There have been an increasing number of news reports about the impact of leaf rust on coffee producing countries, specifically those in Central America. I’ve been a bit overwhelmed by the information, and felt like I lacked some context. I am writing this to try and organise and contextualize some of the available information. (For myself as much as anyone else! Also – this is a long article, the Read Later button may be useful!)
A number of countries have declared agricultural states of national emergency as a result, including Honduras, Guatemala and Costa Rica. El Salvador and Nicaragua are also badly affected, and Colombia has been struggling with the impact of leaf rust on its production for a number of years.
Over the last few years I hope people have noticed that there has been an increase in focus on topics like the effects of climate change on coffee production, as well as the issue of the lack of genetic diversity within coffee.
Leaf rust is a great example of why we should be deeply concerned. Most coffee plants are susceptible to leaf rust, because we’ve been commercializing a fairly narrow strain of arabica for our consumption.
One question I’ve seen popping up is how this will affect the price of coffee. We’re seeing dramatic drops in production in countries we might consider major producers. Yet the C-market price considers to trend downwards.
To understand this in the short term it might be worth looking at the numbers more closely:
Projected losses to leaf rust in Central America total 184 million kg. This is approximately 3 million bags of coffee (bags being the preferred unit for production/export statistics).
Last year the total production globally was around 134 million bags, about 5 million bags below consumption (the gap was filled by existing stocks – not everyone is concerned about past crop flavour!). This year the projected production is 144 million bags, producing a surplus of coffee, even with global consumption set to rise by around 1% (based on an increase of 4.7% between 2008 and 2011 inclusive). Stocks in producing countries currently total around 15 million bags – the lowest since records began. Stocks in consuming countries are more difficult to track.1
Much of this increase is due to Brazil, whose production alternates between relatively high and low – and this year is the higher production year. Last year Brazil produced 43 million bags. This year it is set to produce just under 51 million.
Other countries are seeing increases this year – Indonesia is up with a 2.3 million bag increase, and Africa’s total production is expected to be up by about 2.1 million bags.
Effectively the losses to leaf rust are simply reducing the size of surplus this year, but we’re still going to have a surplus. So in the short term, the supply vs demand relationship that we expect to see impact the C-market has no reason to do anything other than suppress the price for coffee. In the short term…
To quote from the summary of the ICO report from December:
In conclusion, it should be noted that coffee prices continued to fall during December, reinforcing the downward trend since October. As a result, calendar year 2012 ended with the ICO composite indicator price 25.7% lower than the previous year, although the average price for 2012 is still higher than most of the previous decade at 156.34 US cents/lb. However, costs of production continue to increase, reducing good agricultural practices in a number of exporting countries. Vietnam is unlikely to repeat its record crop of 2011/12 this year and Colombia is also yet to recover to its previous production levels. Consumption remains reasonably resilient to macroeconomic concerns, and there is strong potential for growth in exporting countries and emerging markets. With certified stocks and inventories at relatively low historical levels, there seems to be limited potential for further downwards price corrections. (emphasis added)
The future is a different story. I don’t know exactly what will happen, but there are a few things worth considering:
Leaf rust isn’t a short term problem. It impacts trees and their ability to produce over several years. If not controlled and aggressively managed it will pretty much destroy a coffee farm. You don’t bounce back from rust damage quickly.
Secondly – we (as in specialty coffee people) don’t think of coffee as being a commodity. Most of us aren’t really excited by more commodity grade Brazils and coffees from Indonesia filling the gaps coming from rust losses. Moreover, it is likely that Brazil and others could ramp up production if needed, should rust continue to reduce crops from Central America. Adding to a bleak trend: Robusta production is also up significantly – over 2 million bags (around 4%). Prices for robusta remain healthy, indicating a matched demand for this new production from roasters who are still struggling with what they consider too high of a price for arabica. They’re blending in more robusta to stay competitive, at the expense of cup quality.
While we’ve seen this trend before where quality dips because of price, in the US especially, with an eventual recovery – I don’t think the conditions are exactly the same and we’d be foolish to expect the entire coffee market to correct back towards quality the way it did in the past.
Let’s turn our attention back to quality coffee.
As leaf rust is more likely to attack higher yielding trees, grown at lower altitudes, you might think that the speciality end of the market is likely to be less affected.
It is still going to affect pricing longer term – for a farm nervous about rust and trying to prevent it there are a number of costs, which are significant. I’d recommend reading Tom Owen’s recent excellent post from Guatemala for some idea of the work necessary to prevent rust, let alone treat it. To quote from it:
As with most disasters, it will be the poor and unprepared who suffer the most. The little farms I saw that were most affected aren’t the sole income of the farmers, so it’s not that they are being pushed off an economic cliff. But it is going to hurt badly.
I’d also hazard a guess that differentials within those countries would be affected. Demand for coffees from Honduras specifically are unlikely to dramatically shift, but if production there has been reduced by 25% then scarcity of those particular coffees may drive up price! Again – differentials are based on the C-market, and would in theory be unconnected to speciality buying/the cost of producing specialty, but farmers are generally very much aware of what is happening with the C and its differentials within any coffee growing country.
Farm producing high quality coffee are being affected. We’ve seen this discussion going on in Colombia for a little while: would we rather a producer grows a rust resistant variety, and still has a crop, or grows something like Caturra which has a better cup quality but is a massive gamble where one possible outcome is no coffee to sell? Read this for some farmer responses to Castillo. (In fact, I hope you’re already reading this blog as this post is part of a great series on rust in Colombia.) Those of us who work within genuine speciality rely on a higher cup quality as the basis of what we do, making many cautious to embrace varieties like Castillo in Colombia or Batian in Kenya.
It would be prudent to presume that climate change isn’t going to go away. (also worth remembering that climate change adds to the Broca problem too.) While there is still some debate as to whether it is rain generally, or specific types of rainfall that cause the problem – I think we should expect rainfall patters to continue to promote the spread of rust. Some would argue that increased use of fungicides aren’t going to solve the problem either because fungicides also kill a fungus called White Halo fungus that actually prevents leaf rust. This leaves those of us on this side of the coffee industry at something of a loss as to what to do.
Hopefully the value of World Coffee Research is increasingly clear and supporting it seems worthwhile. I don’t believe that the spread of information on treatment and prevention is suddenly the responsibility of green coffee buyers. Producing countries have infrastructure for outreach and development, and way more experience in it. I believe our responsibilities lie on our side of the supply chain. We need to make sure we can bear the increased costs, and be willing to pay the increased costs of production necessary to allow producers to invest in prevention. We need to champion diversity, and not take the easy way out of buying cheaper, lower quality and less interesting coffees.
Equally I don’t expect anyone to suddenly have a solution to climate change, but we do have a duty to clearly and simply explain the issue to our customers and those around, and to spread awareness of it as a problem. A critical mass of desire is necessary for change of policy and genuine efforts to work on the problem, so I guess every little helps.
I’d also look to bodies like the SCAA for leadership on this issue.2 On a related note: There is going to be some interesting information presented at the Symposium this year which relates both directly and indirectly to this topic.
Ultimately – I don’t know what to do. I’d love some input from others, be it through blog post responses or on Twitter. I am not trying to scaremonger, simply understand this issue.