Colombia, the world's third-largest coffee producer, has put aside roughly $20 million to protect coffee producers from falling world prices and the effect of the strong peso, a coffee official said on Thursday.
The government will use the money to pay growers if the price on the local market falls below 330,000 pesos ($144) per 125 kg of coffee, Gabriel Silva, head of the National Coffee Growers' Federation, told Caracol Radio. On Wednesday, the price was above 380,000 pesos ($165).
Prices for active arabica coffee futures for December delivery were at 96.89 cents a lb. on the New York Board of Trade on Thursday, down from almost $1.40 in late March. Silva blamed the fall in the price on speculation.
"This fall is worrying. We think it's a temporary situation, because there hasn't been a frost in Brazil and the situation in (flooded) New Orleans has been clearing up," he said.
"Almost 80 percent of international purchases of coffee futures are linked to speculation, not real coffee transactions. As speculative investment funds have moved from coffee to oil, because they see more profits there, they've pulled out of coffee, and so it's had a big impact," he said.
Colombian growers face a bigger threat from the appreciation of the peso, which has risen by about 10 percent against the dollar over the past 12 months, cutting into their export receipts, Silva said.
"We think world (coffee) supply and demand are in balance," he said.
"Much more worrying that this (price) fall is what's going on with the appreciation of the exchange rate."
The government and central bank have regularly bought dollars over the past 2 years in an attempt to restrain the peso. Its rise has been due to factors including high interest rates offered by Colombian government bonds, foreign direct investment, a trade surplus and remittances from Colombians working abroad.
Colombia should produce 11.5 million 60-kg bags of coffee this year and export 10.3 million bags, according to the federation.