Tax reforms proposed by President Gustavo Petro would cut exemptions that aid Colombia's small coffee farms. Photo by Samantha Power, USAID
Colombia’s first left-of-center president ever, Gustavo Petro, was sworn in on August 12, and already his first major piece of legislation is facing blowback from the nation's iconic coffee industry.
Petro pledged to help the middle and working classes, especially small-holders and workers in the long-struggling agrarian sector. Yet his sweeping tax reform bill has been called a step backward by the National Federation of Coffee Growers (FNC), which is pushing for revisions.
The bill does not specifically mention coffee, instead laying out changes in the tax code for agricultural producers as a whole. And that’s the problem, says economics professor and coffee industry consultant Guillermo Trujillo Estrada, writing in La Semana.
The bill’s generic approach to the agriculture sector will probably benefit more industrially farmed crops such as avocados, bananas, flowers, and palm oil. But coffee farming is structured completely differently from those crops. With several harvests a year, coffee is highly labor-intensive. Coffee farming stretches across 22 regions and sub-regions of Colombia's 32 departments, and the sector is owned and run by small holders — by families. As such, it is a network that underlies the rural economy, creating social cohesion. Trujillo calls it “fundamental to the stability of the countryside.”
Four of the bill's provisions in particular have sparked resistance from the FNC. Most important is the new law’s override of an existing tax provision allowing coffee growers to write off 40% of gross income as labor costs. The FNC estimates that labor actually accounts for over 60.7% of growers’ costs, with fertilizer and other materials eating up 32.7% and general operating costs 7,1%.
Eliminating this measure would greatly reduce real income for already squeezed farmers and worsen the crisis of decreasing production. Even with the current deduction, smallholders are dropping out of coffee cultivation at an alarming rate. The number of coffee-growing businesses registered in 2021 was 530,000, down from 540,000 in 2019, and 560,000 in 2010.
Senator Carlos Abraham Jiménez, of the left-wing Cambio Radical (Radical Change) Party, sees the new bill as regressive: “This reform, by removing the 40% deduction of gross income to cover coffee growers’ labor costs, equals higher taxes on those least able to pay them. It is an increase of nearly 35,000 Colombian pesos ($7.80) per arroba (12 kg bag) selling today for 250,000 pesos ($55.75). That will push the cost of one arroba to almost 300,000 pesos ($67). And it will raise the retail price at the precise moment when the government is trying to control inflation." The Cambio Radical party has already declared they will vote against the bill in its present form.
Another article of the bill taxes “ultra-processed” beverages, aiming to reduce consumption of sugary drinks. But the provision includes freeze-dried soluble coffee and coffee extract, a move that FNC calls misplaced, since these products are made of only one component and therefore don’t belong on the list. Also, notes FNC, it would slow down domestic consumption of the beverage in general just when several local and national programs are promoting increased domestic consumption of coffee. (What the FNC doesn’t say is that an overwhelming majority of the ground and soluble coffee consumed in Colombia is imported low-grade robusta.)
The FNC also contends that the tax reform bill fails to differentiate in its approach to urban versus agrarian zones. The FNC Steering Committee urges that rural areas be exempted from certain obligations, such as electronic invoicing, because internet access is lacking in many rural districts and growers are not well trained in IT and communications technology. The FNC calls for an expansion of internet service and new access roads in rural areas.
The FNC also asked the government to consider a tax exemption on the incentives and economic support received by coffee producers. The proposed law would tax these grants as income, and impose more costs on recipients when grants and aid are disbursed through the financial system, through the national .04% tax on financial transactions of any type.
While Petro, a former senator and former mayor of Bogota, is generally lauded for attempting to boost agrarian development overall, his bill seems to have misjudged the specifics of the coffee sector.
But there is a good chance the bill will be revised again with input from recent ministerial appointees experienced in the coffee industry. Cecilia López, the new minister of agriculture and rural development is respected in the field. José Antonio Ocampo, the new minister of finance, previously served as advisor to the national government on coffee matters. Both officials have worked with the FNC for several years. Coffee industry advocates hope that the controversial bill, which has yet to be debated in the Congress, will be improved. "Today coffee is the country's opportunity to build peace, replacing illegal [crops] throughout the country, through an activity that has always generated pride and worldwide recognition for Colombia," Cambio Radical said in a statement.
Trujillo Estrada, the economics professor, says simply: “Coffee will surely be a transcendental issue for the new government.”