Colombian Coffee Commission Publishes Final Recommendations for Industry Reforms

2013 Creative Commons photo “Colombia – Coffee Triangle 012 – coffee plantation tour” by McKay Savage.

By Michael Sheridan of CRS Coffeelands Blog

Colombia’s Coffee Commission has published its final recommendations for reforms to the country’s coffee sector.

The Misión Cafetera released this controversial draft of its report last October, which included stinging critiques of the country’s powerful coffee institutions and calls for radical reform.  The draft met with fierce resistance from the Federación Nacional de Cafeteros and other coffee-sector stakeholders.  Contrary to expectations that the Commission would moderate the language of the report and dial back the recommendations in response to the blowback, the findings remain largely unchanged in the executive summary of the final report, available here in English.

Look for deeper analysis and interviews with key stakeholders in Colombia’s coffee sector after the SCAA events in Seattle. Meantime, here is a recap of the report’s key points and the Commission’s recommendations.

Calls for ‘Drastic’ Reforms

Back in 2002, Colombia’s government convened a similar Commission in the wake of the coffee price crisis to study the country’s coffee institutions and recommend reforms.  The current Commission considers much of the business of 2002 unfinished, as many of the major recommendations for structural reform were never implemented.  It summarizes the current report aptly in the introduction:“Our recommendations go in the same direction but are more drastic than those of the 2002 Mission.”

The Commision’s 10 Findings

1.  Coffee remains an important livelihood option for millions of Colombians.

Not likely to get much opposition here.

2.  Coffee farming must be made more profitable if it is to contribute to poverty eradication in Colombia.

Again, hard to argue this point. The report offers detailed information about the relative competitiveness of Colombia’s coffee sector, comparing Colombian unfavorably to their counterparts in other countries vis-a-vis farm efficiency, including some countries you would expect (Brazil and Vietnam) and others you might not (Honduras and Nicaragua). It also suggests that coffee has lost its lead over other sectors of Colombia’s rural economy in terms of income (poverty and not prosperity is the norm in the coffeelands) and education (coffee growers average just 4.5 years of formal education).

3.  There is no single approach that will work for every grower.

The Commission broadly outlines three strategies for coffee growers: pursue opportunities in the specialty segment of the coffee market (higher prices), reduce costs and increase farm productivity (higher efficiency) or diversify away from coffee.

4.  Deregulate.  Circumscribe the role of Colombia’s coffee institutions.

The Commission believes the current regulatory environment is anti-competitive and anti-innovation. It calls for a relaxation of current regulations and the transfer of responsibility for coffee regulation (and social policy in the coffeelands) to the government.

The report argues that the country’s coffee institutions are uniquely positioned to do three things – deliver technical assistance to growers (with a focus on smallholders), conduct coffee research (decentralizing this function in service of a more regionalized approach) and promotion of Colombian coffee abroad (think Juan Valdez) – and suggests they do even better in these areas if they focus their resources and attention relentlessly (exclusively) on these three things.

5.  Restore the State as the rightful provider of public goods in the coffeelands.

When the Federación was created way back in 1927, Colombia created what the Commission calls a “nation within a Nation” and outsourced to a trade association a range of functions normally reserved for the State: building and maintaining roads, infrastructure, schools, etc. The Commission believes it is time for Colombia to reclaim those responsibilities.

6.  Eliminate structural conflicts of interest.

The Commission sees a structural conflict of interest in the dual regulatory and commercial roles of the country’s coffee institutions – they make the rules by which they have to play – and calls for a definitive separation of these functions.

7.  Level the playing field.

The Commission argues that the country’s coffee institutions should not derive commercial advantage from their access to para-fiscal or public resources or favorable tax status, but should compete on a level playing field with the country’s private exporters, which currently represent at least 2/3 of the Colombian market.

8.  Improve performance on key environmental metrics.

The Commission’s recommendation for improved environmental performance include specific reference to upgrading soil and water resource management practices. This recommendation reflects both the ecological imperative of conserving the natural capital on which growers depend and market incentives for improved environmental practices.

9.  Use public funds to correct market failures, not as a source of commercial advantage.

One of the most controversial recommendations in the report is for the virtual elimination of thegarantía de compra – the commitment of Colombia’s coffee institutions to buy coffee from all the country’s coffee growers at more than 500 buying stations across the country. The Commission argues that this function should be reserved only for those cases in which a lack of competition in local markets would put growers at a competitive disadvantage and concentrate market power in the hands of a small number of buyers. By the estimation of the Commission’s director, those conditions exist in only about 5 percent of Colombia’s coffee communities, meaning 95 percent of the FNC-supported buying stations in the country would be shut down.

10.  Price stabilization must end.

The Commission argues this point on both practical grounds – Colombia simply can’t afford to stabilize prices in a market characterized by increasing volatility and sees market-based mechanisms for mitigating price risk as more cost-effective – and ideological ones. Incentives on the scale at which Colombia has been delivering them can distort market signals and keep uncompetitive farmers in coffee when they should perhaps be considering other livelihood options.

More specifically, the Commission argues that the PIC – the massive price support introduced in 2013 in response to low prices and nationwide strikes called Protección al Ingreso del Caficultor – should not be repeated. Not only did it drain the national coffers of more than $400 million, the Commission argues that it was deeply flawed in its implementation: 60 percent of PIC payments were claimed by just 10 percent of the country’s (largest) growers. An economist supporting the Commission calculated the Gini coefficient of the program – a widely accepted measure of income inequality – at nearly 80 percent. If the PIC were a country, that Gini coefficent would make it the most unequal one in the world.

Download the English-language summary of the Commission’s report here.