BOGOTA: Colombia's coffee farmers have slowed sales of beans while the government devises new rules for a suspended subsidy program, pushing up the premium paid for beans from the mild arabicas grower, the coffee exporter association said on Friday.
Growers are slowing or halting sales until subsidy payments resume even though invoices for any sales they make now would be eligible for back payment. Growers fear the government might introduce some rule change and not make retroactive payments, the association chief said.
"Very few people are interested in selling without knowing what is going to happen ... That could easily explain why Colombian differentials are going up," said Carlos Ignacio Rojas, head of the Asoexport coffee exporter association.
"The few that have sold are cash-strapped and need the money," he said.
The average premium for spot Colombian usual-good-quality beans COFCO-UGQ-NYC currently at U.S. ports jumped to 19 cents over the benchmark arabica futures price this week, a value of $1.39 per lb, up sharply from 14.5 cents a week ago, when its actual value was $1.30.
The slowdown in sales comes after months of unusually active selling from Colombia following the country's best crop in six years. That flurry had forced competitors in Central America to lower their prices.
Colombia's coffee growers have received about 145,000 pesos ($71.65) per 125-kg bag to boost incomes amid a sharp drop in arabica prices over the last two years that followed a euphoric period for growers in 2010-11, when prices surged.
The subsidy scheme got off to a rough start with widespread reports of fraud in which producers or intermediaries claimed the cash with invoices for quantities of coffee disproportionate to the size of farms they supposedly came from.
Efforts to devise a new fraud-proof system to distribute the subsidy have resulted in the temporary suspension of payments, but the coffee growers' federation said back payments will be made based on invoices for sales that take place in the interim.
A decision on a new system is expected soon, though there is no deadline.
The government-approved budget for the subsidy in 2014 is similar to last year's at 1 trillion pesos ($494.13 million), but Rojas said that would not be enough to cover the entire harvest.
Colombia is the world's biggest producer of washed arabica coffee and produced 10.9 million 60-kg bags of arabica in 2013, up 41 percent from the previous year and the highest since 2007.
The high quality of its produce and the special washing or fermentation process the beans undergo mean it consistently trades at a premium over the New York "C" futures contract price, the benchmark for arabica.
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