Coffee has fueled the Salvadoran economy and shaped its history for more than a century. It was first cultivated for domestic use early in the nineteenth century. By mid-century its commercial promise was evident, and the government began to favor its production through legislation such as tax breaks for producers, exemption from military service for coffee workers, and elimination of export duties for new producers. By 1880 coffee had become virtually the sole export crop. Compared with indigo, previously the dominant export commodity, coffee was a more demanding crop. Since coffee bushes required several years to produce a usable harvest, its production required a greater commitment of capital, labor, and land than did indigo. Coffee also grew best at a certain altitude, whereas indigo flourished almost anywhere.
Unlike those of Guatemala and Costa Rica, the Salvadoran coffee industry developed largely without the benefit of external technical and financial help. El Salvador nonetheless became one of the most efficient coffee producers in the world. This was especially true on the large coffee fincas, where the yield per hectare increased in proportion to the size of the finca, a rare occurrence in plantation agriculture. The effect of coffee production on Salvadoran society has been immeasurable, not only in terms of land tenure but also because the coffee industry has served as a catalyst for the development of infrastructure (roads and railroads) and as a mechanism for the integration of indigenous communities into the national economy.
In the decades prior to the civil conflict of the 1980s, export earnings from coffee allowed growers to expand production, finance the development of a cotton industry, and establish a light manufacturing sector. After 1979, however, government policies, guerrilla attacks, and natural disasters reduced investment, impeding the coffee industry's growth. To make matters worse, after a price jump in 1986 world coffee prices fell by 35 percent in 1987, causing coffee exports to decline in value from US$539 million to US$347 million.
Government control of coffee marketing and export was regarded as one of the strongest deterrents to investment in the industry. In the first year of Incafe's existence, coffee yields dropped by over 20 percent. During each of the ensuing four years, yields were about 30 percent lower than those registered during the 1978-80 period. Although the area in production remained fairly constant at approximately 180,000 hectares, production of green coffee declined in absolute terms from 175,000 tons in 1979 to 141,000 tons in 1986; this 19 percent drop was a direct result of lower yields, which in turn were attributed to decreased levels of investment. According to the Salvadoran Coffee Growers Association (Asociacion Cafetalera de El Salvador--ACES), besides controlling the sale of coffee, Incafe also charged growers export taxes and service charges equal to about 50 percent of the sale price and was often late in paying growers for their coffee.
Coffee growers also suffered from guerrilla attacks, extortion, and the imposition of so-called "war taxes" during the 1980s. These difficulties, in addition to their direct impact on production, also decreased investment. Under normal conditions, coffee growers replaced at least 5 percent of their coffee plants each year because the most productive coffee plants are between five and fifteen years old. Many coffee growers in El Salvador, in an effort to avoid further losses, neglected to replant.
Although most coffee production took place in the western section of El Salvador, coffee growers who operated in the eastern region were sometimes compelled to strike a modus vivendi with the guerrillas. During the 1984-85 harvest, for example, the guerrillas added to their "war tax" demand a threat to attack any plantation they thought underpaid workers. They demanded that workers receive the equivalent of US$4.00 per 100 pounds picked, a US$1.00 increase over what was then the going rate. The fact that growers negotiated with the guerrillas--while the government looked the other way--demonstrated the continuing importance of coffee export revenue to both the growers and the government.
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