Colombia: Highest parchment prices in 5 years!

In News & Research by DOTnueva

A few weeks ago, the price paid to farmers for parchment coffee by the FNC (Colombian Coffeegrowers’ Federation) broke 1 million Colombian pesos per carga (125kg), which is about $1.50/lb of green coffee considering the high value of the US dollar vs. the Colombian peso.  Even as the C price has fallen a bit, the FNC price has remained over 1 million.  Considering friday afternoon’s closing C-Price of US$1.55, and te FNC paying 1 million pesos per carga, the cost for unsubsidised exporters purchasing from farmers at base commodity price, or from coops and other intermediaties at about 1.1 million, is about $1.68.  Needless to say, margins are extremely tight or nonexistant as the FNC offers prices that small exporters cannot.  The FNC price is the base for all negotiations in the country, being essentialy the “walk price” for all farmers that can turn around and sell any coffee to any FNC buying station for that price.

The issue for direct trade and specialty operators like Direct Origin Trading, is that the commodity price (or price of UGQ, lowest exportable quality) is rising nearly to what used to be paid only for specialty grade microlots, as roasters in other countries continue to pay the same prices for green coffee.  We can continue to pay these prices for specialty grade microlots, but with the base price only a little lower, growers are asking for more, or just selling to the FNC soup pot because they know they will have cash in hand immediately.  Given high prices for base quality, there is little incentive to put in the work to produce specialty quality.  Of course, when prices return to low levels, farmers will again be motivated to explore specialty to get the prices they need to survive.  Unfortunately, given the short-term mentality held by many in rural, agrarian communities, it is difficult to justify loyalty to specialty coffee and direct trade as an investment in future economic susatainability.

High prices are great for the rural quality of life and for the generational continuity of small-scale coffee farmers.  If base prices were to maintain high levels, all prices would rachet up, including those to roasters, and coffee farming would be a much more interesting vocation, leading to greater prosperity in growing communities.  However, the abandoment of specialty coffee production due to temporarily high base prices and the inability of specialty exporters to rachet up, may well cause farmers to lose the specialty premiums once enjoyed and be left out in the cold with the 600-peso/carga base price again when the macroeconomics and commidity situation change.