Wed | Nov 14, 2018

Editorial | Coffee needs more than Lee-Chin’s gift

Published:Sunday | September 16, 2018 | 12:00 AM

Stripped to its core, Michael Lee-Chin's private $60 million "gift" to coffee farmers is really just the billionaire businessman's way of helping the Government to provide subsidies it couldn't afford to an industry that is yet to truly understand , and grapple with, its fundamental problems.

So, as with the J$80 million the former agriculture minister, Karl Samuda, last October pledged to farmers for the purchase of inputs, Mr Lee-Chin's transfer is unlikely to make much of a difference, over either the short or long run, to the production of Blue Mountain coffee, or the price for which it sells on the world market. And if it impacts prices, it may well be to drive them down. Addressing coffee's problem demands frank dialogue among all industry's stakeholders, which also means politicians refraining from peddling unrealistic expectations.

In that regard, Mr Lee-Chin's gift has to be placed in context. He is not a disinterested party. He controls around 5,000 acres of coffee land, through Wallenford, the grower he acquired from the Government, and the Mavis Bank factory, the processor that was bought from private interests. He is also major purchaser and exporter of coffee, a foray into the industry that helped in the recovery of prices, and contributed to an increase in production and to a rise in expectations. Those expectations are now wobbly, hence the growing unease among farmers.

Jamaica's Blue Mountain coffee is marketed as the world's best, because many experts say it is. It fetches high prices because of this reputation - in part. The other part is its scarcity. The area designated for growing Blue Mountain coffee is relatively small. Even with that, production of Blue Mountain coffee, whose major market is Japan, declined precipitously in recent decades.

 

Economic loss

 

Some analysts believe that optimum output, to achieve a decent equilibrium between market demand and a reasonable price, is 350,000 boxes (approximately 60 pounds of cherry coffee, or 9.5 pounds of beans per box) annually. At the start of this decade, Jamaica produced around 160,000 boxes of Blue Mountain coffee, the result of low productivity, plant disease and lack of interest from farmers because of their economic loss from the crop. The Japanese market was in decline.

A big upswing from Mr Lee-Chin's entry into the industry was the rise in the price Japanese roasters paid their Jamaican suppliers. It jumped by 140 per cent in three seasons, peaking at US$60 a kilo in 2014-15. Similarly, the Jamaican dollar price paid to growers rose steeply, spiralling upwards more than 400 per cent over half a decade, reaching J$12,000 a box in 2015. Since then, prices have fallen sharply.

For, while the higher prices encouraged production - output this year is projected at 235,000 boxes - Japanese purchasers complain that their clients, including retail consumers, have rebelled at being asked to pay more for Blue Mountain coffee: The upshot: high inventories in warehouses. They have insisted on a rollback of prices.

It has not helped Jamaican farmers, who contribute one-tenth of one per cent of coffee traded on international markets, that the world price for the commodity has slipped over the past two years. The average international price of US$112.41 per pound in August represented a 20 per cent decline on year earlier. That was the lowest price for coffee since November 2013.

Further, it is of no help to Blue Mountain coffee farmers that their increased production didn't come substantially from efficiency gains. On average, farmers produce not much above 30 boxes per acre, although the most productive may get three times that, which is between 40 and 65 per cent below what is achieved by the major producers.

These are not issues to be overcome by short-term palliatives and warming speeches by politicians, such as were heard then and at Mr Lee-Chin's announcement last week.

Farmers have to be reminded of the basic truths of economic and markets - about the effect of productivity on costs and supply and demand on market prices.

That conversation, too, has to include the strategic management of the Blue Mountain brand. We don't expect other benefactors, for whatever motive, are lining up behind Mr Lee-Chin.