By Jean Guerrero
   Of DOW JONES NEWSWIRES


MEXICO CITY -(Dow Jones)- Mexico's latest effort to revive its coffee output is gaining traction thanks to scorching prices.

With their incomes boosted by surging prices, growers are increasingly taking advantage of a government program that subsidizes the replacement of old coffee trees.

While such efforts won't immediately relieve the shortage of highly sought-after arabica beans, they eventually could lead to higher output and stave off a further decline in the global rankings of coffee-producing countries.

Mexico is the world's seventh-largest producer of green, or raw, coffee. In 2005, it was fifth.

Many of the plants in Mexico are almost 30 years old.

The country's Agriculture Ministry started a program two years ago to encourage coffee growers to hack down old plants and replace them with newer ones. Coffee plants usually bear the most fruit for the first 16 years, after which they produce smaller quantities of berries with irregular sizes and densities.

Mexico's output in the current marketing year that ends September 2011 is estimated at 4.4 million bags, up slightly from 4.2 million bags in 2009-2010. Production was more than 6 million bags, each weighing 60 kilograms, in 1999 following an earlier, less ambitious renovation program that launched in 1995.

Under the current program, federal and state governments offer direct subsidies when growers buy young plants, which each cost between 25-50 cents. The producer must cover about half of the cost, in addition to close to $1 each year for the maintenance of each plant.

Even for average coffee producers with only two or three hectares, the expenditures can add up. Angelino Espinoza Mata, of Huatusco, Veracruz, estimates that he and his wife spent between $6,000 and $7,000 to renovate 80% of their three hectares -- including the cost of the plant, the extra fertilizer, labor and more. Mata is also president of the Veracruz Association for Coffee Production.

Between 60 million and 65 million trees, which account for about 5% of Mexico's total crop, have been replaced in this way over the past two years. Colombia, the world's second-largest producer of prized arabica beans, started a similar program in the spring.

"We need to take advantage of this great moment for coffee," said Rodolfo Trampe Taubert, executive coordinator for the Mexican Association of Coffee Production, or Amecafe. "Demand is growing, internal consumption is growing and the industry needs supply."

A shortage of arabica beans has reigned for more than two years due to disappointing harvests in Colombia and Central America. As a result, prices for arabica coffee futures have spiked to 13-year highs. Coffee for December delivery on Tuesday was trading 0.6% higher on the day at $2.016 a pound on ICE Futures U.S. In Mexico, cash prices as of Monday were at $2.175 per pound, according to the Agriculture Ministry's marketing information service.

Farmers are plowing their rising receipts from coffee sales back into crop renovation. Some producers who had abandoned their crops several years ago because of the lack of profit have returned. Meanwhile, the world's largest coffee company, Nestle S.A. (NSRGY), has also thrown its weight behind the effort, providing Veracruz with 100,000 new trees to establish greater control of coffee from that region.

For the 2009-2010 coffee cycle, coffee exports were down 7.5%, but earnings rose to $505 million from $497 million.

Once the seed is planted, it takes three to four years for the shrub to start bearing fruit.

Producers in Veracruz who were early adopters may see more coffee as soon as next year. Nearly 5 million plants were replaced in the spring of 2008. Since then, another 20 million have gone into the ground.

Mexican officials hope to renovate at least 60% of the country's coffee plants by 2014 in this manner.

Industry groups say they expected the amount of money available to increase this year compared with the $9.6 million distributed last year.

It's not just aging plants that have depressed Mexico's output. Mudslides, humidity-induced fungus diseases and other calamities brought on by recent storms destroyed some coffee plants in Chiapas, the country's largest coffee-producing state, and in Oaxaca, leading some producers to speculate that 2010-2011 national production would be as low as 3.5 million bags.

 

-By Jean Guerrero, Dow Jones Newswires; +52 55 5980 5180; jean.guerrero@dowjones.com

 
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