Commodities Report:Coffee Growers Forge Futures Recovery

Commodities Report:Coffee Growers Forge Futures Recovery
WALL STREET JOURNAL - Jean Guerrero  NARANJO, Costa Rica --
 Coffee producers in the heart of this region thatgrows top-notch beans learned a tough lesson in 2001, the last time pricessank: Even gourmet coffee can leave a bitter taste.   This time, they are better prepared. Prices of arabica beans, the kindcoveted by connoisseurs for their mild taste, have hit 17-month lows. Ratherthan spending their profits on luxuries like new cars and the latest electronictoys, as many once did, growers from Costa Rica to Mexico to Colombia arediversifying to protect themselves from cyclical declines like this one.   The efforts of some Latin American farmers to lessen their reliance on coffeehas pinched supplies of high-end arabica, which undergoes a rigorous andlabor-intensive washing process, even as global demand has increased. Consumersin emerging markets are thronging coffee shops in increasing numbers. Without asustained increase in output from Latin America, the biggest source of thesesought-after coffee beans, a shortfall could develop, setting the stage for arebound in prices over the longer term, analysts say.   Robin Rosenberg, an analyst at PFG Best, expects coffee prices will again hit$3 a pound over the next two years, as a supply deficit emerges. "Prices aregoing much, much higher," Mr. Rosenberg said. "But it may not be next week."   Since hitting a near record of $3.09 a pound in May 2011, coffee prices haveplunged on expectations of a bumper crop from Brazil, the world's biggestcoffee producer but not a traditional heavyweight in "washed" arabica. OnThursday, coffee prices rose 0.9%, to $1.8445 a pound.   Here in the Naranjo region, in Costa Rica's central highlands, Raul Herrerahas been using profits from last year's high prices to plant banana trees amongcoffee plants. He also planted laurel trees to sell firewood and built atomato-plant nursery.   "The idea is that when prices go down, I'll maintain a certain amount ofincome to sustain myself," Mr. Herrera said.   Mr. Herrera grows washed arabica beans on about 45 acres. He couldn't affordto maintain his plantation in the early 2000s when prices dropped. So the shadetrees protecting the coffee plants became overgrown, stifling the plantationand causing a shade-loving fungus to damage half of his plants.   Latin American growers of the premium beans still bear the scars of 2001,when arabica prices hit an all-time low of 41.5 cents a pound, one-eighth theprice only four years earlier. At the time, some growers in this regionabandoned unprofitable fields or gave up altogether, with many migrating tonearby cities and the U.S. to find jobs.   Near the region of Naranjo, sprawling urban developments have taken over someof the best coffee land since then. Other former coffee-plantation land, highin the mountains where the soil is rich in volcanic minerals, remains overgrownwith weeds and contains barren trees.   In the past decade, Costa Rica went from producing 2.3 million bags of coffeeeach growing season to 1.5 million bags, and the number of acres cultivatedwith coffee dropped from 247,000 to 212,000 or less over that time, said RonaldPeters, president of the Costa Rican Coffee Institute.   Now, as production slowly recuperates, many producers who abandoned farms andreturned, and others who remained, are determined not to put all their beans inone basket.   Instead, they are diversifying their incomes by planting crops such and cornand launching side businesses such as coffee tours and shops. Many of them alsohave signed up for certification programs, which require the farmers to live upto certain environmental and labor standards. For farmers, the main benefit ofbeing certified is a guaranteed minimum price for their beans.   "They're definitely taking action to insulate themselves if prices go down,"said Jack Scoville, vice president of Price Futures Group, a brokerage firm.   In Mexico, Cirilo Elotlan Diaz, president of the Regional Coffee Council ofCoatepec, said 70% of the area's producers abandoned their plantations from2001 to 2004.   But many of them have come back. Fernando Celis, an analyst at Mexico'sNational Committee for Coffee Organizations, said some have begun growing cornand other grains.   "We have more options now and more certainty," said Gabriel Barreda,president of Mexico's National Union of Coffee Growers.   In Costa Rica, Jose Antonio Vera, head of sales and exports forCoopronaranjo, a cooperative with 2,000 producers, said that in recent years ithas launched two supermarkets and a roasting mill where producers can grindtheir own coffee and sell at a greater value than their beans.   Coffee producers also are taking advantage of the fact that their plantationsare often in scenic areas visited by tourists. Coopronaranjo started a coffeetour five years ago that draws hundreds of foreigners a year to take part inthe harvest.