war means a lot more productivity.

Just ask Astrid Medina. After her father was killed by Marxist rebels a decade ago, she inherited his farm near the Andean village of Gaitania. At the time, only a fifth of the land had coffee trees in an area outsiders feared to visit. Once the army regained control, crop experts arrived to teach more efficient farming techniques and banks agreed to finance fertilizer and equipment. Medina quadrupled the area she cultivates and doubled output per acre.

“Every time there are problems with our crops -- the arrival of diseases or issues with the weather -- we request a visit from an agronomist and they help us,” Medina said. She credits assistance from Colombia’s National Coffee Growers Federation for giving her the tools to produce beans that an international panel voted as the best in the country in 2015.

A similar transformation may now be possible in mountain regions long controlled by the Revolutionary Armed Forces of Colombia, or FARC. Under an accord signed in November -- which led to the Nobel Peace Prize being awarded to President Juan Manuel Santos -- about 6,000 fighters plan to hand over their weapons. While armed drug cartels protecting coca fields remain a risk, the end of the violent conflict with the rebel group could help boost productivity in a country that already is the world’s third-largest coffee grower.

Colombia has roughly doubled production since a 2012 harvest that was the smallest in about four decades. Farmers, with the help of the federation, have replaced older trees with disease-resistant younger ones and planted more per acre. The country is targeting a harvest of 18 million to 20 million bags of coffee by 2020, up as much as 41 percent from 14.2 million last year. Each bag weighs 60 kilograms, or 132 pounds.

“With the peace agreement, we will do it faster and much more easily,” Roberto Velez, who heads the growers federation, said during an interview in Bogota.

Highly Prized

Typically grown at high-altitude in rich volcanic soils, Colombia’s arabica coffee beans are highly prized for their flavor at a time when demand is the highest ever in the U.S., the biggest consumer.

“Colombia has a relative advantage” over other producers, Nestle Chairman Peter Brabeck-Letmathe said during a panel discussion at the World Economic Forum last month in Davos that included President Santos.

Nestle’s Nespresso unit -- which hired actor George Clooney to pitch its products -- planned to start promoting its Aurora de la Paz coffee from Colombia’s conflict-affected Caqueta province this month. The company hopes the project will entice coca farmers to grow coffee instead, according to Brabeck-Letmathe.

“The peace accord has come at a time when coffee fundamentals are improving,” said Andrea Illy, the chairman of Illycaffe SpA, a bean roaster based in Trieste, Italy. “The country risk is now lower, which is positive for the investment environment. As long as the quality is there, if production increases, Illy will buy more.”

Hurdles Remain

A smooth transition isn’t assured. The violent conflict with the FARC over land rights lasted 52 years, leaving more than 200,000 people dead and displacing millions. There have been delays in setting up special zones where rebels will hand over weapons. In addition, Colombia’s smaller Marxist group the National Liberation Army, or ELN, and the Urabenos crime organization are among those trying to take over former FARC areas and their illegal industries like drug trafficking.

Attorney General Nestor Humberto Martinez said last month that the army has moved more slowly than the criminal groups to occupy key regions. Some are offering former rebels 1.8 million pesos ($626) a month to join their ranks. The rebels had a presence in about a quarter of the country, including mountain regions that produce the bushy plant whose leaves are used to make cocaine.

While illegal, coca can be appealing for farmers because buyers pay a fixed price and the crop produce four harvests a year. Coffee trees yield only one or two. Coca also is a hardier plant, capable of resisting periods without rain.  

“If coffee had a good and stable price, people wouldn’t bother with coca,” said Argemiro Narvaez, a farmer in southwestern province of Narino. “I don’t want to, but I might be forced to plant it for economic reasons.”

Grower Economics

Still, the coffee federation remain optimistic. Arabica contracts that trade for dollars in New York are up 16 percent since the end of 2015, and a weak Colombian peso against the U.S. currency provides an incentive for growers to produce more. That may have a bigger impact on how fast output grows, according to commodity broker INTL FCStone Inc. Arabica futures declined 1.1 percent to $1.4655 a pound on Monday.

Medina, the farmer in Gaitania, says peace can pay dividends for the domestic coffee industry just like it did for her 15-hectare farm. With help from experts provided by the federation, she went from three hectares of trees to 12.5 hectares, and she increased the density of plantings on the land. She’s now hauling in about 2,875 kilograms of beans per hectare, up from 1,250 kilos a decade ago.

“Everything comes down to the price and revenues for producers,” which will be the biggest influence on how much more Colombia will harvest, said Albert Scalla, a senior vice president at INTL FCStone.

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