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Tight Colombian Beans Turn Buyers to Latam Coffee

Source: Reuters
24/06/2009

Sao Paulo, June 23 - Wincing at high prices for gourmet Colombian beans this year, coffee roasters are turning to other Latin American origins in search of comparable quality for less money.

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Colombian coffee has been changing hands at as much as a dollar above the New York futures price, after poor weather and a tree renewal scheme slashed its output. The export price has eased but is still around $70 cents per lb.

Guatemalan and to a lesser extent Peruvian produce, grown on the moist foothills of the Andes, are the closest substitute to Colombian but their prices have also shot up due to the supply squeeze, leaving some roasters no choice but to take a chance on more-humbly perceived origins like Brazil.

"Some of my clients are delaying or have reduced dramatically the amount of Colombian they have been buying," said Brazil-based coffee trader Robert Griffin at the Capricorn Coffee brokerage in Rio de Janeiro.

"Either they haven't been able to get it or it is ridiculously expensive."

Brazilian exporters have noticed strong growth in demand for "washed" coffee which involves fermentation in water and is most akin to the Colombian product.

Traders say that with careful tweaking of blends, roasters can come close to the tastes associated with their products when they substitute Colombian beans with a limited quantity of Brazilian alternatives with the right qualities.

"Each roaster knows how far he can go (in modifying a blend)," said Carlos Ferreira, commercial director at Unicafe, Brazil's top coffee exporter.

GROWN IN COLOMBIA?

While the shortage has been a boon for Brazil, whose beans some buyers had traditionally shunned but are now beginning to hold in higher esteem, the dearth of Colombia product has been more of a mixed blessing for other origins in the region.

Due to its quality, Colombian exporters have been paying large premiums for coffee grown on the lower slopes of the Peruvian Andes, carting it back over the border to ship it as local product, Peruvian producers say, disrupting local trade.

"A lot of Peruvian coffee is being bought by Colombian buyers offering prices of up to between $20 and $30 above the traded rate in New York, which is generating price distortions in the local market," said Lorenzo Castillo, second in command at Peru's National Coffee Board.

The Peruvians say Colombians have been outbidding local traders for the beans, exposing its exporters to losses as they scramble to find beans to meet their own delivery contracts.

Customs officials have also been accused of underestimating the coffee as low quality, reducing the export tariff payable and encouraging the cross-border flow, which has risen 65 percent from last year.

Beans grown in mountainous parts of Honduras are in turn being smuggled over the border into Guatemala to add to the 3.4 million 60-kg bags it is expected to export this season, as the Guatemalan origin commands a higher price.

"Coffee smuggling into Guatemala really has been extraordinary this harvest year," said Luis Lopez, head of the Honduran coffee exporters' association.

Jose Angel Saavedra, a Honduran producer, exporter and board member of the National Coffee Institute estimated more than 760,000 60-kg bags of contraband coffee had entered Guatemala from his country so far this season, about a fifth of total exports. A Guatemalan exporter gave an estimate of 400,000 to 500,000 tonnes.

Colombia is not due another harvest until October and while Central America's harvest will follow, South American coffee is likely to keep following the cash around the region for some months.

Though Colombia has promised its suppliers will fulfill all their sales commitments, the abrupt drop in supplies has nonetheless shaken the confidence of cost-conscious buyers.

"I can't see anyone switching out of Colombian but they might start to look more kindly on Brazil," said Griffin.



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