Editor’s note: In researching Crown Jewel information, our team will frequently reach out to producers to gather additional facts or inquire about the particulars of a relationship, processing type, or harvesting scenario. Rarely do responses come along as engaging and far-reaching as the multi-part email installment I received from Alfred Klein, owner of Finca San Carlos near Mexico’s southern border in the state of Chiapas. In his own words below you’ll find the incredible story of his family, his farm, and the persistent challenges of cultivating coffee. This is the second installation in this series; catch up on part I here.
Hailing Frequencies Open
During the crop year 98/99 we started to contact with some of the clients that bought coffee from San Carlos in previous years. The interest was there, but without samples there was little to discuss at that point in time. We agreed to send samples to Seattle’s Best and to Rehm & Co in Germany.
The plantation did recover quite well, and the crop for the year looked fairly good, considering that we had lost many plants, and the dieback of the older trees was still happening at a higher than desired rate. We realized that these plants should not have received any fertilizer at all, letting them recover by themselves. The fertilizer only increased the stress on the plant to produce flowers and beans, but the roots of older tall Typicas and Bourbons were affected beyond recovery.
The explanation for roots dying after severe wind, especially on tall trees, is simple. The constant movement of the whole plant but mainly the stem in dry soil breaks, loosens, peels off the skin, and destroys little roots. Many fungi and insects start to settle on the wounds with the beginning of the rain. The application of fertilizer, being a salt, only made things worse. A bitter lesson we learned the hard way!!
Until the Roya plague in 2012 I was a Typica, Bourbon, Mundo Novo, and Pluma lover. If I wanted to sell directly to the market I needed the best quality so I did continue to plant these varieties as well as Caturras in spite of all negative odds. Renewals usually were 50/50 between Caturras and the other varieties. I never planted one Catimor plant, even the few plants that somehow appeared at the plantation from Otto’s years were cut down and destroyed.
But nature had still another bad joke in mind that year. In mid-August when the beans had mostly grown to its final size and start to harden and ripen gradually, we had hail (until today we have not had hail again). It didn’t last very long, perhaps some ten minutes or even less, but what happened to the beans that were hit I only realized months later when I was preparing some samples: brown spots on 35% of beans.
At first we did not made the connection, and considered lots of other reasons. I immediately showed the sample to the guys at the importer’s office I was working with, and they asked me if we had hail during the last months. They said not to be worried that it only looked bad but the quality was not to be affected. But we said goodbye to dreams of sending samples to the US or Germany.
The Pace of the Peso
My importer bought the coffee without any discount, but I felt that the bonus was somewhat less. I paid off credits and Mr. Otto’s annual amount. Coffee prices had already started to fall for the next season, the negotiations for financing were though, and conditions were hardened that year: now payback was in USD. Mexico was having economic problems and this affected everything, especially the exchange rate. In two years the production cost for San Carlos rose from around $40 to $60/100 lbs., inflation was constant, wages rose, and the cost of imported goods like fertilizer and agrochemicals soared.
During 1999/2000 crop year we had no climatic disaster, but the Mexican economy was in a very bad situation. NAFTA had been signed in ‘98 and was starting to alleviate some pressure on the economy, but the peso kept on falling constantly. At the end this favored coffee producers if they had the benefit of selling to other markets; not so the inflation, which made everything from wages to brooms more expensive.
Many small plot and medium sized coffee growers made only one pass of harvest to save costs during that crop; green, ripe, over-ripened, black vanos, and everything were tossed together as a reaction to the low prices and for apparent production volumes. Overall quality went down the drain, differentials sunk to -.25/lb in the worse cases and the first coffee grower purge was building up.
On San Carlos, there was no chance of fertilizing that year except for some of the more productive parts of the plantation. International prices continued on the low side just a little above production cost. Production continued to decline as more and more old trees died off and we could not keep up with the renewals so badly needed.
Getting financial support was a nightmare, though some big coffee buyers had luck as they had fixed at higher prices. Others could sustain themselves through depredating the few honest growers that delivered coffee, sucking every cent out of them. Even at the weighing machine they were hit over the head. That year probably nobody made money (with the exception of the speculators pulling strings in NY). Small coffee buyers disappeared and many enemies and legal issues started to surface.
I tried again to sell some coffee to Seattle’s Best but the price did not cover export cost; besides, I had already coffee contracted with my importer and frankly I did not know with certainty how many bags were to be produced.
Mr. Hotzen visited us again that year and continually was shaking his head and saying things like, “This never happened before! Fertilizer cost 1500 pesos per ton just a few years ago and now 6000! How come wages are so high? You have to apply 300 grams of fertilizer per plant! Why is coffee worth nothing?” But he was kind and understanding, and he even gave me back the previous year´s annual payment to get going.
Fortunately I covered the amount of coffee contracted with my importer at around $.80/lb far above many of my fellow producers. Our quality was as good as always as I have never messed with that no matter the circumstances. But there was no way to pay back Mr. Hotzen´s re-loan and yearly payment.
A few months later, around March 2000, I was informed that the local operation of the importer I worked with was to be moved to Veracruz and that I had still some coffee to deliver to them. This off course was not true, the guy in charge of buying before he left for Veracruz got into serious problems that year due to the non-delivery of many of the producers. Because of the bad quality of the coffee, he had the nerve to put down on paper an informal conversation we had where I supposedly mentioned that I would produce an additional 80 or so bags for delivery.
In fact, we produced the coffee and it was in the warehouse at San Carlos, but we never signed any contract, nor had I still money to pay to them, so I asked for a serious talk with the persons in charge locally to settle the issue and make my point clear. Everything went well at the end, as I insisted that another friend be present (a grower that had been present at the day of the compromising conversation) who could without any doubt confirm my version. An apology was given to me, which was of some relief, but did not change my mind about finalizing my relations with the importer de facto.
Maybe it was crazy to cut relations with my one and only financing option at that difficult point in time, but at the end it was the right decision. That year they continued operations locally through an office owned by coffee farmers, but now you had to put up your property as guarantee.
Soon after the bad experience, we had the fortune to get in contact with a rather small private local company that specialized in the grain business, mostly soya beans, but had a dry coffee mill in Jaltenango, Chiapas. They had focused on buying and processing natural arabicas for Nestle as their most important client. They also moved some pergamino lots to a few large companies whose names I don’t remember.
I had no problem financing through them, as over the years as San Carlos had a good name, and the importer episode was town small talk. The company was just on the brink of starting with a big installation in Tapachula as they had been well informed through Nestle about the increasing demand of robusta which had been produced in this region for many years. Its quality was far better than the best Vietnamese, African, or Brazilian due to the fact that all local robusta producers were once arabica producers, and had a very long tradition of coffee growing.
This company was in those days what we called an operator or agent for Nestle, and their basic business was procurement, storage, and milling services, although they were interested in quality pergamino, too, and naturals. Of course, this first year was somewhat of a “get to know each other” and everything went along in very small steps. Coffee prices worsened every day, and too many had failed to cover contracts. The situation did not give a chance for any speculation, and financial break-even was a big achievement. We got just enough money to go on with the most vital of field works but the amount of fertilizer we were applying was less each year, as it became almost impossible to pay for it.
Nobody granted credit to coffee growers; supplies had to be paid in cash and everything had to be negotiated against future coffee deliveries. This was Russian Roulette, which many lost in the first rounds. The amount of coffee produced that harvest was just enough to cover all local commitments with this we secured next year cash flow but Mr. Otto again went out blank as there was no money left for the yearly and already pending payments.
Recommendations, Recriminations, Renegotiations
Mr. Otto visited us that year again and could not believe that I had cut relations with my importer under the actual situation. I explained to him that for ongoing financing with them I would have been forced to give the property as warranty, and as he was still the legal owner this was not an option. Mr. Otto hated my new local contact from first day one, as he hated Nestle and everything that had to do with robusta.
Early in 2001, Mr. Otto’s older daughter started to show some interest in recovering the plantation as they were concerned about how things were going. I had to hear a whole bunch of recommendations and even recriminations. I plainly told them that if they wanted the plantation back it was their choice as I accepted the reality, my only condition was that they had to come over to get a real feeling of the situation first hand.
Mr Otto and his daughters arrived somewhat around July 2001, in full battle armor with supportive husbands who knew only how coffee smelled (they all lived in Germany). We walked the plantation meticulously, talked to other growers, buyers, and many people. They did much of their research by themselves, talking to old friends, former growers and legal advisers, accountants and who knows who else.
The result was that we renegotiated the original deal by half, meaning that I was freed from all pending payments including that year´s obligation. It was great, prices seemed to be stabilizing sadly on the lower edge, but somehow costs due to lowering inflation stopped, perhaps due to the fact that in 2000, for first time in 80 years, Mexico had a president from another party.
The common consensus between Hotzens and us was that it was absolutely necessary to export the coffee. Old clients were to be contacted ASAP. Some of them, unfortunately, as Seattle´s Best, were discarded from the beginning – it had been taken over by Sarah Lee. Nonetheless everyone was contacted, but results were meager. Nobody wanted to pay premiums, nor grant financing, as the uncertainty of the market was still present.
Thanks to the renovated vision of the government, in many primary productive sectors we were being prepared to participate in the SCAA in Anaheim 2002, with Mexico as the host country. At family level, we had started roasting coffee years ago as a hobby and small extra income and suddenly we were motivated to seek this option for increased income. That event, back in 2002 is where I met Bob [Fulmer], through Mr. Otto’s daughter…
To be continued…