February 4, 2015 / 10:42 AM / 4 years ago

A tale of two coffee trees in Mexico: one grows, another wilts

CUICHAPA, Mexico (Reuters) - Mexican coffee farmers suffered one of their bleakest seasons ever last year as a virulent fungus devastated the crop, stripping down trees to disease-ridden skeletons, starved of sunlight.

Coffee farmer Jorge Hernandez holds up a leaf from an arabica tree infected by roya at a farm near Chichapa, in Mexico's eastern Veracruz state January 8, 2015. REUTERS/David Alire Garcia

Now, another tree is helping to lift the gloom.

Once wedded to arabica coffee trees, many hard-scrabble farmers in Mexico’s tropical east coast are switching to robusta despite its lower value, in part because it can better withstand the fungus known as roya, or leaf rust.

A severe roya outbreak has shattered arabica output in Mexico and Central America over the past two years, destroying thousands of jobs and encouraging a shift toward hardier trees.

“Right now, because of roya, the whole world wants robusta,” said Juan Lopez, a coffee farmer with a 1-hectare plot near Cuichapa in the eastern coffee-producing state of Veracruz, who is among those making the transition to robusta.

Arabica trees still produce most of the world’s coffee, but their output has declined over the past couple of seasons. Robusta, by contrast, has gained ground steadily since 2010.

Global food and drink giants like Nestle, owner of the world’s largest instant coffee factory outside Mexico City, are quietly transforming the local trade, offering reliable demand as farmers battle blight and volatile prices.

Nestle, which has over 70 percent of Mexico’s instant coffee market, says the boom could make the country self-sufficient in robusta by 2020. At present, it must still import the beans.

Set by distant commodity exchanges in New York and London, prices are driving the trend globally, alongside changing appetites among international coffee roasters.

The new demand for robusta could not come at a better time for Mexico, the world’s No. 9 coffee producer.

A Nestle employee holds recently-harvested robusta coffee beans at a farm near Chichapa, in Mexico's eastern Veracruz state January 8, 2015. REUTERS/David Alire Garcia

“We have a saying, ‘opportunities appear when adversity strikes,’” said Cruz Jose Arguello, head of AMECAFE, Mexico’s national coffee association.

Over the next few years, annual growth in robusta coffee in Mexico is seen by experts like Arguello reaching 20 percent.

Arabica beans are the source of the most expensive specialty brews and roughly twice as valuable as robusta, a major component of instant coffee and other blends. But arabica trees are also much more susceptible to spores of the wind-borne roya.

Robusta yields up to three times more than arabica and is highly resistant to roya due to having twice the caffeine content, which acts as a natural pesticide.

Top coffee association AMECAFE forecasts roya will dent output in Mexico by up to 18 percent in the current 2014/2015 harvest after a slide of more than 18 percent last season, the second biggest decline since records began in 1960. Company estimates put this season’s losses as high as 40 percent.

“Roya came out of nowhere and killed my farm,” said Jorge Hernandez as he walked on a muddy slope past dying arabica trees - hacked down to be replaced with new robusta plantlets.

The roya plague is just the latest in a string of challenges faced by Mexico’s 500,000 mostly small-hold coffee farmers, who have also had to cope with wild price swings and unpredictable weather brought on by climate change.

Traders say big roasters like Mondelez are sourcing more robusta from Mexico to avoid standard arabica prices at around $1.70 per pound on New York’s ICE Futures exchange, or about twice that of robusta prices set by London’s LIFFE market.

The gap has been widening over the past year.

“It’s mainly price-driven demand,” said Albert Scalla of commodity brokerage INTL FCStone. “And it’s not necessarily just instant coffee, it’s the regular consumption too.”

The branches of a healthy robusta tree sags under the weight of coffee cherries at a farm near Chichapa, in Mexico's eastern Veracruz state January 8, 2015. REUTERS/David Alire Garcia

GROWING OPPORTUNITY

After a major expansion of Nestle’s sprawling Toluca coffee factory in 2013, the facility exports to 17 countries across the Americas, Europe and Asia. The company now purchases a quarter of Mexico’s total coffee output, more than any other buyer.

Domestic robusta production is set to nearly double to about 1 million 60-kg bags by 2020, said Emilio Diaz, Nestle’s top coffee buyer in Mexico. He says the company’s robusta purchases will be up about a third in 2015 from last year.

European roasters like Italy’s Segafredo Zanetti and Britain’s Costa Coffee, a unit of Whitbread, are buying more robusta from Mexico, said Jorge Cuevas, top coffee officer of Portland-based importer Sustainable Harvest.

Several agroindustrial companies are also using more Mexican robusta in sales to private labels across the globe, positioning Mexico as a growing supplier, Cuevas added.

The companies are also looking to diversify away from top robusta producers Vietnam and Brazil.

Mexico will, however, remain mostly arabica-producing, with arabica output reaching 3.84 million bags last season. That was a decline of more than 15 percent from five years earlier.

An even steeper output slide is expected to strike Mexico’s arabica farms this season.

Mexico’s agriculture ministry says it spent about 2 billion pesos ($137 million) last year to help farmers with subsidized price hedges, in-field training and millions of free plantlets.

Assistance to coffee farmers will total about 730 million pesos ($50 million) this year, the ministry says.

But it is not enough for the country’s $1.4 billion coffee market, industry leaders say.

With more state support for farmers, Nestle could end its reliance on imported robusta before 2020, said Philipp Navratil, Nestle’s top coffee executive in Mexico.

“Very little has been done by the government,” he said.

($1 = 14.5755 Mexican pesos)

Editing by Dave Graham and Nick Zieminski

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