VZCZCXRO0577
RR RUEHLMC
DE RUEHMU #0168/01 0431935
ZNR UUUUU ZZH
R 121935Z FEB 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3751
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 02 MANAGUA 000168 
 
SIPDIS 
 
STATE PASS USTR 
STATE FOR WHA/ESPC AND WHA/CEN 
STATE ALSO FOR EEB/BTA 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAGR NU
SUBJECT: NICARAGUAN COFFEE A MIXED BAG 
 
Summary 
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¶1.  Coffee is Nicaragua's second leading export, with the United 
States, Spain, and Finland the principal markets.  During the 
harvest from November to March, the sector employs about 390,000 
Nicaraguans, almost 19% of the workforce.  Coffee production for the 
2008/09 harvest is forecast to reach 1.7 million hundred-pound bags, 
a 40% decrease compared to the 2007/08 harvest of 2.1 million bags. 
Although some of the decrease may be cyclical and related to 
weather, high fertilizer costs in 2008 meant that growers applied 
significantly less of this critical input.  Nicaraguan coffee has 
successfully penetrated demanding international markets, but only 
15% is sold in the lucrative specialty segment, because Nicaraguan 
growers pay scant attention to quality issues or international 
certifications.  End summary. 
 
Nicaragua's Golden Grain 
------------------------ 

¶2.  Coffee is Nicaragua's second leading export after apparel. 
According to the Coffee Exporter's Association (EXCAN), Nicaragua 
shipped approximately $282 million in coffee during the 2007/08 
harvest, a 37% increase over the 2006/07 harvest, which totaled $177 
million.  Data provided by the Center for Export Transactions 
(CETREX) indicates that the United States, Spain, and Finland are 
the principal markets for Nicaraguan coffee.  In all, there are 
approximately 268,000 acres currently under coffee cultivation in 
Nicaragua, and in terms of value, coffee represents about 9% of 
total agricultural production.  Nearly 60,000 people work year round 
on coffee farms, but during the harvest from November to March, the 
sector employs about 390,000 Nicaraguans, almost 19% of the 
workforce. 
 
Short Term Outlook Grim 
----------------------- 

¶3. Executive Secretary of the National Coffee Commission (CONACAFE) Walter Navas forecast Nicaraguan coffee production for the 2008/09 harvest at 1.7 million hundred-pound bags, a 40% decrease compared to the 2007/08 harvest of 2.1 million bags. Growers report that production is down as much as 50% in some regions.
 
¶4.  Coffee yields fluctuate from year to year -- a bumper crop, as 
occurred in 2007/08, is often followed by a poor crop.  With that in 
mind, growers had forecast a 20% drop in production for 2008/9. 
Some growers attribute the even-larger, 40% fall in production to a 
lack of fertilizer, as many growers cut back significantly on the 
amount they used in response to price hikes.  The price of 
fertilizer for coffee increased 266% during the last three years, 
from $12 per hundred-pound bag in 2006 to $44 in 2008.  Other 
growers believe a lack of rain and high winds have caused a delay in 
ripening.  Whatever the case, with international coffee prices down 
from a high of $145 in 2008 (Arabica) to $128 in January 2008, 
growers are bracing for disappointing returns. 
 
Reaching New Export Markets 
--------------------------- 

¶5.  Major Nicaraguan coffee growers are focusing on the long term 
and working to develop a brand identity for their product.  Most 
Nicaraguan exporters sell directly to roasters, who sell to 
wholesalers and large retailers such as Starbucks, Target, Dunkin 
Donuts, Costco, and Sam's Club.  To meet the requirements of these 
large buyers, many growers have made significant investments to 
obtain fair trade, shade grown, organic, and sustainable coffee 
certifications.  USAID is working with groups such as Rainforest 
Alliance to help farmers meet certification requirements. 
 
¶6.  A few growers have also hosted trade delegations in an effort to 
create interest among buyers willing to pay a premium for high 
quality coffee.  Nicaraguan coffee growers from Jinotega and 
Matagalpa recently hosted a Japanese and South Korean trade 
delegation.  A European delegation visited in early February.  As a 
result of these contacts, one coffee grower earns $155 per 
hundred-pound bag, while the international price is $125 per bag. 
This grower also works with several cooperatives who also earn a 
premium for their high quality coffee. 
 
Nicaraguan Coffee: Just the Facts 
--------------------------------- 

¶7.  Nicaraguans began growing coffee during the late 1800's.  Their 
coffee is mostly shade grown Arabica (more than 96% of total 
production), and the most common varieties are Caturra and Catuai. 
Coffee is cultivated mainly in the northern part of the country, 
particularly in the Departments of Jinotega and Matagalpa, but also 
in Nueva Segovia, Esteli, and Madriz.  Coffee is grown mostly at 
altitudes between 1,000 and 1,500 meters.  In fact, 90% of 
Nicaraguan coffee exports are "strictly high grown," that is, grown 
above 1,200 meters.  Smaller amounts of lower grade coffee are 
produced along the Pacific coast near Managua, Granada, and 
Jinotepe, where altitudes are lower and there is generally less 
rainfall. 
 
¶8.  Nicaraguan farmers collect ripe beans from coffee plants three 
to five times during the harvest.  Nearly all growers -- small and 
large -- then wet process their own coffee on site to remove the 
cherry.  The beans then go to one of 35 coffee processers (who are 
often large growers too) who dry, peel, and bag the beans for 
export.  Some processors dry their coffee on raised beds and 
carefully sort and clean their beans, while others use concrete pads 
or tarps and pay less attention to quality.  Professional tasters 
describe high quality, medium roasted Nicaraguan coffee as medium 
body, acidic, sweet, and aromatic. 
 
Comment 
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¶9. Nicaraguan coffee has successfully penetrated demanding international markets such as the United States, Europe, and Japan. However, only 15% of Nicaraguan coffee is sold in the lucrative specialty segment, a lower percentage than for other Central American countries with similar climates and altitudes. The reason is that most Nicaraguan growers pay scant attention to quality or international certifications. Small growers have been especially reluctant to invest in quality. Price volatility, declining international demand, and tight credit as a result of the international financial crisis make it unlikely that this attitude will change in the near future. End comment.
 
CALLAHAN