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Coffee producers tempted by multinationals

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Coffee producers tempted by multinationals

July 02
10:22 2011

Coffee producers in Central and Latin America are being tempted away from traditional local cooperatives by multinationals as they look to cash in on strong demand for coffee beans.

With demand high and supplies low following two poor harvests, multinational trading houses such as Nestle SA and ED & F Man Holdings are offering to pay cash above that which the producers would receive through the cooperatives.

The local cooperatives were formed a number of years ago to bring together the production of individual farmers into one group, which gave them the opportunity to receive a higher price and a more influential voice at the bargaining table.

Farmers agree months ahead to sell their produce to the cooperatives at a fixed price which then sets a price based on the arabic coffee futures traded on the ICE Futures exchange in the US. 

Alvaro Gomez, the general manager of the 6,200-member Coocafe cooperative in Costa Rica, said “For cooperatives, it’s very difficult as we can only compete with a small amount of capital; we don’t have the same economic power as these big companies.”

Nestle has defended its position with Jesus Navas Flors, Nestle Mexico’s commodities purchasing manager, telling the Wall Street Journal that the company is “continuing to increase our direct purchasing [from farmers] in order to have a better relationship.” 

Coffee futures are up 53% over the last year.

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