Coffee crisis begins to boil

By Financial Times reporters - April 14

Hannah Waweru, a 90-year-old coffee farmer in Kenya's central highlands, can barely afford a cup of the drink she supplies to the developed world.

"We rarely drink coffee. It is too expensive," explains her son, Nganga, in her mud-floored shack, 45 minutes north of Nairobi. "They sell Nescafe in the local shops, but most of our farmers cannot afford it."

In Europe or the US, a cup of Kenyan Arabica coffee - some of the best in the world - can cost $2. Mrs Waweru, after years of mismanagement of Kenya's coffee co-operatives and a global slump in prices, would take more than a week to earn that from her 0.4-hectare plot of coffee bushes.

About 70 per cent of the world's coffee is produced by smallholders on farms of less than 5 hectares. Analysts believe there are as many as 20m of these producers, many of them families with several mouths to feed.

This means that, as the coffee price has halved since the start of last year (and slumped 75 per cent since the boom in 1994) millions in rural areas have been plunged into financial crisis.

Samuel Njaroge, a 61-year-old Kenyan coffee farmer, earned less than Ks10,000 ($130) from his 1,007kg crop but school fees add up to around Ks30,000 a year. "I have been to the school to plead with the headmaster," he says.

Farmers unable to make ends meet in Tanzania's Kilimanjaro region are seeking work as casual labour and when there is no work they gather grass or wood. "The poorest families even have to sell bananas and maize meant for family consumption and reduce the number of meals they eat," says Celine Charveriat, an Oxfam policy researcher.

Oxfam believes the coffee crisis is having a knock-on effect worldwide. A Tanzanian study found tensions in the community, the breakdown of family structures and even that the crisis was contributing indirectly to the spread of

Aids in Africa.

In the rural areas of Kilimanjaro "young adults are leaving for Moshi Town or Arusha, contracting Aids and coming back to their communities when they are sick. Between 1992 and 1998, reported cases increased by 100 per cent, making Kilimanjaro the fourth most affected region in Tanzania," says Ms Charveriat.

Relatively higher production costs put African and Latin American farmers under more pressure than competitors in some Asian countries such as Vietnam.

In Brazil, coffee co-operatives believe that most producers are not covering their costs at current prices. In Mexico, the price effect has been compounded by inflation and a 30 per cent discount on Mexican coffee in world markets.

Javier Ojeda, president of Mexico's National Coffee Producers' Union, says the cost of producing 100 pounds of coffee is more than double the going price of $67.

He estimates some 30,000 mostly indigenous producers have left the country seeking work as temporary labourers, many of them heading for Canada.

A Mexican newspaper reported recently that 500 families a week were leaving the state of Chiapas in search of a livelihood in Tabasco or Tiajuana in the north of Mexico, or further afield in the US.

The Mexican government estimates that about 1m bags, or 20 per cent of annual production, have been left to rot in abandoned coffee plantations.

"If things continue I believe many more will leave," says Mr Ojeda. "We are facing the risk of the complete abandonment of the coffee sector."

Authorities in many countries fear that growers, unable to depend on coffee revenues, are being forced to turn to illegal crops.

Andrés Pastrana, the president of Colombia, has frequently remarked that the coca pickers of today were once the coffee growers of yesterday.

Arnulfo Ardila says he left Caldas, in Colombia's coffee region, 7 years ago. He now grows coca in the lawless jungles of the southern province of Putumayo.

Mr Ardila believes that about 2,000 families have made the similar long journey from his town alone, and most of them in the past decade.

In many countries, price uncertainty is forcing small farmers to avoid making investment decisions that could turn out to be loss-making in the event of a price fall.

"This results in lower-than-optimal investments and sets in place the cycle of poverty," says Oxfam in a draft of a 2001 report on the crisis facing coffee growers.

Price volatility also reduces the small farmers' capacity to use their crops as collateral, so they lose access to credit.

In India, "Low coffee prices and mounting stocks are leading growers into a debt trap," says a United Planters Association official.

"The immediate fallout will be a big cut in the use of fertilisers and pesticides by small growers." We will not be surprised to see many who started growing coffee after 1994, withdrawing from the crop."

Coffee growers' organisations such as the Association of Coffee Producing Countries are becoming focused in their strategies to revive coffee prices, but so far these have shown few results. "Coffee farmers should be prepared to suffer the effects of increasing inventories unless there is some kind of intervention - either divine in the form of a frost or drought in Brazil, or orchestrated in the form of a producer agreement," says Caroline Eagles, analyst at Commodityexpert.com.

Either way, it will be many months before Mrs Waweru is able to afford a tin of instant coffee from the general store. Reporting by Adrienne Roberts in London, Mark Turner in Nairobi, Andrea Mandel-Campbell in Mexico

City, Raymond Colitt in Sao Paulo and Kunal Bose in Calcutta