The "Dutch Disease" Hits Juan Valdez in Colombia: Coffee Growers on Strike

The symptoms of the Dutch Disease are becoming increasingly apparent in Colombia with the continuous appreciation of the Colombian peso despite aggressive attempts by the central bank (Banco de la Republica) to contain it by buying dollars. The term “Dutch Disease”  was coined in the 1970s to describe the economic impact of the Netherlands’ discovery of large natural gas fields in 1959. This discovery and the windfall of revenues it generated distorted the manufacturing and agricultural production for sale on the global markets by increasing the price of the local currency. The influx of foreign direct investment, military aid, narco-dollars, and natural resource exports may contribute to the appreciation of a local currency, making local products more expensive and consequently less competitive in local as well as in international markets. Colombia’s small coffee growers, as well a host of other agrarian and manufacturing sectors, are hit by the increasing price of the peso, making their products less competitive in global markets. This is exacerbated by declining prices of coffee in international markets. Such conditions contributed to the current widespread strike of coffee growers in several regions in Colombia amounting to a rebellion. More than 500 hundred thousand families are affected by the coffee crisis. Knowing that more than 250,000 [3] coffee growers are small scale peasants owning one hectare or less.

Photo Credit: BBC

Ironically, the small coffee growers' strike coincided with that of the coal miners' in the Cerrejon which started on February 7 and ended on March 4. Keep in mind that coal exports and the foreign direct investments in this sector—alongside oil, gold, and nickel—are the main drivers of inflation. These two strikes, however, exhibit two different limitations of the rentier-based model of economic development that the dominant classes and the technocrats have embraced for some years now. One is the exorbitant long–term environmental cost of mining activities; the other is its impact on the productive sectors of the economy, such as coffee and manufacturing exports, which declined by 24% [4]between 2011 and 2012. Stay tuned

For an update see http://www.dinero.com/actualidad/nacion/articulo/cafeteros-estan-pensando/170601

Nazih Richani is the Director of Latin American studies at Kean University. He blogs at nacla.org/blog/cuadernos-colombianos [5].