How does foreign exchange coffee pressure affect Costa Rica's growers?
Between June 2022 and December 2023, the US dollar fell about 24 percent against the Costa Rican colón, from near 700 colones per dollar to around 500. The stronger colón raised local prices, cut tourist purchasing power, and shrank coffee export earnings, even though the government treats the appreciation as a sign of economic strength.
Tourism brings in about 8 percent of Costa Rica's wealth and roughly 3 million visitors a year, so exchange rate swings feed straight into the economy. Coffee producing nations that price exports in dollars feel the same effect: local costs stay the same or rise while dollar revenue converts to fewer colones, leaving growers with tighter margins.
As a Central American country with outstanding economic performance, Costa Rica's agriculture, foreign trade, tourism, and service industries play a pivotal role in its national economy. However, between June 2022 and December 2023, the US dollar to Costa Rican colón exchange rate plummeted by about 24%, bringing unexpected difficulties to the local tourism and coffee industries. Tourist spending power declined, coffee export earnings shrank, yet the government viewed the colón's appreciation as a sign of economic strength. This article will analyze in depth how exchange rate fluctuations have impacted these two pillar industries and explore the multiple challenges faced by coffee growers.
Costa Rica is at the forefront of economic development in Central America, with agriculture, foreign trade, tourism, and the service sector playing key roles in the national economy. Although tourism contributes about 8% of Costa Rica's wealth annually and attracts around 3 million tourists, this industry, along with agricultural sectors such as coffee, is currently facing severe challenges.
Relevant statistics show that from June 2022 to December 2023, the US dollar to Costa Rican colón exchange rate fell by 24%. At its lowest point, 1 US dollar could only exchange for close to 700 colones, while currently it is about 500 colones. This exchange rate change has plunged both the tourism and coffee industries into difficulty.
It is reported that with the end of the Easter week in March, Costa Rica's peak tourism season has also come to an end, and the coming months will be full of uncertainty. But this uncertainty does not stem from a decrease in tourist numbers, but rather from exchange rate issues. The local tourism bureau points out that US dollars can be used directly when traveling in Costa Rica; however, the exchange rate fluctuations brought about by the depreciation of the US dollar and the appreciation of the colón will drive up local prices, affect tourists' spending behavior, and lead to reduced purchasing power. In addition, exchange rate fluctuations also affect tourists' decision-making process when choosing travel destinations; tourists may turn to cheaper destinations or those with lower exchange rates, thereby reducing the number of tourists visiting Costa Rica and ultimately affecting local tourism revenue.
On the coffee front, Costa Rica's ICAFE stated that although coffee exports have remained stable recently, sales have fallen by nearly 13%. This is because international coffee futures prices are denominated in US dollars, while most producing countries have their own currencies, so the exchange rate between the US dollar and the domestic currency directly affects the actual price paid for coffee. With the US dollar currently weak, the exchange rate means coffee traders can only obtain lower returns.
The authorities expressed regret that the Costa Rican government is indifferent to the exchange rate situation and pointed out that the appreciation of the colón is a sign of economic strength (GDP grew by 5.1% for the whole of 2023). However, coffee growers' income is declining. Compared with the previous year, income per bushel (1 bushel is about 27 kilograms) of coffee has now decreased by 27,000 colones, a drop of nearly 20%. At the same time, the cost of imported agricultural supplies such as fertilizer has not decreased. In addition to exchange rate issues, Costa Rica's coffee farming industry also faces multiple pressures such as climate change, instability in international markets, and competition for land resources from the real estate industry. Therefore, the industry hopes the government can face the problem squarely, provide assistance, and protect the development of the coffee industry and tourism.
The above content is compiled by CoffeeHunters, a coffee news website.
