NICARAGUAN COFFEE A MIXED BAG

UNCLAS SECTION 01 OF 02 MANAGUA 000168 SIPDIS STATE PASS USTR STATE FOR WHA/ESPC AND WHA/CEN STATE ALSO FOR EEB/BTA USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN E.O. 12958: N/A TAGS: ETRD ECON EAGR NU SUBJECT: NICARAGUAN COFFEE A MIXED BAG Summary -------------- ¶1. Coffee is Nicaragua's second leading export, with the United States, Spain, and Finland the principal markets. During the harvest from November to March, the sector employs about 390,000 Nicaraguans, almost 19% of the workforce. Coffee production for the 2008/09 harvest is forecast to reach 1.7 million hundred-pound bags, a 40% decrease compared to the 2007/08 harvest of 2.1 million bags. Although some of the decrease may be cyclical and related to weather, high fertilizer costs in 2008 meant that growers applied significantly less of this critical input. Nicaraguan coffee has successfully penetrated demanding international markets, but only 15% is sold in the lucrative specialty segment, because Nicaraguan growers pay scant attention to quality issues or international certifications. End summary. Nicaragua's Golden Grain -------------- ¶2. Coffee is Nicaragua's second leading export after apparel. According to the Coffee Exporter's Association (EXCAN),Nicaragua shipped approximately $282 million in coffee during the 2007/08 harvest, a 37% increase over the 2006/07 harvest, which totaled $177 million. Data provided by the Center for Export Transactions (CETREX) indicates that the United States, Spain, and Finland are the principal markets for Nicaraguan coffee. In all, there are approximately 268,000 acres currently under coffee cultivation in Nicaragua, and in terms of value, coffee represents about 9% of total agricultural production. Nearly 60,000 people work year round on coffee farms, but during the harvest from November to March, the sector employs about 390,000 Nicaraguans, almost 19% of the workforce. Short Term Outlook Grim -------------- ¶3. Executive Secretary of the National Coffee Commission (CONACAFE) Walter Navas forecast Nicaraguan coffee production for the 2008/09 harvest at 1.7 million hundred-pound bags, a 40% decrease compared to the 2007/08 harvest of 2.1 million bags. Growers report that production is down as much as 50% in some regions. ¶4. Coffee yields fluctuate from year to year -- a bumper crop, as occurred in 2007/08, is often followed by a poor crop. With that in mind, growers had forecast a 20% drop in production for 2008/9. Some growers attribute the even-larger, 40% fall in production to a �0A;lack of fertilizer, as many growers cut back significantly on the amount they used in response to price hikes. The price of fertilizer for coffee increased 266% during the last three years, from $12 per hundred-pound bag in 2006 to $44 in 2008. Other growers believe a lack of rain and high winds have caused a delay in ripening. Whatever the case, with international coffee prices down from a high of $145 in 2008 (Arabica) to $128 in January 2008, growers are bracing for disappointing returns. Reaching New Export Markets -------------- ¶5. Major Nicaraguan coffee growers are focusing on the long term and working to develop a brand identity for their product. Most Nicaraguan exporters sell directly to roasters, who sell to wholesalers and large retailers such as Starbucks, Target, Dunkin Donuts, Costco, and Sam's Club. To meet the requirements of these large buyers, many growers have made significant investments to obtain fair trade, shade grown, organic, and sustainable coffee certifications. USAID is working with groups such as Rainforest Alliance to help farmers meet certification requirements. ¶6. A few growers have also hosted trade delegations in an effort to create interest among buyers willing to pay a premium for high quality coffee. Nicaraguan coffee growers from Jinotega and Matagalpa recently hosted a Japanese and South Korean trade delegation. A European delegation visited in early February. As a result of these contacts, one coffee grower earns $155 per hundred-pound bag, while the international price is $125 per bag. This grower also works with several cooperatives who also earn a premium for their high quality coffee. Nicaraguan Coffee: Just the Facts -------------- ¶7. Nicaraguans began growing coffee during the late 1800's. Their coffee is mostly shade grown Arabica (more than 96% of total production),and the most common varieties are Caturra and Catuai. Coffee is cultivated mainly in the northern part of the country, particularly in the Departments of Jinotega and Matagalpa, but also in Nueva Segovia, Esteli, and Madriz. Coffee is grown mostly at altitudes between 1,000 and 1,500 meters. In fact, 90% of Nicaraguan coffee exports are "strictly high grown," that is, grown above 1,200 meters. Smaller amounts of lower grade coffee are produced along the Pacific coast near Managua, Granada, and Jinotepe, where altitudes are lower and there is generally less rainfall. ¶8. Nicaraguan farmers collect ripe beans from coffee plants three to five times during the harvest. Nearly all growers -- small and large -- then wet process their own coffee on site to remove the cherry. The beans then go to one of 35 coffee processers (who are often large growers too) who dry, peel, and bag the beans for export. Some processors dry their coffee on raised beds and carefully sort and clean their beans, while others use concrete pads or tarps and pay less attention to quality. Professional tasters describe high quality, medium roasted Nicaraguan coffee as medium body, acidic, sweet, and aromatic. Comment -------------- ¶9. Nicaraguan coffee has successfully penetrated demanding international markets such as the United States, Europe, and Japan. However, only 15% of Nicaraguan coffee is sold in the lucrative specialty segment, a lower percentage than for other Central American countries with similar climates and altitudes. The reason is that most Nicaraguan growers pay scant attention to quality or international certifications. Small growers have been especially reluctant to invest in quality. Price volatility, declining international demand, and tight credit as a result of the international financial crisis make it unlikely that this attitude will change in the near future. End comment. CALLAHAN