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Coffee mug and beans. (iStockphoto)
Coffee mug and beans. (iStockphoto)

Beverages

Peak coffee: A cup of trouble Add to ...

On a mountaintop estate in the rugged coffee-making region of Quindio, Colombia, Juan Pablo Villota is at war with the weather.

For three years, abnormally wet conditions have caused massive flooding in the county's flatlands and damage to his crops. Even the road to his 40-hectare plantation gives testament to his fight: The swollen La Vieja river is a muddy torrent that has forced lane closings along the twisting two-lane highway.

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For coffee producers like Mr. Villota, those three years have been a constant battle. Without enough sun, coffee plants don't grow the berries that are harvested for their beans. And too much humidity creates ideal conditions for coffee rust, a disease that stunts berry production. Some farmers have seen a 70-per-cent drop in yield, although his San Alberto estate has limited the damage to a 20-per-cent decline.

"It has been a disaster," said Mr. Villota, whose grandfather bought the picturesque estate in 1972. "Three years of heavy rains with very low quantity of sun hours has decreased Colombian production ... All the growers have been suffering."

The painful struggle of Colombia's coffee producers is part of a growing global challenge for the industry.

Changing weather patterns have wreaked havoc on coffee supply, particularly the Arabica strain, which is grown in the Americas and Africa and which makes the best coffee. Brazil and Colombia are the top two producers of Arabica, but experts say the crops are not keeping up with skyrocketing demand in emerging markets like China, India and South America, as well as among consumers in Europe and North America.

In the face of strong demand, coffee inventories have fallen to their lowest levels on record. A decade ago, coffee-making countries had stored some 55.1 million 60-kilogram bags. Last year, stocks fell to 13 million bags. The industry's supply-demand balance is so bleak, in fact, that a scientist rocked trade forums last year by warning that the world is veering toward "peak coffee" - the point at which producers can no longer increase production to meet the world's rising taste for the drink.

The squeeze is already being felt in grocery stores and cafés around the world. In North America this week, Starbucks Corp. raised the price of a one-pound bag of beans by 17 per cent at its U.S. stores and 6 per cent in Canada. And J.M. Smucker Co., which sells the Folgers and Dunkin' Donuts brands, announced its fourth increase in a year for a total hike of 38 per cent.

And while the weather hits inventories, some are blaming the rising cost of coffee on speculators - institutional investors who are pouring money into commodities such as coffee, oil and sugar in search of big returns. Starbucks president Howard Schultz has blamed speculation, rather than supply shortages, for the doubling of coffee commodity prices since last May.

Whatever the truth, the story of peak coffee is one that spans growers, sellers, traders and the global economy.

The problem begins with a coffee tree.

The supply problem

The typical Colombian coffee grower farms a 1.8-hectare plot with his family and belongs to a local co-operative that is allied with the national Coffee Growers Federation. Some market their production directly to middle men or even directly to foreign buyers, while the federation also sells coffee both domestically and internationally under Colombia's iconic Juan Valdez brand.

Farmers typically have to cut back their coffee trees every five years in order to rejuvenate the production of berries, and then replace the trees after 15 years as yields decline precipitously.

But many farmers, especially smaller growers, are extending those timelines to take advantage of the current price spike and because they don't have the resources to reinvest in their field, even at the prices, which have been offset by the rise in the Colombian peso.

"It's a poverty trap," the federation's communications director, Luis Fernando Samper, said in an interview at its headquarters in Bogota. "People are not willing to uproot their trees when they still get cherries from the trees, and so every year they get less cherries."

Largely because of the weather, Colombia's production has fallen to 9.5 million 60-kilogram bags last year from 12 million bags in 2007, the last year before the particularly nasty version of the weather pattern known as La Nina brought the rain.

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