Costly Coffee Perks Up Latin Economies Lofty Bean Prices Pump $1 Billion Into Poor Central American Countries

A professional coffee taster, Leonidas Castro begins his routine with several deep sniffs from a steaming cup containing precisely 7.5 grams of freshly ground coffee. After a short and noisy slurp, he spews the liquid into a spittoon.

“We can tell the difference right away. It’s the bouquet,” he said. As one of two tasters at Nicaragua’s state coffee commission, Castro tests for acidity, aroma and body, ensuring that export-grade beans are properly classified.

These days, coffee hardly needs testing in Central America. All of it is rich. Across the region, high prices are bringing good fortune to tens of thousands of coffee growers, filling government coffers with taxes, and providing an overall economic boost.

At $1.67 a pound on the world market, coffee prices more than doubled from their low of last year. The price surge could drop a $1 billion windfall in Central America in 1995, said economist Francisco Mayorga, expresident of Nicaragua’s Central Bank.

The boom is having a sweeping effect. Coffee is grown by as many as 150,000 farmers in the region, so the increased earnings trickle down from bankers to small vendors.

“Coffee has a multiplier effect on all the economies of Central America,” said Mayorga, adding that stores are selling more goods and consumers are buying more.

“You can see the prosperity in the coffeegrowing regions,” said Arnoldo Lopez Echandi, a Costa Rican grower and former president of the International Coffee Organization in London. “The money moves onto the streets very quickly.”

Coffee farmers aren’t smiling yet, however. Farmers are just pulling back from the “near ruin” of half a decade of low prices, Lopez Echandi said. Many are heavily in debt, with plantations that need significant investment.

“It’s not a boom year,” David Robleto, president of Nicaragua’s Coffee Commission, stated emphatically. “It’s a year of recovery.”

“The truth,” added Rene Pineda, head of the Salvadoran Coffee Council, “is that we were having serious problems. If the crisis had continued, we would have lost some production. People were beginning to sell their farms in small pieces.”

Coffee growers are a tad defensive about perceptions that they are rolling in profits and should now pay higher taxes. Spats have broken out from Costa Rica to Guatemala as governments seek to raise taxes.

The Nicaragua government tried to impose a 30 percent income tax before the harvest, triggering a showdown with farmers, who said they were being asked to subsidize other sectors of the beleaguered economy.

“The finance minister told me, `We are like a family. If there are five brothers and one is earning more than the others, he must give to the others so they don’t die of starvation.’ But I responded with a question: `What did they do for me when I was dying of starvation three years ago?”’ Robleto said.

After rancorous talks, a formula of progressive taxes was hammered out that will bring the Nicaraguan government $14 million in extra tax revenue this year, he said.

Overall coffee export earnings may double this year. Because coffee is the major hard-currency earner in El Salvador, Guatemala and Nicaragua, and among the top in Costa Rica and Honduras, the impact is great, even to the point of stabilizing unsteady governments, analysts said.

“In terms of hard currency, this puts central banks across Central America in a more comfortable position,” Mayorga said.

It’s uncertain how long the coffee buzz will last.

If the last year has taught growers anything, it is that volatility rules the markets. Prices for green coffee careened from a low of 75 cents a pound to a high of $2.75 after two frosts in Brazil last year took out 8 percent of world production. Since then, prices have moderated.

Seeking to ensure stability, Central American nations have twice agreed to keep 20 percent of exports in a move to shore up the market. The latest plan went into effect Jan. 1.

“We want stability,” said Robleto.

Brokers cast doubt on whether the retention scheme will keep prices high.

“The price has perked up production. In a year, you’re going to have a lot of new production,” said a Guatemalan coffee trader, who asked not to be identified. With inventories bound to grow, “I don’t think the market can keep this price for two years.”

Some Central American farmers are jumping off the coffee roller coaster.

“The smarter people, the guys who have more access to information, are diversifying their crops, growing more cardamom or palm oil, or switching to cattle,” he said. “These guys know that it’s a cycle, and cycles end.”