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UPDATE 2-Colombia to maintain subsidy for coffee growers -president

Peter Murphy
Wednesday, 27 Nov 2013 | 3:41 PM ET

* Direct subsidy to growers to continue, no time limit set

* Growers also want help with transport, more credit

* Experts say sector must boost efficiency to survive

(Adds coffee grower demands, background on sector)

BOGOTA, Nov 27 (Reuters) - Colombian President Juan Manuel Santos said on Wednesday the government will continue paying a direct subsidy to coffee growers while prices remain low, a measure the world's top washed arabica producer introduced due to sliding prices.

Colombia has paid its farmers close to 1 trillion pesos ($519 million) over the last year or so in direct subsidies, which Santos said now represented about a third of their income from coffee.

The current budget allocated for the subsidy is expected to run out around February or March, but Santos said an extension to a tax on financial transactions would provide the funds for support to growers to continue.

"As long as I am president and prices are low, coffee growers will continue counting on the help of the national government," Santos said at the opening of a three-day coffee growers' congress in Bogota, the country's capital.

The head of Colombia's National Coffee Growers' Federation, Luis Genaro Munoz Ortega, told Reuters after Santos' speech that no fixed period had been set for the payment of the subsidy. Santos warned that it could not continue indefinitely as it could prevent the sector striving for greater efficiency.

Colombian growers currently receive 145,000 pesos ($75.19) per 125-kg bag. The subsidy program had a rough start with many cases of fraud in which funds were claimed using invoices issued for coffee which did not exist, prompting the coffee growers' federation to make changes to the way it was paid.

March arabica futures on ICE traded down 0.6 percent to $1.0805 cents per lb on Wednesday afternoon. The benchmark contract hovered above a recent five-year low of $1.0415. Abundant global supplies weighed on the market and attracted heavy speculative selling for most of 2013.

COFFEE CROP REBOUND

Santos said the country was on track to ramp up production to 14 million 60-kg bags "in the short term" and 18 million bags by 2018, with adequate care for plantations and if efforts to eradicate roya fungus, which kills trees, were kept up.

The Andean nation is expected to produce around 11 million bags this year, up from 7.7 million in 2012, as it recovers from years of harsh weather in coffee zones and as new trees resistant to roya or leaf rust fungus, reach productive age.

The president of the "Competitive Coffee Cultivation" conference, Alvaro Bautista Fajardo, called for a stabilization fund to be created to support growers when prices dipped, government help with freight costs inflated by lack of roads, more credit and more time to pay existing debts.

"Coffee producers are waiting for concrete proposals and solutions to their problems ... to get out of these hard times quickly and put in place definitive foundations for the future of coffee cultivation," Bautista told the conference.

The government of top coffee grower Brazil has intervened to support growers by offering to buy up to three million bags of their produce at above-market prices and, it said last week, by giving farmers longer to repay loans.

The key theme of the coffee conference is the urgent need for innovation in what remains a core yet somewhat primitive sector in Colombia's economy, which directly sustains more than two million people in a country of around 47 million.

Unlike Brazil, whose larger-scale coffee sector has responded to surging costs by embracing mechanized harvesting, Colombia's farms, many on steep inclines, are unsuited to the technology.

Colombia's coffee sector comprises mostly small-scale family-run farms which makes it harder to spread information about optimum cultivation methods.

Speakers at the conference said strengthening the coffee sector, the country's most valuable agricultural export, would also help put an end to a long-running conflict in the country by bringing greater prosperity to some of its poorest areas.

More than 200,000 people have died in a five-decade war that has pitted the government against Marxist FARC rebels, paramilitary groups and ELN guerrillas. The government has been in peace talks with the FARC for the last year in the Cuban capital, Havana. ($1 = 1926.75 Colombian pesos)

(Additional reporting by Marcy Nicholson; Editing by Gerald E. McCormick, Gunna Dickson and James Dalgleish)