Origin Report - Colombia

This month in our Origin Report we look to Colombia as people throughout its domestic coffee industry continue to feel the effects of the ongoing logistics crisis, continued price volatility in the global market, and challenging climate conditions for coffee production throughout the country. We’ll also review statistics and figures from the International Coffee Organization (ICO) and the Intercontinental Exchange (ICE), and hear from some of our producing and exporting partners from Colombia in this month’s report.

The World Market

C-Market Analysis

C Market Candlestick ChartSource: Tradingview

It’s become common lately to report that the C Market has yet again exceeded the previous month’s price, making it eight of the last eleven months that have marked a higher close than the prior month. Ever since the start of the year the price has steadily climbed from the $2.20 level breaking the $2.50 resistance line on February 9, reaching just over $2.60 that week which is the highest price seen in the market since September 2011. As of February 16, the market has dipped back to the $2.50 level.

Specialty coffee is a relatively young industry, and one that has seen substantial growth over the last decade. This means that, for many roasters who opened in the last 10 years, the prices that we are currently experiencing are truly unprecedented. For roasters who began operations in the last five years, this is the first time the C Market price has been higher than the Fairtrade minimum of $1.60/lb. We share this context to express an important point: it’s okay to feel uncertain about how to move forward right now, we’re here to help. As importers, we have knowledge and expertise throughout the supply chain and are working each day with roasters, producers, and others to understand and navigate the challenges facing many throughout the industry.

Fresh coffee cherries at Hacienda Casablanca in Santander, ColombiaFresh coffee cherries at Hacienda Casablanca in Santander, Colombia

Perhaps an important question to ask is: Why is the market moving so drastically? While the complete answer is complex, in many ways it comes down to the forces of supply and demand. The actors participating in the coffee futures market anticipate that coffee supply will decrease in the near future, while the demand in consuming countries will continue to rise. Some forces contributing to these expectations include the frost that fell across some of Brazil’s major coffee producing regions in July 2021, and recently revised projections from the FNC (National Federation of Coffee Growers) indicating lower-than-expected production totals in Colombia in 2022-23 due to the second straight year of La Niña weather patterns. As a result of these and many other factors, the price for Arabica coffee has climbed 11.7% since the beginning of 2022, and 98.2% from this time last year according to TradingView.

Global Coffee Industry Statistics

ICO Composite Price Indicator chartSource: ICO Coffee Market Report, December 2022

  • The ICO Composite price rose to 204.29 US cents/lb in January 2022. This figure has shown a continuous month-on-month increase for 16 months.
  • Arabica coffee inventories fell to a 15 month low according to the Intercontinental Exchange (ICE) in February. Robusta inventories fell to a 3 ¼ year low in February as well.
  • 69,000 bags of Arabica coffee were removed from ICE-monitored coffee inventories on the last day of January, boosting prices at the beginning of February. This is one of the largest inventory drawdowns since the mid-1990s.
  • 2020/2021 coffee year production has been revised up to 169.66 millions bags and consumption up to 167.25 million. This represents a net reduction in the oversupply of coffee to 2.41 million bags.
  • Over the last three months, coffee exports from Africa are up 6% and exports from Central America & Mexico are up 52% compared to the previous year. An early harvest in Central America is likely the main driver of this change, which should result in lower exports from the region in Q2 of 2022.

This section was sourced from the ICO unless otherwise indicated. Read the ICO’s full January 2022 report here.

At Origin

Colombia Origin Report

As is the case for so many countries, 2021 was an unorthodox year in Colombia as the emergence of COVID-19 vaccines created opportunity for economic recovery following the many challenges of 2020. In Colombia’s coffee industry, three major issues became particularly apparent in 2021 and continue to apply pressure in the first quarter of 2022: bottlenecked ports, record freight costs, and skyrocketing fertilizer prices are causing disruptions for many different actors in the supply chain.

Jose Gomez, Commercial Manager for Promotora Cafes de AlturaJose Gomez, Commercial Manager for Promotora Cafes de Altura in Nariño, Colombia

Ongoing Logistics Trouble in Colombia

As we covered extensively in an earlier article, the international logistics industry has been characterized by delays, shipping container shortages, and exorbitant prices for several months. In Colombia and other countries, this continues to result in particular challenges for exporters handling heavy commodities like coffee and sugar, which require more fuel to haul due to their weight relative to other goods.

Jose Gomez—Commercial Manager for Promotora Cafes de Altura, one of Ally’s sourcing partners based in Nariño—remains optimistic despite the many challenges.

“We hope there is a solution from the shipping companies in 2022. We had to deal with over 15 days of delays for almost every second container that led to 50% cost increase in some cases, with major costs coming from doubled tariffs from land transport companies and port authorities charges for storage at the port premises due to either carrier staff COVID quarantine cases or simply no containers available to most of the destinations.”

Increasing Fertilizer Prices and Rising Cost of Production

The price of agricultural inputs is on the rise for farmers across the globe. NPK fertilizer (nitrogen, phosphorus, and potassium), a crucial element in coffee production, has tripled in price in almost all coffee growing regions. This volatility in the cost of production must be offset by higher sale prices for coffee producers; or, if the fertilizer is not available or is too expensive to purchase, production volumes will fall, resulting in higher prices due to diminished supply. This increase could be attributed to reduced exports of these goods from China as they aim to protect their domestic market, along with a reduction in exports from Russia of important components to produce the needed fertilizer according to

Vicente Mejia, CEO and Founder of Clearpath Coffee with Ricardo Pereira, COO of Ally Coffee standing at a raised drying bedVicente Mejia (L), CEO and Founder of Clearpath Coffee, and Ricardo Pereira (R), COO of Ally Coffee in Antioquia, Colombia.

General Manager of the National Federation of Coffee Growers (FNC), Roberto Vélez, reports in AgroNegocios, “a higher cost of fertilizers discourages the use of these products. This has a direct impact on the volume of production in the future. We estimate a 5% increase in [total production] costs.

Beyond agricultural inputs, a 10% increase in minimum wage in Colombia which took effect January 1, 2022 is expected to contribute to rising production costs as well. This change was felt quickly by coffee producers, as reported by Vicente Mejia, CEO and Founder of Clearpath Coffee, one of Ally’s core sourcing partners in Colombia. “All our partner producers had to adjust the payment per ‘joranda’ ( working day) to maintain the quality of the harvest.” While rising wages could create greater spending power for coffee farm employees, the increasing cost of labor will likely need to be offset by increased sale prices for all forms of coffee from producers.

Climate Challenges

Harvest delays due to poor weather conditions throughout all producing regions in Colombia have added to recent challenges for coffee producers, with excessive rain in the southern regions and abnormal drought in the north of the country. These difficult conditions are related to the second straight year of La Niña, referred to as a “double-dip” by the National Oceanic and Atmospheric Administration, which is expected to last through early Spring 2022.

Oscar Daza at his farm, Hacienda La Pradera
Oscar Daza at his farm, Hacienda La Pradera, in Aratoca, Santander, Colombia

Oscar Daza, a producer of Organic certified coffee and the owner of Hacienda La Pradera in the Santander region in north-central Colombia, tells us that he could have lost around 35% of his crop if not for fortunate planning ahead of time.

The overall slowdown during the pandemic allowed us to focus on our infrastructure and people. We built water reservoirs and designed an extensive irrigation system to confront the drought. It's getting more and more difficult to obtain [the] same quality results with [a] common workforce—farmlands of our size turn more high-tech which requires trained staff, better structured and cost effective business.

Rising Coffee Prices in Colombia

While logistics, climate, and cost of production present challenges for Colombia’s coffee industry, these situations have been somewhat compensated for by the rising price of coffee in both the international and domestic markets. Domestically, the price for parchment coffee is 2.29 million Colombian Pesos (approximately $508 USD) per 125 kg as of February 16 (source). This is well above the historical prices demonstrated on the FNC’s graph below.

Colombian Internal Market Parchment Price

Beyond the base prices indicated by the FNC and current C Market level, the differential price paid for high quality lots has continued to rise amid trader speculation and growing demand for quality Colombian Milds.

Roberto Vélez, General Manager of the FNC, noted the significant increase in the differential price in an interview with Portafolio, “You have to keep in mind that there has always been a differential price for the quality of Colombian coffee. This cost has continued to increase, traditionally it was 4 or 5 cents, maximum 10 cents, for the price of the bag. Today it is at 70 cents.” According to the ICO the price differential between Colombian Milds and Other Milds increased by 4.3% from December 2021 to January 2022, which appears related to the significant increase in differential price paid for Colombian Milds as explained by Mr. Vélez.

ICO Group Indicator Daily Prices

“World coffee prices have soared 55% this year… prompting Colombian farmers to default on sales clinched when prices were much lower in order to re-sell the coffee at higher rates,” reports Reuters in October 2021. This is not unlike the situation in Brazil, discussed in our December Origin Report. While this won’t have a significant impact on the total amount of coffee available from Colombia, it is likely to be another factor in the ongoing price increases for Colombian coffee.

Ally Coffee in Colombia

It’s difficult to predict the coming harvest in Colombia as drastic weather conditions bring uncertainty for production, and unresolved logistics strain continues to grind ports to a near halt at times. Currently, most producers are waiting to project the year’s production totals until late February, while the FNC is projecting 13–13.5 million bags produced for coffee year 2022/23 despite the country having capacity for 14–14.5 million bags, according to Roberto Vélez.

Through these uncertainties, our sourcing team in Colombia is working with our many partners throughout the country to look ahead in the year and secure lots for roasters across the globe. We’re excited to continue expanding our operation into more producing regions, creating relationships with producers and connecting them with others in their area to work together to move coffee in their region forward. This also means more field visits for our sourcing team as we grow these new relationships into sustainable partnerships, and continue building the strong bonds we’ve created with our longstanding partners already.

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