Brazilian coffee farmers demand renegotiation

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It is well known that Brazil is the world's largest coffee producer, producing two to three times as much as Colombia, the world's second-largest producer. Brazilian coffee has a significant impact on coffee prices. Two frost attacks in 1994 led to a drop in coffee production in Brazil, causing a sharp rise in global coffee prices.

Now farmers in Brazil, the world's largest coffee producer, are trying to renegotiate their sales contracts with exporters and traders to get higher prices. The default raised concerns in the industry.

Both the farmers and their negotiators want more, a higher number than they accepted a few months ago or even a year ago, they said. Coffee production has been severely reduced because of the drier climate this year, and coffee prices have soared as a result.

Other farmers who have delayed delivery have asked to postpone their delivery until next year.

The default is a big problem, according to a Dutch trader at a global trading company. Farmers who once sold for between 450 and 650 reais are now asking for 800 reais.

Sources said that the coffee harvest has only just begun, the default has not yet occurred, but is likely to happen within a few months. The Brazilian head of an international commodities trading company said the farmers and their lawyers had called to ask for renegotiation, and the company's representatives said they could not change the terms now. If the farmers default, they will lose about 200 Brazilian reais per bag. If international commodity traders need to pay higher prices for coffee today than they did a few months ago, that means they will face huge losses. To make matters worse, if farmers do default, international commodity traders will have to buy expensive coffee on the spot market.

Meagre profits

Some traders say that because profits from commodity trading are usually small, there is no room for renegotiation with farmers. Moreover, default will have a negative impact on the credit rating of coffee growers, which will make it difficult for them to make subsequent loans. Although default is rare in the coffee industry, it was an exception in 2014, when the drought in Brazil sent coffee prices soaring.

Coffee exporters trade in thousands of bags, so losses could expand to millions of bags. Arabica coffee futures have risen nearly 30% since early April as a result of the post-COVID-19 market recovery, and Arabica coffee prices broke through a four-year high last week.

Sergio hazan, chief executive of Comexim, one of Brazil's largest exporters, said they believed farmers would default, but they wanted only a small number of people to default.

Request for renegotiation

Hazzan said that since his company had few contracts to be delivered in the future, they had not received a request for renegotiation. But he has learned that someone has already made such a request for other companies. Some of Brazil's smaller brokers have received requests for renegotiation, but farmers will think twice about facing a buyer's boycott before defaulting.

The Sincal Farmers' Union defended the renegotiation on the grounds of a poor harvest this year. MarcoAntonio Jacob, the leader of the Sincal Farmers' Union, says they are not encouraging people to default, but to give farmers with insufficient yields a chance to explain the situation to traders.

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