No 15

Coffee is a Driving Force of the Economy and a Guarantee of Social Stability and Peace

November, 2013

Editorial

Facing our LXXIX National Coffee Congress, which will show important results on productive restructuring, productivity and production, it is important to draw up a quick inventory, with some telling figures, of the coffee sector relevancy for the country.


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The coffee sector is not only an essential column and powerful driving force of the country’s economy, but also a guarantee of social stability and peace.

Relevance of the sector can be assessed not only through telling figures on employment, exports, GDP and production value (essential aspects for the country’s social and economic development), but also the opportunity cost of coffee growing, that is to say, what the country would lose if this agricultural activity, of rising value added, disappeared.

Discipline and perseverance are two major strengths of coffee growers to scale the value chain in a global industry that is becoming increasingly sophisticated and eager for differentiated products, which translate into quality and sustainability premiums that go directly into their pockets.

These achievements and victories have been made possible largely thanks to the solid guild architecture created to defend the complex social fabric formed by growers, provide public goods such as the Extension Service and the purchase guarantee, and help the producer climb in the value chain.

Employment, harvest value, GDP and exports

Coffee growing generates about 800,000 direct jobs in the rural sector (Ministry of Agriculture and Rural Development, MADR), 32% of employment generated by agricultural activities (2.5 million jobs), 23% of that created by farming activities (3.5 million jobs) and 17.4% of all rural employment (4.6 million jobs, DANE, 2013). In addition to direct employment, coffee growing employs people throughout the value chain (marketing, threshing, transportation, industrialization and exportation), what translates to about 1.6 million indirect jobs (MADR).

Employment generated by coffee growing is 3.5 times the employment created by crops of rice, corn and potatoes put together, and about 10 times that generated by cultivation of oil palm and rubber put together. Thus, coffee-growing employment is a strong driving force and agent to reduce poverty, distribute income among rural population and boost the economy.

The value of the harvest (3.4 trillion pesos) is redistributed as income among 561,000 families and translates into consumption of goods and services in the economy of more than 590 municipalities (more than half the country). Every year this represents nearly 1.6 trillion pesos of expenditure in food; 745 billion in housing and services; 738 billion pesos in goods and services, communications, health, education, recreation; 176 billion pesos in clothing and footwear and 198 billion in transportation, what in turn generates employment and growth in other sectors.

The farming GDP in the second quarter of 2013 grew about 8% compared to the same period of 2012 and coffee contributed 43% of this rise thanks to a 34% growth of value-added crops; the rest of agricultural sectors grew 7% and livestock grew by 4% (DANE). And there is no crop pulling GDP such as coffee, since the multiplier effect of a 10% increase in coffee income is 43 base points on GDP; a similar spike in the oil sector would hardly impact 4 bp.

In terms of coffee exports, in the last five years the annual average was 1.97 billion dollars (DANE), 31% of all exports in the farming sector and 4% of the total in the country. Despite economic circumstance of low prices, coffee exports were 2.5 times those of bananas, one third more than flowers and almost twice those of raw sugar.

 

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Cultivated area and distribution of land

Of the 4.7 million hectares used for agricultural activities in the country, 931,000 ha (20%) are used for coffee, 1.5 times the area of corn crops (610,000 ha), 4.2 times what is planted in sugar cane (224,000 ha) and twice what is planted in rice (487,000) and African palm (452,000).

The coffee sector is also a bastion of equity for distribution of lands, helping reduce multidimensional poverty: the Gini coefficient of land distribution in the sector is 0.70, an index that contrasts with the 0.86 of general distribution of rural property in Colombia.

Colombia would pay a high cost for disappearance of the sector

In terms of opportunity cost, the coffee sector represents a substantial saving for the Colombian State against what its hypothetical disappearance would cost. The cost of supporting 563,000 coffee-growing families with incentives such as Families in Action would exceed 801 billion pesos a year (including a monthly support of 70,000 pesos per family for health and 35,000 pesos on average for every child in primary or high-school education). At the same time, the cost of linking these families to income generation programs (Red Unidos) would exceed 2 trillion pesos, as this program delivers nearly 300,000 pesos a month to one person per family.

On the other hand, developing alternative productive projects for 563,000 families would cost the State about 2 trillion pesos a year. In 2012, the MADR’s Alianzas Productivas (Productive Partnerships) project allocated 39.4 billion pesos to benefit about 10,635 families, which means a support of 3.7 million pesos per family, without taking into account uncertainty surrounding the market and commercialization of emerging products.

And hypothetically, if these coffee-growing families decided to migrate to cities, not only would they dramatically raise poverty and unemployment figures, but the State itself would have to allocate at least 647 billion pesos a year for their emergency humanitarian care, taking into account benchmark figures of assistance and care to displaced population of the National System for Care and Reparation of Victims in 2012.

The economic uncertainty in rural areas in the face of a hypothetical disappearance of coffee growing would entail not only an escalation of violence and presence of illegal actors, but an expansion of illicit crops (as an alternative for income generation), and would be a fertile ground for dismantling of a vast social and cultural fabric that has been the axis of our national identity.

A brief analysis of these figures shows that coffee is a first-order protagonist in the national economy, consolidation of peace and stability in rural areas of Colombia. The coffee sector is synonymous with economic progress, equity and social welfare. That is why the Government and Congress have not hesitated to allocate significant resources for subsidies to coffee growers in the current situation of low prices, which additionally are a backing to institutional coffee policies.

Opportunistic solutions or measures against intelligent development of the coffee sector, which has already overcome other moments of low prices, risk traumatizing the country.

You are invited to learn more about our coffee family and our products, visiting the COLOMBIAN COFFEE INSIDER sections on the top of this page.