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Peruvian coffee makes its way to higher quality
The Tea & Coffee Trade Journal / March 1999

By Larry Luxner

LIMA -- Coffee will bring Peru only $250 million in foreign exchange this year, down from $400 million in 1997 -- due to lower prices and the lingering effects of El Niño. That's the word from Fernando Holguín, president of the Cámara Peruana de Café, Peru's national coffee chamber.

Nevertheless, coffee is still Peru's leading agricultural export, way ahead of asparagus ($123 million), sugar ($33 million), cotton ($32 million) and cacao ($18 million). In 1997, Peru produced 2.13 million quintales (a measurement equivalent to 100 pounds) at an average price of $186.29 per quintal, down slightly from 1995 figures but up from the 1.5 million quintales at an average $138.24/qq in 1994. In comparison, Peru produced only 990,696 quintales in 1970, 574,217 qq in 1960 and 22,500 qq in 1950.

Holguín says there are around 100,000 families in Peru dependent on the coffee industry, and about 200,000 hectares of land under coffee cultivation.

"During the 1980s, the country was involved in two disruptive social phenomena: the presence of subversive groups that attacked coffee zones, and narcotraffickers," said Holguín in a lengthy interview at his office in Lima. "These two factors caused production to drop. Producers, having been threatened, joined the narcos, while some others joined the subversives and others fled the region. From 1989 to 1993, we also had very low prices, another reason they left.

"A few years ago, however, many producers began returning to coffee, so production began going up again," he said. "They began retaking the coffee plantations, so that by 1995, there already wasn't any more subversion, and interantional prices began rising due to the frost in Brazil. At this moment, the coffee industry is maintaining its current production, though in the last year El Niño has caused production to drop 5-10%."

Holguín says the Cámara Peruana de Café -- established in October 1991 -- is Peru's most important coffee organization. Its 25 members represent 70% of Peru's coffee exporters and 90% of national consumption.

"Our objective is to try to promote coffee as an alternative crop that lets us defeat the narcotraffickers, while promoting the development of coffee zones and avoiding any possi-bility of the return of subversion in the future," he told The Tea & Coffee Trade Journal. "We also want to boost the image of Peruvian coffee in the world through fairs, special events, etc., showing that Peru is a serious producer, and that we have excellent varieties."

Peru currently accounts for 1.5% of the world's coffee production. Its coffee is 100% washed arabica, and 95% of its production is exported.

"We hope we'll have a positive result before U.S. coffee organizations. We've asked the Green Coffee Association to reclassify Peruvian coffee. We currently have a 4-cent penalty. We're asking them not to penalize us."

He adds: "In the last 10 years, we're improved quality, quantity and fulfillment of contracts. We're working to develop the technical culture of coffee. Peru produces 10 quintales per hectare, the lowest in Latin America,. With the help of USAID [the U.S. Agency for International Development], we expect to boost productivity to 15 qq per hectare in the next three to five years. We'll also implement specific programs with USAID and do a census to have a clear, concrete vision of the Peruvian coffee industry."

Along those lines, Holguín's organization has signed a three-year, $3 million technical assistance agreement with the Colombian Coffee Growers Federation. "Ours is a good product, but we don't have good post-harvesting technology," he concedes. "Colombian quality is more uniform. They have 70 years of experience."

Indeed, although Peru uses arabica varieties that are cultivated at 900 meters or more above sea level -- which usually produces a high-quality coffee bean -- the outdated processing techniques widely employed by Peruvian producers significantly reduces the quality of Peru's traditional coffee crop. For this reason, USAID puts a big emphasis on improved post-harvest processing.

Holguín, whose group operates on an annual budget of only $50,000, complains that the decidedly pro-business government of President Alberto Fujimori hasn't done a lot for Peru's coffee sector. "There's absolutely no support from this government," he says. "There's an absence of specific policies. They could do a lot more than they're doing."

Holguín does, however, fully support the efforts of the U.S. and Peruvian governments to eliminate Peru's coca crop and substitute it for coffee and other legal crops.

"The price of coca has dropped because of interdiction. There are fewer buyers now." Holguín says other alternatives to coca are cacao, citrus, camu camu and anatto, but he's skeptical that those crops have the potential coffee does to provide a reliable income year after year.

"The campesino understands that the only product that will secure a future of tran-quility and peace under the law is coffee," he says. "The price of anato reached $3 per kilo, but then the U.S. and other countries began using artificial colorings, so the price dropped. Now we're at 70 cents a kilo. The same thing could happen with coffee, but there'll always be a market for coffee. For smaller alternative crops, sometimes there's no market."

Peru's largest single coffee exporter is Romero Trading S.A. Last year, Romero exported $60 million worth of coffee, about 15% of the total by value. In second place was Perhusa, followed by 22 smaller exporters.

José Alejandro González, general manager of Romero Trading, said that "in 1989, when I left Peru, there was a quota system, and the coffee industry was in the hands of cooperatives that didn't have much interest in exporting."

That changed, he said, with the breakup of the ICO, which allowed the private sector to invest in Peru's coffee-growing areas with better technology and efficiency.

"Last year, we got a 15-cent premium over New York. That is a symptom of the improvement in Peru's coffee industry." González adds that "in the United States, there's a change in coffee culture. People are now starting to buy beans and grind it themselves. Companies like Dunkin' Donuts thought to increase sales by offering better liquid products. Sales have increased, not because of the doughnuts but because of the coffee."

At the moment, González sells 45% of his Peruvian coffee to Western Europe. Japan takes another 25%, the United States 20% and other customers the remaining 10%. He says "coffee is the only crop that really has a chance of replacing coca. Cotton doesn't really grow in the altitudes where coca is grown. Tea is also a possibility, as is cocoa."

Of Peru's 23 departments or provinces, 10 produce coffee. The most important of them is Junín, with 16,969 producers and 57,768 hectares under cultivation. Other important coffee-producing departments include Cajamarca, Cuzco, Amazonas and San Martín.

One sector that could have a bright future is organic coffee, which carries a 30-cent premium. Currently, about 5% of Peru's production is organic, and Peru is the No. 2 supplier of organic coffee to the U.S. market after Mexico.

An interesting organic coffee project is supported by GTZ, the German technical cooperation agency. GTZ says its main objective is to assist small coffee growers in Villa Rica "on how to get their long-neglected, unimproved coffee plantations back into production without having to rely on expensive chemical production resources as a legal alternative to coca cultivation."

Under the project, a team of trained promoters pays regular visits to Peru's Selva Central (central jungle area). With the help of these experts, the coffee cherries are composted, and the pulp is turned into worm compost. The cuttings from the coffee shrubs are piled along contour lines, gradually forming terraces, and the cuttings from the shade trees are used as firewood.

Diseases are controlled by biological means (fungi, syrphus fly, plant-based applications, etc.). In young plantations, weeds are controlled by a leguminous soil cover, while the coffee shrubs and shade trees in well-established plantations require no such measures. After a 2-3 year conversion period, the organic planters can have their yields certified as organic. The local certifying organizations are monitored by the Gesellschaft für Ressourcenschutz (GfR), an EU auditing agency licensed in Germany and Austria and responsible for guaranteeing adherence to the provisions of the EU regulation "Organic Agriculture."

Vice President Ricardo Marquez Flores, who spoke about coffee during an exclusive interview at his office in Lima, is also in charge of Prompex, Peru's dominant export promotion agency.

"We're trying to convert part of our regular coffee crop into gourmet coffee, because with regular it's very difficult to compete with Colombia and Brazil," he told The Tea & Coffee Trade Journal. "But it isn't easy, because most of the coffee growers are small peasants. Gourmet coffee is considered a non-traditional export, and right now it's about 10% of the total coffee crop."

Marquez says replacing the coca crop with coffee, cacao and other alternatives could cost up to $500 million, including necessary infrastructure to make the project work.

"Alternative development to coca is a major challenge," he said. "What we need is the support of the international community to set up infrastructure and building roads. You can imagine what we could do if we had the right infrastructure."

Interestingly, a conference is planned next month in Washington for investors hoping to tap the resources of Peru's vast Amazon region. Organizers say the Dec. 1-2 meeting (cost: $100 per person) will acquaint participants "with opportunities to invest in production, processing and marketing of wood products, coffee, tea and cocoa, and fruits, vegetables and other products."

Marquez is the scheduled keynote speaker at the conference, which also features sectoral meetings and a chance to speak with potential Peruvian joint-venture partners. The event's chief sponsors are the Peruvian Embassy in Washington, the U.S. Chamber of Commerce, Winrock International Institute for Agricultural Development and the Peruvian anti-narcotics agency Contradrogas.

"The Amazon region of Peru comprises about two-thirds of the country, and opportunities for its economic development are enormous," says Winrock consultant Kenneth D. Weiss. "Appropriate regulations are either in place or in process, and the physical infrastructure is being developed rapidly. Investments made as a result of this forum should not replace jobs in the United States, compete with U.S. exports, exploit labor or harm native peoples or the environment."

Weiss adds that "most of the Amazon region is still undeveloped, and this creates fascinating opportunities and challenges. Improvements in infrastructure will open the jungle to foreign investment."

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