Friday, September 26, 2008

How hurricanes are undermining Jamaica's coffee industry

Published: Friday 26, 2008

The competitiveness of Jamaica's agricultural sector and its ability to compete in the global marketplace have been the subject of intense debate in recent years.

Jamaica is world renowned for Bob Marley and reggae music, Jamaica Blue Mountain Coffee and fine rum. Our athletic ability has taken the spotlight recently with the world-class performances of our athletes in Beijing, China.

China's ability to produce goods at very competitive prices brings into sharp contrast Jamaica's inability to do just that. Jamaica Blue Mountain Coffee and its less known sibling, Jamaica High Mountain Supreme) have attracted prices ranging from six to 10 times higher than their competitors on the world market.

With such a price premium one would expect that any one involved in Jamaican coffee - farmers, processors, or the Coffee Industry Board itself - would be wealthy. The reality is that our coffee industry is reeling from a crisis of non-competitiveness.

It is relatively easy to ascertain the cause of the Jamaican coffee farmer's inability to make money consistently. The inflation rate since the year 2000 has outstripped the rate of devaluation by five per cent a year . This has resulted in an accumulated factor of 25 per cent, where the overvalued dollar is reducing the ability of the farmers and processors to earn sufficient revenue to pay their bills and generate a profit.

Crippling impact

Although there is the risk of pest and disease outbreaks, high labour inefficiencies and, the extremely high cost of fuel and fertiliser, the most crippling impact on the financial viability of the culture of coffee farming in Jamaica is the frequency of hurricanes and tropical storms.

The recent passage of Tropical Storm Gustav, which caused a loss of almost J$108 million, does not tell the complete story. The devastation of farm roads and drainage systems will be very expensive to repair. This is almost a twice or three-times-per year occurrence in the Blue Mountains. The cost of reopening the roads is very expensive, whether it is done by the government or the farmers. A recent assessment of the cost of clearing the roads just to provide access to the Blue Mountain regions was estimated at J$30 million, and this did not include all the roads.

The cost of repair for private farms road probably equals this figure, and the frequent recurrence of this cost item is quite a recent phenomenon. The estimated cost of repairing farm roads island wide was conservatively estimated at J$3.5 billion.

Due to the Government's severe financial constraints, only J$200 million was allocated to the cause. The cost of motor vehicle repair is exceedingly expensive.

Heavy investments in four wheel drive trucks and pick-ups that are needed to traverse the unfriendly roads are required for traversing the Blue Mountains, and indeed most coffee farms in the island. These units have a higher running cost per mile than their two-wheel drive counterparts.

Since Hurricane Gilbert in 1988, Jamaicans had have come to expect a major hurricane every seven years or so. Since Hurricane Ivan, in 2004 the islands has faced weather challenges from either hurricanes or tropical storms.

Hurricane Ivan wreaked severe damage to the crop, which was estimated at 45 per cent The severe damage to infrastructure - including a landslide which cut off communities near Claverty Cottage - has been covered by the news media; many farms remain inaccessible and have been abandoned.

This is only a portion of the story as the damage to the tree stock in the coffee sector has been extremely high. One farm costs, given the frequency of storms, is for replacement of damaged plants.

High maintenance cost

This has seriously impacted upon the cost of running the farms. The cost of maintenance per acre of Jamaica Blue Mountain coffee has jumped from an average of US$3,300 per acre in 2004 to US $ 5,500 per acre.

If the income of the grower is an average of US$45 per box, then the break-even yield of the coffee would have risen from 73 boxes per acre to 122 boxes per acre. These assumptions are based upon the input recommendations of the Coffee Industry Board. However, due to the weather disturbances average coffee yields have moved from 80 boxes per acre to an estimated 50 boxes per acre. Most farmers are unable to adhere to the level of inputs required for quick resuscitation.

Jackie Minott, the largest single grower of non-Blue Mountain coffee has been quoted as saying that if another hurricane hits the island, he will have to reassess his commitment to the business. This speaks to the severe impact of the cost of resuscitation after a storm and the inability of the entrepreneurs in the business to recover from the same.

There is no crop insurance available for either coffee farmer. For the coffee farmers, the insurance was previously carried by large re-insurers overseas who are unwilling to assume the high-risk exposure since Hurricane Katrina and, therefore, have offered the industry no coverage. Prior to this, the coffee insurance claim payment for Hurricane Ivan was US$3 million. After the settlement with the liquidators of Dyoll, this payment was even less.

The typical coffee crop generates some US$ 15 million in payments to growers. How can US$3 million and the balance of revenue from a seriously impaired crop - possibly US$6 million revenue replacements - deal with a shortfall of three years revenue while a coffee industry recovers from a storm?

The harsh reality is that the new frequency tropical storm activity is posing a severe threat to the viability of the Jamaican coffee industry .Decisive and coordinated private sector and public sector support will be needed to shape and implement strategies to deal with this new reality.

Christopher C. Gentles is director general, of Jamaica's Coffee Industry Board.

Source: Jamaica Gleaner

No comments: