Reuters A long way from cappuccino economy

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IN NICARAGUA, coffee pickers with malnourished children beg for food at the roadside. In Peru, some families have abandoned their land, while others have switched to growing drug crops in search of cash, just as they have in Colombia. From Mexico to Brazil, tens of thousands of rural labourers have been laid off, swelling the peripheries of the cities in a desperate search for work.

The continuing slump in the price of coffee, one of Latin America's main cash crops, is spreading misery across the region. A glut, caused partly by surging production in Vietnam but also by Brazil's dramatic recovery from poor harvests in the mid-1990s, has led to two years of sliding prices, causing hardship for growers on a scale unseen for three decades.

The Association of Coffee Producing Countries, whose members account for two-thirds of world output, has tried since last year to reverse the slump with a scheme to hold back 20% of exports. The hope was that this would push the ICO composite, which reflects the price of a basket of mild arabica and cheaper robusta coffees, above 95 cents per pound. But some members struggled to find the money to pay for this retention scheme, and non-members—notably Vietnam—simply increased their exports. On September 24th, as the price scraped a new low of 40.5 cents (see chart), the scheme was abandoned. [In the US, coffee beans can cost $4.50 per pound!]

The coffee slump also affects many African countries. But its impact is especially severe in Latin America, which accounts for 60% of world output, and where coffee has long been a big export-earner and a backbone of the rural economy (see map). To make matters worse, the slump coincides with a general economic downturn. Coffee growers are pleading for aid just when governments are cutting spending in their efforts to reduce budget deficits.

The suffering is worst in Central America, where the coffee-price collapse has coincided with drought. In Mexico, Colombia and Peru, many coffee growers have small farms, and lack easy alternatives. But even in Brazil's fertile Cerrado region, where the growers are among the world's most efficient and also now benefit from a weak currency, many are still suffering. Moacir Nunes de Castro, from Patrocinio in Minas Gerais, Brazil's biggest coffee-producing state, reckons that each 60kg (132lb) sack of beans costs him 130 reais ($48) to produce, but it sells for only 110 reais. “How can we survive?” he asks.

The question may seem odd to consumers in rich countries, who nowadays pay a small fortune for a cup of froth at trendy coffee bars. But only a tiny fraction of their money goes to the grower. In fact, the price of raw coffee has long been subject to wild swings. High prices cause a surge in planting, followed by a glut and market collapse. Efforts to boost the price through buffer stocks worked fairly well while mismatches between supply and demand were temporary. But the intervention scheme operated by the International Coffee Organisation, which includes consuming countries as well as producers, collapsed in 1989 because of the unwillingness of consumers to finance mounting stocks.

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