Why Costa Rica will struggle to remain competitive as a coffee origin

coffee cup costa rica race
  • Costa Rica built its economy on coffee production, and is famed for its rich coffee heritage and beans of exceptional quality
  • Its coffee sector has been struggling for years – with production falling from 3.5 million bags of coffee in the 90s to 1.7 million bags today
  • Now, a bad exchange rate, shifting policies, and higher competition have left the sector in crisis, as the country invests in more lucrative service sectors

COSTA RICA, long celebrated for its rich coffee heritage and world-renowned fine coffee beans, finds itself at a crossroads today. After years of struggle, its coffee sector is grappling with a perfect storm of challenges that threaten its standing as a competitive coffee origin. 

From adverse exchange rates and production issues to an inverted market, changing government policies and labour shortages, the Central American nation faces an uphill battle to sustain its position in the global coffee market.

Amidst these challenges, Costa Rica’s tourism sector is experiencing a boom, with the country emerging as a popular destination for travellers. Pharmaceutical and IT sectors are also growing at an accelerated rate. 

Costa Rica has shown a steady economic growth over the past 25 years. In 2017, the service industry in Costa Rica accounted for 44.5% of domestic economic output, and despite the pandemic has continued to stay strong. 

According to  Gonzalo Hernández, Founder of Coffea diversa in Costa Rica, its highly educated workforce has become a magnet for multinationals setting back offices there for regional services like finance, human resources and customer service.

“Costa Rica’s economy is increasingly becoming a services economy,” says Gonzalo. “All this means that the sons and daughters of coffee farmers have employment options that are far more attractive from an income point of view than coffee farming.”

As other sectors flourish, the relative decline of the coffee industry raises questions about the future of Costa Rica’s coffee sector, and the implications for its community of growers.

“Costa Rica has long been focused on selling the country as a one of services, and agricultural policies have taken a back seat,” says Abraham Castro Vindas, Central America and Mexico buyer at Ally Coffee.

Costa Rica’s coffee sector is struggling through a perfect storm   

At the heart of Costa Rica’s coffee crisis lies a confluence of factors that have conspired to undermine the viability of its coffee industry. 

Production issues such as disease outbreaks and climate change-induced variability have eroded yields and quality. Meanwhile, the price of farm inputs, especially fertiliser, remains significantly higher compared to pre-pandemic levels.

Migrants and refugees represent 10 percent of Costa Rica’s population. Labour for harvest, planting and pruning tends to be performed by migrant communities. However, a labour shortage exacerbated by immigration policies and demographic shifts poses further complications.

“Most people from Nicaragua have emigrated to the US, so they’re no longer doing seasonal labour in Costa Rica,” says Bram de Hoog, Founder of Paso Paso

“I know a farm with pristine facilities, room and board, and paying double minimum wage, and they still struggle to find workers.”

Compounding these challenges is the local currency’s depreciation, which has exacerbated the cost of production and reduced the competitiveness of Costa Rican coffee on the international market. The dollar price in Costa Rica has reached its lowest point in the last 14 years, and the country’s coffee industry has lost millions of colóns due to the exchange rate.

“As coffee is sold in US dollars but everything is paid in Costa Rican colóns, it’s a direct loss for exporters and mills,” says Bram.

While this has tipped the struggling coffee sector over the edge, today’s crisis was a long time coming.

“In the early 90s, Costa Rica produced about 3.5 million bags of coffee,” says Gonzalo. “Today, it’s 1.6 to 1.7 million bags. That should tell us something about the structural problems affecting the industry that can’t be blamed squarely on the exchange rate.”

A gradual decrease in differentials is straining the sector further. Competitors from other origins with better value for money, compounded by low sales from the previous crop means that producers are dealing with a surplus – and must sell at a lower cost.

The industry faces a dilemma: Protect Costa Rican coffee, or move on? 

Two competing narratives have emerged regarding the fate of Costa Rican coffee. On one hand, fervent defenders of the country’s coffee heritage argue that it still holds immense potential and that innovative solutions can be found to overcome the current challenges. 

On the other, sceptics point to structural issues and market dynamics that pose significant barriers to competitiveness.

“I am on the side of those who defend the industry,” says Abraham. “Some actors are doing great things on sustainability, quality, and traceability in Costa Rican coffee production. If producers become more entrepreneurial, with the right investments and support, the industry can rebound and thrive.”

Meanwhile, others are less optimistic. As the global coffee market evolves and shifts, Costa Rica risks being left behind, with smallholder farmers and traditional coffee-producing regions bearing the brunt of the impact. 

“We owe everything to coffee in Costa Rica, it was our main economic activity for decades,” says Gonzalo. 

“Our economy was built through coffee taxes, which created a sizable middle class. However, today’s realities are hard to ignore, and they don’t allow the preservation of the coffee industry at the scale we once had.”

Despite the coffee industry’s appeals to the Central Bank to help stabilise the dollar exchange rate, things remain at a standstill.

At a political level, coffee is perhaps less of a priority than it once was,” says Bram. “The rural economies stand to lose a lot. Costa Rica could become a second Panama or Hawaii with little but valuable production, but the bigger mills will lose out as they’ll be under-capacity and can’t bear the overhead.”

The Costa Rican government has made a clear choice, and its policies reflect it. They have decided to move on from being an agricultural economy to a white-collar one. 

Costa Rica’s economy was built on the shoulders of coffee production, but today it has moved on and is investing in more “sophisticated” and lucrative sectors. Whether or not the specialty coffee sector can find a space to exist within that remains to be seen.

Coffee Intelligence

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