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Colombia is back in business

After a difficult patch to say the very least, it looks like the coffee industry in Colombia could finally be on the road to recovery.

The South American country was hit hard by a particularly ruinous leaf rust epidemic that first hit around five years ago. However, after a four-year restoration programme that involved replanting around 40 per cent of the crops, it appears that the Colombian coffee industry could be on the mend. 

According to the Financial Times, the nation's output is expected to rise by almost a third this year to ten million 60 kg bags of the crop. However, as with any traded commodity, such activity is not without its repercussions on the market.

An influx of Arabica

As Colombia is a primary producer of Arabica beans, a return of the region's coffee growers to their full potential will invariably have an impact on trading spheres.

Unfortunately, it's been reported that there is plenty of Arabica around at the moment as it is, meaning that an influx of beans from Colombia may not actually be such a good thing for growers.

Recently, prices have been going down and – with more Arabica flooding the market – this trend will only continue, which is far from an ideal situation for those trying to make the greatest profit margins.

Back in 2011, ICE March Arabica was trading at $3.089 a pound. It has now fallen to around a third of this 34-year peak, trading at $1.0655 per pound.

This is great news for roasters and consumers who wish to buy Arabica coffee. However, many growers are finding themselves relying on government subsidies to continue cultivating crops, as the cost of doing so now outstrips the money they are able to make from their produce.

A milestone came last month when the price of Arabica beans fell below the cost of cultivating and processing coffee in Brazil, which is the world's larger producer.

Swiss coffee trader Volcafe reports that the Arabica market was flooded by a surplus of 800,000 bags in 2011-12 and then 7.4m bags in 2012-13.

If strong output is to be expected from the world's coffee growing giants, it does not seem as if this over-production is set to ease, with a surplus of two to three million bags forecast for 2013-14.

It is hoped that, with the prices so low, this will encourage roasters to buy more Arabica, which in turn will help to shift the surplus production and re-balance the books. 

When the price hit highs a couple of years ago, many turned to cheaper Robusta varieties – perhaps blended with Arabica beans – to keep their costs down. While cheaper prices may reverse this trend and see these roasters turning back to Arabica, it is still likely to take time to filter through. 

Mr Luis Fernando Samper of the Colombian Coffee Growers Federation commented: "The pain is particularly felt by many of the small growers, who depend on the coffee income. We need the government to give us a hand during this price cycle."