Colombia coffee growers urge cenbank restraint

Reuters

March 17, 2012

(BOGOTA) - Colombia's coffee growers' federation on Saturday urged the central bank to stop interest rate increases that are spurring currency appreciation and reducing earnings of coffee exporters as they struggle with slumping production.

"Colombian (coffee) exporters have been hard hit by the appreciation of our currency and the weakening of the dollar," said Luis Genaro Munoz, head of the coffee federation, during an event in the province of Huila, which recently overtook Antioquia to become Colombia's top coffee-producing region.

"We are sure that government representatives in the central bank received the instructions to revise the effectiveness" of raising rates, he added during the inauguration of a mill with capacity to process 400,000 60-kg bags.

The Colombian peso has appreciated 9.35 percent so far this year and 6.7 percent in the last 12 months driven partly by the strong foreign direct investment. The Andean country is the world's top producer of high-quality Arabica beans.

The central bank in February raised its benchmark interest rate for the second consecutive month, boosting the lending rate by 25 basis points to 5.25 percent. The next rate-setting meeting is Friday.

"The situation is apocalyptic. Coffee growers are receiving about 28 percent less (for their beans) than at the beginning of the year because of the strong peso appreciation and low coffee prices," Jairo Agudelo, coffee analyst at the local unit of Chile's investment bank Celfin said.

May arabicas on ICE closed down 2.95 cents, or 1.6 percent, at $1.8235 per pound on Friday. The contract slid to $1.8105 on Monday, a 17-month low.

Colombia faces a fourth consecutive year of lower-than-expected coffee production in 2012 as bad weather, fungus and a coffee tree rejuvenation program keep output below historic averages of 11 million 60-kg bags.

Output in the first two months of the year fell 25 percent from a year earlier to 571,000 60-kg bags, the eleventh consecutive monthly decline, due to the continued effects of heavy rains.

To help growers replace aging coffee trees and plant varieties resistant to roya fungus, the government approved 30 billion Colombian pesos ($16.6 million) to continue with the renovation of coffee plantations.