USDA Attache: El Salvador Coffee Output Set to Increase to 528,000 bags In 2021-2022

USDA Attache: El Salvador Coffee Output Set to Increase to 528,000 bags In 2021-2022

Coffee Network (Bogota) –El Salvador’s coffee production is expected to reach 519,000 bags of 60-kg in the marketing year 2020/21, and rebound to 528,000 60-kg bags in the coffee year 2021/22 crop, while coffee exports are expected to total 537,000 sixty-kg bags, the US Department of Agriculture, said in a report.

Coffee production in 2020-2021 is expected to increase 1.75% from the 2019/20 crop, which was 510,000 sixty-kg bags, mainly due to lack of fertilizer, continued damage by leaf rust throughout the growing season and lack of profitability due to persistent low production yields, and low international prices. The 2021/22 production is forecast to slightly increase to 528,000 bags.

El Salvador’s 2020/21 harvest, which begins in October and ends in September, will only post a slight increase due to a continued lack of financing for inputs and diminished farm level work, as well as low international prices.

The Salvadoran coffee sector continues to struggle mainly due to low international prices, climate change, continued coffee leaf rust, and a lack of a long-term strategy that has hindered investment at the farm level. The COVID-19 pandemic is also affecting the sector due to a reduction in farm worker availability to carry out post-harvest coffee berry picking and processing. The Government of El Salvador (GOES) has announced a coffee sector rescue program that is expected to renovate approximately 35,000 hectares, as well as re-structure debt and create a coffee research institute.

Meanwhile, exports in 2020/21 are expected to reach 537,000 bags of 60-kg and increase to 545,000 60-kg bags  in 2021/22. The United States continues to be the main export destination for Salvadoran coffee, accounting for 41% of 2020/21 exports through April 2021. Germany is the second largest destination for Salvadoran coffee, followed by Japan, Italy, Belgium, and England. A tendency to look towards the export market and a lack of an overall strategy has led El Salvador to continue to neglect its domestic market. This has led to increases in soluble coffee imports, mainly from Mexico, Brazil, and Nicaragua.

Coffee bar chains, including Starbucks, Juan Valdez, and El Salvador’s Four Monkeys and The Coffee Cup continue growing in the retail market. The Salvadoran Coffee Council (SCC) continues to monitor exports through export registration permits.

In the past, the Government of El Salvador (GOES) guaranteed loans to the coffee sector both through state and private banks; however, private banks are now reluctant to lend to the coffee sector due to price volatility and climate change vulnerability. Coffee is still an important source of employment in rural areas. However, the drastic decline in production (As a result of coffee rust, low prices, and a lack of investment) has led to big job losses in the sector. Over the last five crops, jobs have dropped from 42,280 to an estimated 36,125 for the 2020/21 crop. Coffee is no longer the top source of export revenues in El Salvador, replaced by non-traditional products such as processed ethnic foods, tropical fruits, and sugar. At current prices, coffee exports in 2021/22 are only expected to generate $90 million in foreign exchange. El Salvador continues to promote its coffee through trade expos and buyer missions, focusing mainly on specialty and gourmet qualities.

The GOES has recently announced a coffee sector rescue program. The plan aims to renovate approximately 35,000 hectares, create a coffee research institute, re-structure debt, provide new loans with lower interest rates and a lengthier payback period, make export sale schemes more transparent to benefit farmers, and promote local consumption, among other activities.

Production: New production numbers compiled by FAS San Salvador estimate the 2020/21 coffee crop at 519,000 sixty-kg bags. The GOES continues to assist mainly small farmers with a plant and fungicide giveaway program that has had a minimal positive impact on the recovery of the coffee sector. Salvadoran coffee production could recover with better agricultural practices to counter coffee rust and an adequate renovation program that includes financing to provide plants with appropriate nutrients and post-harvest management until they reach production. Value-added production such as gourmet, specialty, and fair-trade coffees continues to provide additional revenue to a small, but growing number of coffee producers that are focusing on this type of market. These farmers are now focusing on micro (5-100 bags) and nano (less than 5 bags) coffee lot sales to specialty retailers in the United States, Europe, and Asia. However, the COVID-19 pandemic affected sales through this marketing channel due to extensive quarantines imposed in importing countries. In 2020, El Salvador managed to continue with the Cup of Excellence competition using a virtual component for coffee grading. The Geisha and Pacamara varieties continue to dominate this competition with scores in the 90-point range. The pandemic affected export promotion through postponed trade missions to the European, Asian, and U.S. specialty coffee markets. These may be rescheduled for the fourth quarter of 2021.

CONSUMPTION GROWS

Consumption in coffee bars continues to grow in El Salvador. The number of establishments is expanding – now opening in strip malls and major shopping centers, which is the case with Juan Valdez, Starbucks and local competitors Viva Espresso, Four Monkeys and The Coffee Cup. In addition, new coffee brands at the retail level are stimulating demand for local Bourbon, Pacas and Pacamara variety coffee. In MY2020/21 consumption is estimated to reach 270,000 bags. Due to the impact of COVID-19 on consumer spending, domestic consumption has practically stalled. Most local consumption continues to be soluble coffee imported from Mexico, Brazil, Colombia and Nicaragua, as well as some locally produced brands. In MY2020/21, soluble domestic consumption is expected to reach 240,000 sixty-kg

Insufficient investment in marketing to boost consumption of local high-quality roasted beans and a market that tends to be price elastic are some of the factors that continue to favor soluble consumption. The SCC has continued to work to boost consumption of higher quality coffee by holding coffee promotion events, such as the 2020 Expocafe and barista training. This event was supported by USDA through a Food for Progress program being implemented by the SCC and geared to increase domestic consumption, strengthen the SCC’s Coffee Training School (roasting, barista, and beverage preparation methods) and promote Salvadoran coffee in new export markets such as the Middle East, Eastern Europe and Asia. However, COVID-19 posed a challenge for these promotional events and the SCC had to re-schedule some activities and change many to a virtual mode.

IMPORTS SET TO INCREASE

In marketing year (MY) 2021/22, Mexico is expected to supply approximately 124,334 sixty-kg bags GBE of soluble coffee to the local market. Brazil is expected to export 91,508 sixty-kg bags and Nicaragua 36,313 sixty-kg bags. Colombia is also present in the market with soluble product brand Colcafe, as well as with its’, “Juan Valdez”, coffee retail outlets selling 11,620 sixty-kg bags of Colombian coffee. U.S. imports are estimated at 3,777 sixty-kg bags of both roasted and soluble coffee.

Stocks:

FAS/San Salvador estimates stock numbers reaching 11,000 sixty-kg bags in MY2020/21. Stocks for MY2021/22 are forecasted to drop to 10,000 sixty-kg bags due to increased coffee sales due to higher international prices. Policy: The main problem faced by the Salvadoran coffee sector continues to be lack of a strategy to create sustainability and profit for coffee farmers

While there have been some efforts by past government administrations to implement assistance programs, they have not been effective in helping producers recover from losses, due to diseases such as coffee leaf rust, and anthracnosis, that negatively impact yields.

 In 2014, the GOES created the CENTA (National Agricultural Research) coffee program within the Ministry of Agriculture (MAG). This new institution oversees extension services for coffee farmers. In addition, in 2016, MAG started a new fungicide and plant giveaway program for small farmers. According to MAG, in calendar year 2019, the GOES provided approximately 20 million rust-resistant plants through CENTA cafe. These government programs mainly target small farmers with less than 3 hectares, which account for less than 10 percent of planted areas. The main problems with the plant give-away program are that most seedlings are not certified, and no funding is provided for the necessary upkeep to enable the plants to reach production age (approximately 3 years). As such, most of the time farmers sell the plants or they die due to a lack of inputs (i.e. fertilizer, insecticides, fungicides). In addition, in calendar year 2020, this program had a delay due to logistical issues caused by COVID-19 and the plants were distributed almost at the end of the rainy season, thus many plants were left unplanted. The sector would benefit from a major replanting program to renovate coffee production areas with new trees. In many areas, most trees are over 25 years old and have surpassed their productive age. Every year over 7 million plants need to be planted, just to replace those that die naturally. According to the Salvadoran Coffee Association, approximately 30 million good quality rust-resistant plants are needed per year for a period of 10 years to completely renovate the national coffee area.

LOST JOBS

Approximately 10,000 jobs are lost for every 100,000-quintal drop in production – approximately every 45,000 tons. In addition, more coffee farms are abandoned, depriving the country of its main source of forestation and water retention. Coffee farmers continue paying back the Coffee Trust (FICAFE) program, which was established in 2001 to defer accumulated debt. As part of the GOES program to assist the coffee sector, the capital payments to FICAFE were deferred in 2014 for a grace period of 3 years, so that those funds could be used to plant new coffee trees, to improve agricultural practices to fight coffee leaf rust, and to increase productivity at the farm level. The GOES has extended this grace period for an additional year through 2021. The GOES is providing loans through state banks to certain qualified farmers to carry out production activities and harvest collection for the upcoming production cycle. The GOES is also providing fungicides and liquid fertilizers to small farmers to alleviate the coffee rust outbreak. However, given the continued damage by rust, this loan program and provision of inputs will again not be enough to keep many farmers afloat. Private banking institutions are reluctant to provide loans to the sector due to the high-risk of default because of price volatility and dwindling cherry yields. In 2016, with the help of the Inter-American Institute for Agricultural Cooperation (IICA), the eight coffee associations began to work together to try to find a way out of the coffee rust crisis. They set up working groups to analyze research, financing, institutional strengthening, and marketing/branding. However, this effort was not backed by the GOES and the work done was set aside. Through the Food for Progress program, USDA continues working with the NGO Technoserve on the Modernizing Coffee and Cocoa in the Americas (MOCCA) project to assist approximately 5,000 coffee farmers with new production technologies, extension work, access to high-quality coffee seeds, access to higher paying export markets, and a loan guarantee program to facilitate lending to the sector. This program could serve as a model of what the coffee sector could do to overcome the challenges posed by coffee rust, low yields, and lack of profitability. At the end of 2017, the government and the main opposition party signed a political pact to try to save the coffee sector. The pact proposed creating a new research institution, extending the repayment period and lower interest rates on coffee debt (estimated at around $240 million), providing $100 million to renovate 70,000 hectares with rust-resistant varieties over the next 8 years, and creating a single coffee organization to unite the eight current associations and the government. As part of this commitment, the National Assembly approved an $86 million loan from the Central American Bank for economic integration. This funding is expected to help start the projected renovation of the entire coffee area. Approximately $6 million will be devoted to the creation of a research institute and the rest to the renovation of old coffee trees and technical assistance. However, due to a political hold-up at the National Assembly, this program was unable to be implemented. Another issue impacting farmer profitability is the high cost that coffee mills charge to farmers for the service to transform their coffee to export-ready green beans. Currently this cost is approximately $50 per hundredweight GBE. Also, increasing roasted and soluble coffee imports are impacting local farmers. According to the Ministry of Economy, current duties are too low, and changes are needed to alleviate the impact on local coffee consumption. Every year, El Salvador imports close to 300,000 sixty-kg bags mainly of soluble low-quality coffee that affects market opportunities for local coffee. The future of El Salvador’s coffee sector will depend upon the ability of both producers and government institutions to implement a strategy that includes: debt re-structuring; extending repayment periods; and a unified coffee association that oversees research, technical assistance, and quality control; labor; food security; and crop diversification. If these issues are not addressed, the number of farmers that have already abandoned their farms (currently 35 percent) will continue to grow, deepening the labor, environmental, and economic crises. A new GOES administration, which took office on June 1, 2019, has been working with the coffee associations, and they have drafted a program called Cafe-Proyecto Pais. This program was viewed as an opportunity to get the coffee associations together and come up with a unified strategy that could help farmers become sustainable in the near future. Under the program, the issues affecting the sector were divided into four areas: financing for plant renovation; debt restructuring; research and technology transfer; and commercialization (export and domestic). However, due to the COVID-19 crisis, in 2020 this program was put on hold by the GOES. In April 2021, the GOES administration announced a coffee rescue program that seeks to increase production and farmer profitability in the medium term. Under the program, the GOES plans to restructure carry over debt from the sector estimated at $240 million, create a coffee research institute, build a coffee seed/nursery certification program, renovate approximately 35,000 hectares, create a transparent coffee processing mechanism among farmers and coffee mills, promote local consumption of Salvadoran coffee, review coffee import duties, increase direct trade, and crop diversification to increase farmer income and diminish dependency on a single crop, among other activities. To date, the GOES has secured a $45 million loan from the Inter-American Development Bank (IDB) to assist smallholder farmers (approximately 8 % of total coffee area) through technical assistance and preferential loans, an $86 million loan from the Central American Bank for Economic Integration (BCIE) to fund plant renovation and a coffee research institute; and is negotiating green bonds to finance an estimated $630 million trust that will enable them to carry out the rescue program. If this plan moves forward, it could pose an opportunity for ailing coffee farmers to become profitable and sustainable in the near future.

By Diana Delgado