Breach of Coffee Contracts Results in Debts of $200 Mln for National Coffee Fund: President
Breach of Coffee Contracts Results in Debts of $200 Mln for National Coffee Fund: President
Breach of Coffee Contracts Results in Debts of $200 Mln for National Coffee Fund: President
Coffee Network (Bogota)- The Colombian President Gustavo Petro said the coffee future sales program, promoted since 2017 by the National Federation of Coffee Growers as administrator of the National Coffee Fund (FoNC), has faced partial delays in agreed deliveries due to better coffee prices, resulting accumulated debts of $200 million debts to FoNC.
The Finance Ministry recently these breaches of contracts represent a risk to the assets of the Coffee Growers' Cooperatives, the FoNC and the services that guarantee the purchase of coffee.
Now Petro blamed the speculative positions that the Coffee Growers Federation authorized, resulting in debts of around $200 million.
“The current high international price of coffee benefits the coffee family, but completely ruins the national and public coffee fund due to speculative practices on the NY Stock Exchange that were developed by the National Federation of Coffee Growers, administrator of the fund and that should never have been happened,” Petro said.
The coffee experts Eduardo Lora and Felipe Robayo said today that the coffee growers federation during the administration of Roberto Velez instead of halting future coffee contracts when coffee growers unfulfilled contracts, continued contracting future coffee contracts, they said today in an editorial published at the country’s largest newspaper El Tiempo.
“Instead, the Federation continued to seek payment formulas with the cooperatives that had breached the “contracts” signed via WhatsApp to deliver coffee at a price of 1.3 million pesos per load. Although the Federation knew that the cooperatives would continue to breach these fragile promises, it persisted in maintaining a short position – that is, a speculative one – on the New York Stock Exchange, consisting of selling 3,000 lots of coffee for future delivery at prices between 1.10 and 1.40 per pound,” Lora and Robayo said.
Robayo and Lora said the coffee growers federation maintained this speculative position in the hope that the market would one day fall back to these prices. But the Federation was forced to use money from the National Coffee Fund to transfer more than a million dollars for each cent of difference with the effective price on the international market (in order to comply with the obligation to cover futures margins established by the New York Stock Exchange).
“At the end of December, when the price on the stock exchange reached 3.30 dollars per pound and the cost of covering the margin climbed to 150 million dollars, the Federation finally made the decision to close its speculative position, definitively losing those 150 million (a third of this sum had been financed by a Japanese bank, which will have to be cancelled),” they added.
The new general manager of the coffee growers federation German Bahamon instead of liquidating the short position of the contracts, which would have resulted in paying $20 million, decided to postpone the problem, the coffee experts added.
“The only good thing for Vélez is that he is no longer the manager. The problem was left in the hands of Germán Bahamón, who took over the management of the Federation in April 2023 without fully understanding the situation. But that does not excuse him; manager Bahamón put things off unnecessarily: at one point the price dropped to 1.45 dollars per pound,” he added.
The coffee experts added that FNC should stop marketing coffee with the funds of FoNC as this practice puts public funds at risk. “The main justification has always been to be able to guarantee coffee growers that the grain will be purchased at the price announced by the Federation. But since the Fund no longer has the capital to exercise this guarantee, there is no longer any justification,” Lora and Robayo said.
Coffee Dignity director Oscar Gutierrez told Coffee Network, the government will not pay that debt because the government is short in cash, instead the government should provide a loan to save 17 coffee cooperatives that running the risk of being liquidated, said Coffee Dignity, the group that advocates for better conditions for coffee growers.
In December, FNC requested to some coffee cooperatives to fulfill with contracts and deliver the coffee they agreed to since 2021. Currently, 34 million kilos of beans have failed to meet contracts. Of that total, 55% is in the hands of 1% of coffee, while 45% are positions of cooperatives without coffee grower support. “The non-compliance of some cooperatives since 2021 continues to be a challenge for the union,” German Bahamon, general manager of the coffee growers federation recently said.
Gutierrez said the state bank Finagro should provide loans with good interest rates to the cooperatives in order to do not risk their existence.
Currently, 18 coffee cooperatives are in trouble in Colombia of which two are located in Antioquia, Colombia’s second-largest coffee producing region, one in Quindio, another one in Huila, among others, Gutierrez said but declined to mention them.
By Diana Delgado
