Colombia to create fund to rescue coffee farmers when prices drop

BOGOTA (Reuters) - Colombia, the world’s top supplier of washed arabica, is creating a special fund to subsidize coffee farmers when production costs fall below international prices.

FILE PHOTO - A woman inspects coffee berries in a plantation near Viota in Cundinamarca province March 2, 2012. REUTERS/Jose Miguel Gomez

The stabilization fund, announced by President Ivan Duque late on Thursday, is the country’s latest bid to help farmers struggling as coffee prices have fallen to their lowest in more than a decade and many are operating at a loss.

The global price crisis has pushed large numbers of them out of business, with potentially wide-ranging implications in Colombia, where coffee is the chief alternative crop to coca, a plant used to produce cocaine in regions controlled by rebels.

Colombia is the world’s third largest producer of coffee after Brazil and Vietnam.

It was not yet clear how much money would be put into the stabilization fund. But Duque’s office said it would be paid for through a mix of sources, including the general budget, state-backed debt securities, proceeds from royalties and contributions from international organizations and others.

Duque called the law that passed to create the stabilization fund as “one of the most longed for by Colombian coffee growers.”

“This is going to bring great relief to the coffee sector when we have price shocks,” Duque said as he signed the measure into law at an agricultural event.

The stabilization subsidies will kick in when the price of coffee falls below production costs, Duque’s office said. The fund will be administered by the National Federation of Coffee Growers through a government contract.

Duque’s government has already distributed $79.5 million in subsidies, debt relief and funds for plantation renovations in recent months. This week, at a coffee forum in Brazil, Colombia proposed that coffee-producing nations join forces to impose supply limits and boost prices.

The coffee growers federation has also proposed that producer countries sell high-quality harvests untethered from the New York market price. And this month, it called for an international base price of $2 per pound.

Colombian coffee producers currently make about 795,000 pesos ($248) for every 125-kilo (275.6 pounds) of coffee, which barely covers production costs estimated at 780,000 pesos ($244), according to the coffee growers federation.

Despite the low prices, Colombia expects to produce 14 million 60-kilo bags this year, up from 13.6 million bags last year, thanks to renovations and fertilization programs.

Reporting by Luis Jaime Acosta; Writing by Mitra Taj; Editing by Jeffrey Benkoe