Brazil Coffee Plan May Fund Crop Switching as Prices Slump

By Gerson Freitas Jr. and Marvin G. Perez December 11, 2013

Coffee farmers in Brazil, the top producer, may get funds to grow other crops and the option to sell more of their output at subsidized prices as part of aid measures the government is considering after prices plummeted.

The country’s coffee policy panel is discussing a program to offer growers as much as 1 billion reais ($430 million) of funding to diversify crops or raise cattle, the Agriculture Ministry’s coffee director, Janio Zeferino da Silva, said in an interview. The amount of coffee the government will offer to buy through option contracts may increase to 5 million bags in the next harvest from 3 million this season, he said.

“We want these growers to maintain their coffee output levels in a smaller area through productivity gains so that they can add new activities to their farm and get additional income,” Silva said in an interview late yesterday in Santos, Brazil.

STORY: 2014: A User’s Guide to the Global Economy

Coffee has plunged 51 percent in two years as record crops in Brazil and Vietnam are compounding a surplus. Brazil’s aid is unlikely to significantly pare supplies to push up prices, Citigroup Inc. futures specialist Sterling Smith said.

“I don’t see this changing the market supply dynamics in the near term,” Smith said in a telephone interview from Chicago. “You won’t see any producer yanking productive trees.”

Global Glut

Global inventories will rise to 76.7 million bags in the year ending September 2014, enough to cover 54 percent of estimated consumption in that span, the highest ratio since at least 2008, Macquarie Bank Ltd. said in an Oct. 4 report. A bag of coffee weighs 60 kilograms, or 132 pounds.