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Report from Ecuador: Coffee industry tries to hold its own
The Miami Herald / May 14, 1996

By Larry Luxner

QUITO -- Ecuador, a major shrimp, oil and banana exporter, used to be a famous coffee exporter, too. But the coffee industry's glory days appear to be ending, just as Ecuador's once-famous cacao industry slipped into oblivion earlier this century.

Last year, cacao exports brought Ecuador just over $70 million in revenues, down from $138.4 million in 1985. Likewise, green coffee and soluble exports generated $223.3 million in 1995, a sharp drop from 1994, when coffee brought in $413.8 million, according to the latest figures provided by Ecuador's Central Bank.

"Coffee has decreased in its importance to Ecuador's economy," said Patricio Izurieta Mora-Bowen, assistant secretary for economic affairs, during an interview at Ecuador's Foreign Ministry in Quito. "Ten years ago, we exported much more coffee, and 20 years ago, coffee was the most important crop. Since then, other countries have become more competitive."

One major coffee exporter said Ecuador's coffee is "bad" compared to Colombia's, though about the same in quality terms as Brazilian-grown coffee. "We have very few big farmers and a lot of small growers who have one hectare of land, of which coffee is only a small part. They're also growing beans and fruit," said the exporter, who asked not to be named. "The disadvantage is that these people aren't technologically inclined. They don't have the money or knowledge, so the quality suffers."

In addition, there's very little use of pesticides or fertilizers, and because of the lower quality, washed and robusta coffees are sold at a 5-10 discount, while natural is discounted by 20-25.

Ecuador's chief coffee-growing regions are the coastal provinces of Manabi and Guayas, the mountain province of Loja and the jungle province of Amazonas. All told, the country has about 150,000 hectares of coffee under cultivation (compared to Colombia's one million hectares), with about 10% of total production -- or 200,000 bags -- consumed locally. Some 300,000 of Ecuador's 11 million inhabitants depend on the crop. The problem when it comes to exporting is that most of the country's coffee is grown along the coast, where it's too hot and dry to produce high-quality beans, while the high-altitude coffee grown in Loja is too far from Guayaquil to be exported competitively.

Joseph Massoud, commercial director of Grupo Noboa's Ultramares S.A., Ecuador's top green coffee exporter, said that "coffee really hasn't been a good business in general for the past four years," and that 1994 was a miracle for Ecuador because of the frost in Brazil, which pushed prices way up.

"Ecuador is one of the very few countries in the world that produces the whole range of coffees," explained Massoud, whose company exported $35 million worth of coffee last year. "Robusta is grown along the coast or in the jungle. Arabica coffee grows better at high altitudes and it needs special care, which this country never has had. In Colombia and Central America, they have machines to wash the beans. Here it's done in a very artesanal way. One reason is that production is very limited to two or three months a year, while Colombia has two crops."

Without a doubt, the two biggest headaches for coffee exporters in Ecuador are high interest rates and the country's severe energy crisis. A brief border war with Peru last year cost both countries an estimated $1.5 billion, while political scandals at home kept investors away. In addition, the lack of rainfall combined with years of mismanagement has crippled the country's hydroelectric plants, which supply 70% of Ecuador's energy. As a result, Quito and other cities have been left in darkness up to nine hours a day. A contro-versial measure to sell off 39% of Ecuador's state-owned electric utility Inecel is virtually assured of passage, but observers don't expect it to have much impact in the short term.

"We have two plants, for which we have our own generators. We have to run them all the time, otherwise we would go bankrupt," said Massoud, adding that when it comes to financing, "we're lucky to have multinational backing so we can borrow at better rates, but we also have higher overhead."

Exporters are eagerly awaiting Ecuador's May 19 presidential election. In March 1995, President Sixto Duran-Ballen -- who can't run again -- instituted a 2% government tax on exports in order to reinvest the money in the coffee industry through the Consejo Nacional Cafetalero. This entity (known by its Spanish acronym COFENAC) was created basically to educate farmers and extend easy credit to those in the industry. Another policy decision taken by the government in order to help push up world prices was to limit exports to 1.5 million bags during the 1995-96 season -- compared with traditional exports of well over two million bags.

Whether that will have any real effect remains to be seen. On the other hand, a reso-lution of Ecuador's energy problems following the election could make its coffee industry more efficient, thereby translating into better prices and higher profit margins over the long run.

"Relatively speaking, Ecuador is politically stable. Once the energy crisis is overcome, we'll be able to move forward," Massoud concluded. "Ecuador doesn't have the dynamism of Colombia or Peru, but it has more stability."

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