Devastation Throughout Central America - Roya Leaf Rust

What a terrible time to be a coffee producer in Central America. An aggressive, widespread attack of the coffee-eating roya fungus is causing more damage and devastation throughout Central America's coffee plantations than was expected and is inflicting high costs on producers at a time when international coffee prices have fallen sharply.

Just when you think it looks like coffee producers were beginning to be more profitable in their business’s through getting better prices for their coffee, the NY Commodity Market decides to decline sharply. Typically when you see the NYC Market go higher, you have a softening on the differential market. The opposite is then true when you see a down turn in the NYC Market. This is a stressful and risky way for coffee producers to sell coffee.

The differential market varies completely from origin to origin and often reflects quality levels as well as supply and demand with in an origin. The NYC market is a global benchmark for pricing, but does NOT reflect any sort of quality. The NYC Market fluctuates rapidly and has many variables, which make this commodity move. Years ago it was weather, the crop sizes in Brazil and supply & demand which caused the fluctuations, but today the biggest factor in this are the large Fund companies who buy/sell commodities everyday.

Due to Direct Trade, our pricing remains fairly consistent year over year with the coffee producers we work with. We reward them for the quality and care they put into their coffee, typically paying 25-35% more than what Fair Trade would pay them. Through this method of working with coffee producers they are ensured they will be profitable, gives them a secured customer, gives Fratello incredible quality and takes the pressure of the NYC Market away from the producers we work with.

All of this sounds like it gives everyone security; however, what this does not do is protect the coffee trees from environmental conditions which greatly impact the amount of coffee cherries produced each year. What we are seeing this year through out Central America is devastating, and will impact us all for the next 2-4 years.

The Roya, a leaf disease (a fungus also called Leaf Rust) is currently spreading extremely rapidly through all of Central America. The tree killing fungus is affecting the entire area, from Costa Rica to Mexico. For example in Honduras, Central America's largest coffee producer, are talking of a 20% loss in this current crop this current year. All coffee producers were taken by surprise and were unprepared to combat this disease. Now the alarms are sounding!! This year yields throughout Central America are down as much as 30%, but the major impact will come the next 2 to 3 years depending on how well governments assist farmers to combat this disease. Major pruning of all trees, having to replace aging trees with new ones and most important is the requirement to fertilize adequately. It will be a major task requiring serious financial assistance. Today with these low NYC Market prices could potentially be devastating.

El Salvador is predicting coffee yields to be 50% lower next year, and the smallest harvest in 73 years! Guatemala is seeing 40% of their trees infested, Costa Rica is predicting a crop 25% smaller this year and 50% smaller next year. The same news is spreading north and is said to be the same outcomes in Guatemala, Nicaragua and Honduras next year.

Colombia already went through what Central America producers are going through now. Production is recovering 4 years later. The biggest issue in Colombia is that the low NYC prices combined with a strong local currency (compared to the weak US Dollar) is creating a cost of production which is estimated to be 20% to 25% higher than what their current selling prices are. The government is in discussion today with Colombian FNC and key producing states to extend an assistance program.

Meantime, sellers are mostly withdrawn waiting for a better evaluation of crops and also better prices. Coffee exporters at origin are sitting on their inventories waiting for better news before selling. The C market has steadied for now and differentials are beginning to get higher.

The next 2-4 years are going to be a bumpy ride. Roasters are going to have to be aggressive to find and secure the top quality coffee. Fratello Coffee Roasters are hard at work visiting with coffee producers and exporters to ensure we have the most current information and to ensure we have the supply to pass on to our clients.

Central America, Direct Trade coffee sourcing trip – An overview

Following this post will be a detailed write up on the new relationships we are forming as well as updates on our current relationships. What I first wanted to communicate was the overall reaction of what we saw in Guatemala, El Salvador and Costa Rica last month.

This is going to be a VERY challenging year for coffee producers. Across all of Central America the average harvest is down 30-50% per farm, in total pounds being produced. This is due primarily to the record-breaking rains falls, which wreaked havoc during the flowering season. When a flower is damaged, a coffee cherry will not grow. On top of this, global demand for top quality coffees is WAY up!! To add fuel to this fire, the fund companies who seem to be in control of the New York Commodity market are pushing the NYC Price of coffee way down putting price pressure on low quality lots reducing the income for farmers even more. This goes to show further evidence that TRUE Direct Trade relationships between coffee producers and roasters is vital for the future sustainability of our businesses. Roasters like Fratello will continue to reward our coffee producing partners for quality coffees, and pay the high prices for green coffee regardless of how low the NYC market is going.

GUATEMALA

The main reason for going to Guatemala was to visit Diego De La Cerda who owns the multi award winning Finca El Socorro & Finca Guabaya who took 1^st place in the Cup of Excellence (COE) last year (as well as 2007) and finished in the top ten of the COE in the last 6 years now. These neighboring farms are in the Palencia region of Guatemala. This coming year we are going to be introducing a few new micro-lot options from Guatemala.

We also visited coffee producers in Antigua as well as Florencia. It was nice to visit some smaller coffee producers as typically in Guatemala we have been working with larger producers who are able to produce and separate smaller lots like our Montecristo. Fratello’s desire is to work with smaller producers, focusing on micro-lots and micro-regions.

The goal is to have coffees that are unique in cup profile to better showcase what a growing region is capable of doing. This means we will need a broader selection of coffee producers in any given region we are working in.

EL SALVADOR

We then went to El Salvador. This was our first trip to El Salvador and it was truly an eye opening experience. El Salvador might be a new favorite coffee region. The expertise, tradition and focus on quality & experimentation just blew my mind. I tasted plum, pumpkin pie, thick syrupy cup profiles which were new to my palate.

We first traveled to the Tecapa region to visit Gilberto Baraona, the owner of Finca Los Pirineos. At the elevation of 1500 meters, situated between two volcano’s is some of the nicest farm land I have been to. Gilberto is growing over 40 different varieties of coffee in the search of the next Geisha. He knows he has some special terroir in his farm, and now needs to find the best varietal of coffee to grow. I guarantee he is going to find it. Gilberto had us taste a few experiments he did with the highest end liquid fertilization he could find. WOW!!! We are going to be taking this Pacamara and it is going to blow your mind!

At Finca Malacara B, who placed #3 and #4 in the Cup of Excellence in 2011, showed me the best example of the original old way of tree pruning called Agobio Para, which translates to “tree bending”. Typically producers will “stump” a tree, cutting at the base, to allow for a new coffee tree to sprout. I’ve been told that a lot of the health, nutrition and character of the coffee tree is in the trunk. Agobio Para treats the trunk like a “spine”. The art of Agobio Para is bending the trunk and tying it to the ground. This will allow for many new sprouting coffee trees to grow from a single root system with out damaging the original trunk of the coffee tree. What you end up with are MANY coffee trees, all of different ages, growing from one root. This root will require MUCH more fertilization than a typical root, however, over all you use less per farm. Each tree takes up WAY more space than a normal tree, however, it will produce much more coffee compared to a regular tree. The goal is a more stable harvest, year over year. Its hard to describe, but was truly mind blowing. Why is no other region doing this?

We are trying to secure 3 very unique lots of El Salvador for this coming year. These are extraordinary, award winning coffees….potentially some of the best lots we have ever offered.

COSTA RICA

As always, Costa Rican impresses my with their Micro-Mill revolution which continues to expand and improve. I am seeing better organization, at farm level as well as more dedication to improve quality. These producers have been getting premiums for their coffee for a few years now and are typically re-investing into their mills for efficiency’s and consistency.

This year we are going to continue with our relationship with La Cabana and Miguel Rojas and introducing a new producer and micro-mill La Lia. The La Lia coffee is glorious. Its delicate, floral and elegant…..a true stand out coffee on the cupping table. We will potentially have 2 lots from them as well as 2 lots from Miguel Rojas. Miguel has harvested a special micro-lot for us, which is in a very protected micro-region at his farm. The consistency of red cherries on the trees was like something I’ve never seen. This was a new experiment Miguel was doing with higher quality fertilization. Proof will be in the cup, but I have no doubt that this 15 bag lot will be impressive.

In general we are seeing quality way up, however, quantity way down. This is going to be a big year for Central American coffees out of Fratello. We are going to be really raising the bar on quality and selection in the hopes of continually introducing new/fresh coffee offerings. We know you and your clients are going to appreciate the work that goes into sourcing coffee the way we do.