El Salvador Grapples With Watering-Down of Its Lifeblood

Nestled in the hills above San Salvador, the coffee cooperative of La Union has survived for three decades despite the murders of two founders and the dynamiting of its mill during the nation’s long civil war.

But last year, the co-op’s luck almost ran out. In its struggle to repair damage from the 12-year war that ended in 1992, the organization of 114 small-scale coffee growers had taken on a crushing debt. When the co-op fell behind in its payments, the bank began foreclosure proceedings.

With a combination of pluck and international assistance, La Union was able to stop the foreclosure--for now. Other coffee growers have not been so fortunate, and their difficulties are beginning to weigh heavily on the national balance sheet.

During the last 25 years, El Salvador has dropped from third place to 12th among the world’s coffee producers. Projections are that this year’s harvest will be half that of 1975, the peak year. Coffee is still this country’s top agricultural export, but it now brings in fewer dollars than what Salvadoran families receive in remittances from relatives working abroad.

In short, El Salvador--where the government has made globalization and international competitiveness a mantra for postwar economic recovery--is no longer competitive in the world market its traditional and most reliable export. And nothing has taken coffee’s place.

The result is a growing trade deficit and a warning about the dangers that developing countries face as they try to find a place in global markets. “If we cannot prevail in this, where we have considerable know-how and established markets, where will we be able to?” asked economist Alberto Arene.

The answer from the Agriculture Ministry is not encouraging: “It would be very difficult for us [to compete] in other types of production,” said Jorge Alabi, general director of the ministry’s agricultural economy section.

In fact, the most recent global competitiveness report by the World Economic Forum, an international business association, ranked El Salvador 45th among the 58 countries rated. It was the first such report in 18 years to include Central America. “The results are not encouraging,” researchers at the Salvadoran Foundation for Economic and Social Development, a private think tank, said of the study.

Admittedly, coffee producers worldwide are anticipating a bad year, with prices so low that many growers worry they won’t be able to cover costs. But El Salvador’s problems are deeper than fluctuations in the international coffee market, industry and government experts agree. Coffee has not recovered from the war.

During the 1980s, coffee growers were battered on all sides. Because coffee was the country’s principal export, it was--along with U.S. aid--the government’s main source of money for fighting Marxist guerrillas.

The government expropriated many coffee mills and took over all international trade in coffee. In 1987, when the international price was $200 for a 60-kilogram sack--at 132 pounds, the standard measure for coffee trade--the government paid coffee growers $55. Now, with the government out of the market, growers earn about 60% of the international price, which was $160 as of Friday.

“We lost our markets because people said our coffee had blood on it,” recalled Ana Elena Escalante, president of the Union of Coffee Cooperatives, whose members grow about a quarter of El Salvador’s exported coffee.

Longshoremen in Los Angeles, for example, refused to unload Salvadoran coffee, forcing growers to send coffee to New York, which increased transportation costs.

Coffee plantations, mills and growers became targets for the guerrillas. Two founders of La Union cooperative had already been killed by guerrillas in 1982 when armed men broke into the coffee mill where Jose Nataniel Sanchez was working the night shift, processing the last of that year’s harvest.

“They put a bomb in the motor and another in the separator,” Sanchez recalled. The blasts caused $16,000 in damage. The cooperative had to get a loan to rebuild the mill for the next year’s harvest.

With such high risks and low return, no one invested in Salvadoran coffee. The low government prices kept small-scale farmers poor at a time when their counterparts in other countries were using the high international prices to reinvest in their coffee fields.

Wealthy coffee families diversified into more profitable businesses. “Coffee plantations have become a hobby, a place to go on the weekend, rather than a business,” said Escalante.

Whether impoverished or hobbyists, few coffee farmers have planted bushes to renew their stock. Currently, the average Salvadoran bush is about 30 years old, experts estimate. Maximum production comes from bushes 5 to 15 years old.

As a result, productivity has dropped to about one-third the level of two decades ago, said coffee expert Mario Denys of the National Competitiveness Program, a Salvadoran government effort to work with private industry to develop world-class products. Meanwhile, other Central American producers have doubled their productivity.

Preliminary estimates are that renewing El Salvador’s stock of coffee bushes would cost $230 million over 15 years, he said.

Further, El Salvador has lost 14% of its coffee acreage in the last 20 years, said Alabi of the Agriculture Ministry, so exports have plummeted.

The repercussions of a noncompetitive coffee industry go far beyond the loss of badly needed dollars. Coffee is Salvadoran agriculture’s most important employer.

In a country as densely populated and deforested as this one--where only 2% of the natural forest remains--coffee also provides important environmental benefits. Coffee plantations are green areas that protect the soil and water table, rather than causing damage as sugar cane and cotton do.

And just as important--though less tangible--coffee is a tradition, a major part of El Salvador’s national identity. Business and political leaders are largely from coffee families. Factory workers dream of retiring to a farm with a few acres of coffee.

“This is the sector that has been the backbone of our economy,” said Denys. He called the loss of competitiveness a crisis.

Still, it is a crisis that the government is determined to solve under free market rules. “I do not believe in subsidies,” Denys said. “We do not want protectionism or a devaluation that will favor some sectors. . . . The rules of the game have changed.”

Coffee was one of the first four industries and the only one of the country’s traditional exports, which also include sugar, cotton and shrimp, to be chosen to participate in the National Competitiveness Program. Early this year, program directors began meeting with the nation’s six coffee organizations to develop a consensus about how they can improve marketing in the short term and address longer-term problems such as renewing the stock of bushes.

La Union is participating in the program but also looking for alternatives. The biggest boon so far has been a $46,000 donation from the Interamerican Development Bank, which allowed the cooperative to buy a new mill, and a Rotary Clubs International gift of a $1,150 roaster and grinder.

The cooperative can sell roasted coffee at retail for 10 times the price it receives for green coffee beans on the international market.

The equipment--and the potential it represents for bringing the cooperative more revenue--allowed La Union to have its property reassessed, obtain a new loan and pay off the bank that wanted to foreclose last year.

In May, La Union developed its own blend of coffee and now has its own brand--CafeTex, short for Coffee Texacuangos--with logo of a coffee bean in cowboy boots and a 10-gallon hat.

The future is looking perkier than it did four years ago, when Alicia Morales accepted the co-op presidency because no one else would. But La Union still has a $46,000 debt--and the group has gotten as far as it has only because of donations, not successful free market policies.

If it weren’t for the Interamerican Development Bank project, “we would have died,” Morales said.

The realization that the industry’s few success stories have relied on such help has left coffee growers impatient with talk of the free market.

“The government gives incentives to nontraditional exporters,” charged Escalante of the cooperative union. “We not only financed the war, we financed the industrialization of the country.”

Now the coffee growers want the government to help them finance their recovery. “The market is not perfect,” Escalante said. “The government cannot just forget about its responsibilities.”