Soaring Coffee Prices Boon to Latin Nations

The battered economies of Central America and Mexico will gain a bonanza of millions of dollars this year from soaring coffee prices, government officials and private analysts say.

“It’s a windfall,” said Francisco Gutierrez, vice president of an economic consulting firm, CEFFA, in San Jose, Costa Rica. “All the Central American economies need the extra money from exports.”

Juan Lara, director of the Latin American service for the forecasting firm of Wharton Econometrics in Philadelphia, said: “Central America will benefit significantly from the drought in Brazil.”

Brazil, the No. 1 grower and exporter of coffee to the world, was hard hit last year by a drought in the southern coffee-growing regions. The government coffee agency IBC estimated that this year’s harvest will be 16.7 million bags, a 43% drop from last year’s 29.5 million sacks. There are about 100 pounds in a sack.

Sharp Reduction in Supply

With the sharp reduction in the supply, prices to both producers and consumers have soared. They had been weak earlier in the decade.

Gutierrez predicted an average export price of $1.90 to $2 per pound in 1986, contrasted with an average of $1.30 last year.

Such a dramatic surge in prices will add millions of dollars to the economies of Central America and Mexico. Many of those countries depend heavily on coffee to bring in needed revenues to pay their foreign debts and buy goods abroad.

Coffee is the main export of Costa Rica, Guatemala, El Salvador and Nicaragua and is second to bananas for Honduras. In Mexico, it is the No. 1 agricultural export, but oil leads the list of all export products.

The biggest markets for coffee are the United States and Europe.

Analysts don’t expect growers to increase their acreage to take advantage of higher prices since it takes about three years to harvest new plants. But they predict farmers will take better care of their shrubs to try to increase the output as much as possible.

El Salvador Benefits

El Salvador, fighting a war against leftist guerrillas, stands to benefit handsomely from the skyrocketing prices. Analysts estimate revenues from the 1985-86 coffee crop may be double the $390 million earned from the previous harvest. The nation’s total export bill was estimated at $730 million last year.

El Salvador’s economy, like many others in Central America, is plagued by weak economic growth, double-digit inflation and high unemployment and underemployment.

The economies’ problems stem from the late 1970s and early 1980s, when prices plunged for their export commodities. They also were hurt by the severe recession in the United States, the wars in El Salvador and Nicaragua, and the sharp drop in trade among their nations.

Nicaragua Counting on Coffee

Sandinista-led Nicaragua, too, is counting on the coffee surge to bring in needed money to bolster its struggling economy.

Agricultural Minister Jaime Wheelock predicted an additional $50 million in revenues.

Nicaragua produced a little more than 1 million 100-pound sacks of coffee last year, for earnings of about $140 million, out of an estimated total export bill of $350 million. Before the price pickup, the government had projected 1986 coffee receipts of $150 million.

In Honduras, analysts estimate that the coffee crop could bring in an additional $100 million in revenues this year. The price increase played a role at the end of 1985 in pushing up coffee earnings to $190 million, out of total exports of $827 million.

Gutierrez projected that coffee sales in Costa Rica will reach $450 million to $500 million this year. Sales were $350 million last year.