Coffee Growers To Lose Subsidies If Fail to Deliver Beans In Futures Market: Former Minister
Coffee Network (Bogota)-The Colombian former minister of agriculture and former commercial director at the coffee growers’ federation said coffee growers should lose the subsidy granted by the government if they fail to deliver beans in futures contracts.
Speaking during the coffee exporters association summit, Andres Valencia, said market participants in the coffee sector should evaluate the mechanisms of the government- called “Agricultural por Contrato” in which the farmer sells their crops in the futures market to a buyer, but if the farmer defaults on the contract, they loss the subsidy granted by the government.
“Via public policy subsidies, it can become a method to ensure that producers can comply with the contracts in the futures market,” he said during a panel in which market participants analyzed risk coverage for farmers through futures delivery contracts taking advantage of the mechanisms of the New York exchange.
In Colombia, at least 1 million bags of 60kg committed in the futures market may not be delivered in the period 2021-2022 as growers are defaulting on deliveries amid higher coffee prices than the price committed in the future contract. But other market participants said the figures of defaulted bean deliveries will surpass by far by the 1 million bags.
The panel “future deliver negotiations: Experiences that contribute to risk management,” also examined the effects of lack of containerships.
Brazil, the world’s largest producer and exporter of coffee, has failed to export 3.7 million bags of 60-kg of coffee because of shortage of containerships, Nicolas Rueda Latiff, president of the board of the Brazilian Coffee Export Association (CeCafe) said during a Colombian coffee exporters summit.
Rueda acknowledged that the shortage of containerships will worsen instead of improving in the near term, Rueda, who is the first Colombian presiding CeCafe added.
“There are 3.7 million bags that have not been able to leave. We hope we can catch up soon,” he said during the online version of the Colombian coffee exporters summit Asoexport.
In the past to load coffee on a vessel, the logistical team of the Brazilian company just needed “one booking or two bookings at the most”, Rueda said. Today, logistical teams have had to carryout “ten to twelve reserves of bookings to load (coffee) and this has become extremely difficult,” he said.
“Things instead of improving are going to worsened,” Rueda added and light at the end of the tunnel most likely happen at the end of 2022.
The geographic position of Colombia with two oceans and located in the northern tip of South America has played in favor for this Andean nation. Rueda said Brazil and Vietnam, the world’s first and second largest coffee producers are suffering more from the shortage of containerships.
In Peru, coffee bags and other cargo have been waiting about three months for the vessel to pick up the cargo, he said.
A CeCafe study in association with experts found out that all the world’s available fleet that could be put at the service of the containers is being used.
The 70 vessels that at some point were queuing in the US west coast of the US were equivalent to 15% of the world’s total existing capacity of containers.
“Could it be that there are not enough containers or that they are all dammed waiting for the next link in the chain,”.
Javier Diaz, director of the Colombian exporters’ association Analdex, said the situation in Europe and the US will normalize at the end of the first quarter 2022 and the second quarter 2022 but in Latin America this shortage should last until late 2022.
“We will live with this situation the whole 2022. Latin America only represents 4% of the global trade,” Diaz said at the opening ceremony of the Asoexport coffee summit.
Today vessels are taking 75 days to reach Colombia, when they usually took 40 days.
“You have seen a long queue of vessels outside Los Angeles and off course, this delays the whole operation with higher costs,” he said.
Colombian coffee shipments departing through the Pacific port of Buenaventura are the most seriously affected by this situation. Coffee exporters have been forced to bring containers from the city of Medellin in the northwest of Colombia and bring it to Buenaventura incurring in extra costs.
Diaz stressed that the most seriously agricultural products affected are coffee and sugar.
Fleet costs have risen from US$2,000/ tonne to US$22,000/tonne. “The costs multiplied by ten,” he said.
Andres Valencia, former minister of agriculture and incumbent director of the government’s financial institutions guarantee fund Fogafin said fleet costs skyrocketed 500% from China to Latin America and 300% from China to the US East Coast.
The world cannot accelerate the production of shipyards and vessels because China is experiencing an energy crisis with many plants been forced to shut down.
“This situation could complicate more if there is a fourth or fifth peak of the pandemic in China and other parts of the world further disrupting the value chains,” he said. Valencia agreed that disruptions Will last until 2023.
By Diana Delgado
