Earlier this year, Colombia was rocked by waves of protests, the likes of which the country hasn’t experienced in recent memory. It began with a planned tax reform, which brought hundreds of thousands of Colombians onto the streets at the end of April.
Faced with such fierce opposition, the government quickly withdrew the proposed reforms in early May. But instead of quelling the dissent, the protests spiralled into a broader movement, with citizens protesting corruption, inequality, and the devastating economic impact of Covid-19.
As a result, many highways and ports were either blocked or only partially accessible throughout May and June. Protestors established barricades and security forces restricted movement in certain areas. This affected the movement of both goods and labour – including in the coffee sector.
This civil unrest coincided with the peak of the country’s mid-season (or traviesa) harvest. And while a delicate peace was restored around the beginning of July, the full impact on the country’s coffee industry is still unfolding. Read on to learn more.
You may also like our earlier article about the protests in Colombia.
A wider context: Colombian coffee in 2020 and 2021
Before analysing the impact of the civil unrest on the industry, it’s important to look at what else has happened through 2020 and 2021.
Firstly, the internal prices offered to growers have been increasing at a significant rate since the beginning of the pandemic. Prices per carga (125kg of dry parchment) in February 2020 reached an annual low at COP 813,000 (US $210). Just a month later, they jumped to a yearly high of COP 1,315,000 (US $340) when the global impact of the pandemic first took hold.
Prices have remained comparatively high since then, averaging COP 1,080,806 (US $279) from March to December 2020. This is a significant increase compared to the 2019 average of COP 787,473 (US $204).
These price changes happened because of a number of reasons. These included global concerns around supply, erratic weather in neighbouring coffee growing regions, futures contracts that need to be fulfilled, and the fact the peso lost nearly 20% of its value against the dollar.
The last point in particular meant that buyers such as the FNC could capitalise on the exchange rate difference and offer growers more money, by securing supply to fulfil existing contracts.
These increases continued up until just before the protests, hitting figures around COP 1,319,000 per carga (US $341) as the harvest started to ramp up. However, prices would go much higher once the impact of the protests started to be felt.
Bidding wars & price inflation
Following the protests, many major supply routes were blocked across the country throughout May and June. This left many coffee producers unable to transport their crop after the harvest.
Cristian Raigosa is one of the founders of Proyecto Renacer. “Colombia doesn’t have an extensive road network,” he says. “This means that if just one road is blocked, it can cause huge problems for an entire region.”
Some producers had coffee held up on farms for up to two months. This, inevitably, started to have an impact on prices, as buyers were “chasing” an ever-diminishing supply of coffee available for export.
Felipe Trujillo is a producer at Finca La Ventolera in Santa Bárbara, Antioquia. He says: “We stopped exports for two months.
“That generated an imbalance in all the supplies of our suppliers, our clients, and our clients’ clients. This in turn led to price speculation and a lot of uncertainty.”
The result of this has been a period of unprecedented price inflation, driven by bidding wars as exporters sought to fulfil outstanding contracts.
“Coffee prices skyrocketed,” Cristian said. “The small supply that was in the market got bought up by big exporters with big pockets.”
The figures tell the same story. Following April’s high of COP 1,319,000 (US $341), the internal price the FNC was paying in July reached as high as COP 1,905,000 (US $493) – a 44% increase in just three months.
Costs rise for producers
Producers would have been offered record sums if they were able to sell at the very peak of demand and if supply routes were open. However, on the whole, this has been an incredibly turbulent and costly period.
Don Juan Guillermo Londoño is a coffee producer at Finca Las Brisas. He says: “It’s caused enormous damage to many farmers and country workers, who have not been able to sell their products.”
The supply issues and blockages didn’t just affect the export of coffee, either. With suppliers unable to import any fertiliser or other agricultural essentials, local stocks dwindled throughout May and into June. Producers then had to deal with the inevitable inflation that followed.
Paula Concha is a producer at Finca Santa Elena in Ciudad Bolivar, Antioquia. She says: “For those able to obtain fertilisers, there were enormous cost increases of up to 20%.”
To make matters worse, many producers were unable to pass on the increased production costs in their sale prices, as they had negotiated prices before the onset of the civil unrest.
“We had to keep our selling price, but our costs increased across the board,” Felipe explains. “This has had a huge impact.”
In addition to increased production costs squeezing margins, producers also saw their cost of living go up, with blocked supply routes causing food supplies to diminish.
“There was a noticeable cost of living increase during the civil unrest,” Paula says. “The price of staple foods increased significantly for all workers in the countryside.”
Difficulties with fulfilling orders
It’s not just producers who have taken a heavy financial hit, however. Exporters have been even harder hit in some instances. A lot of the time, this has been because of difficulties with fulfilling extinct contracts, with coffee stuck at the farm.
“Our export partners ended up losing money just to be able to fulfil previous orders for customers,” Cristian says. “Transportation costs increased drastically in some instances, and we had to resort to air freight instead of road freight, just to get coffee to ports.”
Producers are understandably concerned about the potential knock-on effect of exporters losing money, and whether or not that cost will be reflected in future pricing.
“Our clients have assumed a higher logistics cost,” Felipe says. “That also affects us in the near future.”
This is because exporters will need to increase margins in the subsequent harvest to recoup any losses. In turn, this will put downward pressure on the prices they offer to producers.
This, however, only applies to the cases where it’s been possible to fulfil existing contracts. In many cases, producers and exporters were forced to only deliver orders with serious delays. Some have gone totally unfulfilled, according to Cristian.
Beyond the immediate financial cost, there are also concerns over the longer-term impact that this will have on the industry. The influence of these price spikes could be felt for some time to come.
Aside from the economic impact, there is also the more intangible but no less significant issue of the reputational damage producers have sustained. Many producers have faced contract cancellations, and buyers have subsequently switched to other suppliers who could guarantee delivery.
“Annual contracts that we had with clients were cancelled as they wanted to wait and see how the security situation developed,” Felipe says. “Getting into those relationships with buyers takes a lot of time to begin with, so losing any buyers will have a big impact over the medium term.”
There has also been an impact on pricing too. Although supply routes are functioning once more now the worst of the civil unrest has passed prices still remain extremely high.
At the beginning of August, the rate offered to producers by the FNC was COP 1,638,000 per carga (US $420), with futures contracts apparently being offered above that rate.
However, alongside the residual effects from civil unrest earlier in the year, this increase is also because of heavy rains which have hampered domestic production, as well as the frosts in neighbouring Brazil.
Between the civil unrest and other environmental factors, we can expect Colombian prices to remain high at least in the medium term, even if strikes and protest action don’t resume across the country. This should provide some respite to producers, as long as the inflation of material and fertiliser costs doesn’t outstrip this price increase.
However, if large-scale civil unrest does resume during this period, choking supply routes once more, then we could hit further uncharted territory with prices. In this scenario, the psychological barrier of COP 2,000,000 (US $513) could be a real possibility – despite the fact that it was an absurd proposition just 18 months ago.
Did you find this interesting? Then read our article on Colombia’s changing coffee industry.
Photo credits: Those Coffee People
Perfect Daily Grind
Some quotes have been translated from Spanish.
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