Wednesday / May 22.
HomeMarketsStruggling Brazilian coffee farmers turn to pepper

Struggling Brazilian coffee farmers turn to pepper

Brazil’s coffee farmers, struggling with the effect of last year’s drought, have turned to another black commodity — pepper.

In a desperate search for an alternative source of income, an increasing number of growers in the state of Espirito Santo, the key producer of the lower-quality coffee robusta beans, have switched to black pepper, whose price more than tripled between 2009 and 2015.

“Four years ago, we didn’t see any pepper grown in Espirito Santo,” says Carlos Mera, an analyst at Rabobank, who has just returned from a crop tour around Brazil, the world’s leading coffee producer. “Three years ago, you saw a little and last year that increased. Now you can see hills covered with pepper plants.”

Espirito Santo has been suffering from severe drought for the past few years, with 2016’s harvest being hit particularly hard.

The fall in output prompted the government to consider imports, although the proposal was sent back for an additional review by Michel Temer, the country’s president, in an act that was regarded as “kicking the issue into the long grass”.

In the meantime, the farmers have been replacing the damaged coffee trees with black pepper plants. “Several farmers told us that they uprooted coffee trees to plant pepper,” says Mr Mera, in his latest report on Brazilian coffee.

In 2015, the production of black pepper in the state increased by 82.5 per cent, with a 50 per cent expansion in the harvested area, while coffee’s harvested area fell 0.8 per cent, according to official figures.

The recent fall in the black pepper price on the back of increased production in Brazil, as well as leading producers such as Vietnam and India, thanks to the high prices over the past few years, could put a brake on a further rise in black pepper output.

“Vietnam is expecting bumper crop this year as do some other major producers due to new plantations coming into maturity,” says Jara Zicha, analyst at commodity data group Mintec.

This may have somewhat curbed the coffee growers’ desire to rely on black pepper and the shift may not be as a big threat now as it once was, says Mr Mera.

For robusta coffee this year, Rabobank expects the harvest in Brazil to be mostly unchanged at 12.5m 60kg bags from the previous year’s 12m.

Although the trees’ branch growth remain lacklustre, deeper and bigger reservoirs are near full capacity thanks to recent rains.

“A further transition from spray irrigation to drip irrigation keeps prospects quite bright for the future of conilons [robusta] there,” says Mr Mera.

Rabobank warned of a sharp drop in the arabica harvest dropping sharply from last year. Brazil’s coffee trees alternate between “on” years producing a bumper crop and “off” years, where the tree recovers from the stress of the previous year’s large production.

With the previous year producing a large crop of 42m bags, the 2017-18 harvest is expected to be smaller. Together with aggressive pruning of the trees by growers, the bank forecasts the arabica crop to drop to 36.7m bags.

The arabica coffee price is trading at $1.4185 a pound, but could firm further in the face of a lower Brazilian arabica crop.

As a result, the local price difference between arabica and robusta on the Brazilian markets — which narrowed last year due to the sharp fall in robusta production and jump in arabica output — is expected widen, says the bank.

On the other hand, the price difference of arabica for immediate delivery, which is sharply lower than that of beans for future delivery, is going to narrow, with the current steep “contango” of the arabica bean futures curve flattening, says Mr Mera.

Source link