Sun | Dec 17, 2017

Editorial | Coffee’s real dilemma

Published:Thursday | October 5, 2017 | 12:00 AM

Daryl Vaz, the MP for West Portland, left a meeting about the slump in coffee prices on Tuesday, saying that it wouldn't make sense to call growers in his constituency. "I have nothing to tell them," he said.

What Mr Vaz most likely meant is that he couldn't tell farmers how he had wrangled from buyers prices close to what they earned over the past four years. Juliet Holness, the MP for East Rural St Andrew and her namesake, Juliet Cuthbert-Flynn, the representative for the adjoining riding to the west, faced the same dilemma: how to tell farmers that there is little they could do.

While we sympathise with these governing party politicians, it appears, from this distance, that they are focused on the wrong narrative. What is required is that they tell coffee farmers the truth as well as provide them with some basic lessons in economics: of productivity; the workings of commodity markets; and the effect of supply and demand on the price of goods and service.

 

MORAL HAZARD

 

At the same time, as he moves to help the farmers, we offer to the agriculture and commerce minister, Karl Samuda, the same guidance we gave with regards to his interventions in sugar: be wary of establishing a moral hazard, leading to a mission creep that saddles taxpayers with huge costs for subsidies.

The background to this issue is the insistence of Japanese purchasers, who account for over two-thirds of the market for Jamaican Blue Mountain coffee, that it is no longer economically feasible to offer price for the commodity similar to what they paid since 2011-2012, peaking at US$60 per kilogramme - a jump of 140 per cent - in 2014-15. The new price is still being negotiated.

Blue Mountain coffee is considered the world's best. So, even before the recent big hikes, when the commodity fetched around US$25 a kilo from Tokyo's roasters, its price was multiples of that for other coffees. Domestically, farmers were paid J$2,800 per box (eight to nine pounds) of beans.

The problem, however, was that production, hovering at 160,000 boxes, was insufficient to meet market demands - the result of plant disease, a fall-out by farmers and critically, poor productivity. Jamaican coffee farmers, on average produce around 30 boxes of the product per acre, although the output by the larger and best farmers, is 80 to 90 boxes. In other countries, yields can be between 150 and 200 boxes per acre.

 

INCREASED PRICES

 

To drive up production, suppliers and buyers agreed on higher prices, which enticed many farmers back to the business. By 2014-15 farmers were receiving J$12,000 per box, although this declined last year by 17 per cent, to J$10,000. Production, as predicted, increased and is expected to reach over 250,000 boxes this year.

The issue now is that Japanese buyers say that their market is oversaturated. Prices have risen far faster than inflation and consumer demand. Japanese are being asked to purchase far less Blue Mountain Coffee - a gourmet product that is not for mass consumption - for their yen. The upshot: buyers have up to two years of stock in their warehouses.

In such circumstances, even in a managed market like this one, prices fall, which is the argument being made by the Japanese and to which their Jamaican suppliers have to agree. There is no agreement yet on the new price point, although the Japanese have proposed rates closer to where they were four years ago.

A price of J$6,000 per box to farmers has been floated, with payment in two tranches, with the second one being determined by what is finally agreed with Japanese buyers. Farmers say they can't make money at that price point.

The Government has offered subsidies for production inputs and additional taxes on coffee imports to help cushion the shock. This, at best, is a short-term palliative. What is missing from the conversation is the real, lasting solution: increased productivity by farmers, whose output per acre is, on average, only about 45 per cent of the desired volume.