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COVID-19, low prices push Peru coffee output down 10%

10/19/2020 | 06:15am EST

* Fall exceeds market expectations, could underpin prices

* Some farmers harvest cocaine-ingredient coca instead of coffee

* Dim outlook seen for 2021 production

LONDON/LIMA, Oct 19 (Reuters) - Coffee output in Peru, the world's fifth largest arabica coffee exporter, has tumbled 10% this year due to low prices and migrant labour shortages caused by the COVID-19 pandemic, the head of the country's national coffee federation told Reuters.

The drop in Peruvian output could help underpin world prices as it far exceeds market expectations. Broker Marex Spectron said the country's output was likely to fall 2.5% this year in its latest report.

Over the past three years, world coffee prices have traded about 30% lower than the prior 10-year average, putting higher cost producers like Peru under increased pressure.

Lorenzo Castillo of Peru's Junta Nacional del Café (JNC) said the slump in coffee output was also caused by farmers moving to work in fields that harvest coca, a plant used locally for its medicinal properties but also to produce cocaine.

Peru harvested 3.5 million 60 kg bags of coffee between January and August, versus 3.9 million in the same period of 2019, Castillo said.

"It was due to a lack of labour between March and June because workers could not move to the production valleys (during the coronavirus lockdown)," he said.

While some farmers have moved into more profitable crops like cocoa, those working on coca fields could earn 120-150 soles ($34-$42) per day versus 40 soles ($11) in coffee, Castillo explained.

Peru closed almost all economic activity in March as it tried to curb COVID-19 infections and deaths, which stand at around 100 per 100,000 inhabitants - the highest in the world.

Peruvians have long been shifting away from coffee. The total planted area fell 17% between 2012 and 2019, according to government figures, and possibly dropped another 3% this year, Castillo said.

He said prospects for 2021 were not encouraging because of the coffee berry borer pest and because farmers have very little working capital to buy key inputs like fertiliser.

The U.S. Department of Agriculture said in July that Peruvian coffee farmers are facing a severe crisis, abandoning their fields as global prices fall below their production costs.

"Often you see quite a bit of Peru coffee going to the (ICE) exchange, That's not going to be the case this year," said Rabobank analyst Carlos Mera.

He added that while Colombia and Honduras could make up for Peru's lost output, there is a lot of uncertainty over output in other central American countries amid the pandemic.

A U.S.-based coffee importer said he had recently reduced shipments from Peru, citing COVID-19 related transport problems.

Coffee is Peru's fourth-largest agricultural export. The sector employs about 200,000 farmers directly and 2 million people indirectly, according to the United Nations Development Programme.

($1 = 3.5748 soles) (Additional reporting by Marcelo Teixeira in New York; Editing by Veronica Brown and Susan Fenton)

© Reuters 2020
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