A month after Mercon Coffee Group filed for bankruptcy protection in the United States, uncertainty is growing among clients of its Nicaraguan representative, Cisa Exportadora, which sold about half of each coffee harvest abroad. In addition to the lack of information about the future of the business, police officers seized the company’s offices and benefits a few days ago. It is unknown whether the seizure is part of the intervention process requested by Lafise Bancentro as a creditor, or whether it was carried out by the state under the pretext of fulfilling the company’s obligations.
Given the closure of Cisa Exportadora stocks in productive areas, small producers are selling their harvest to other middlemen, who traditionally buy the grain in grapes or parchment and then resell it. On the other hand, medium and large companies that contracted with Cisa to avoid compromising the quality of their crops contracted drying and grading services for other benefits.
However, a big problem facing both middlemen and medium and large producers is finding buyers abroad, since coffee exports are carried out under future contracts that were already signed before the start of this crisis.
Another related topic: “First of all, this concerns the small producer.” Concern in coffee growing areas due to closure of Cisa Exportadora
Cisa executives are not responding
By filing for Chapter 11 bankruptcy in early December, Mercon Coffee Group was expected to continue to operate normally in the nine countries where it operates. Even in Nicaragua they asked their employees to stay where they were. However, representatives of the group did not appear again, so between four and six thousand producers out of more than forty thousand registered in Nicaragua were exposed to middlemen who took advantage of the situation to impose lower prices and even less. profitable terms.
But faced with the absolute silence of the Cisa Exportadora executives and the fear that the harvest would be ruined, in most cases they had no choice but to accept what little the middlemen offered them. For several days, LA PRENSA tried to obtain information about the company’s situation and its future plans, but company representatives did not answer our questions.
Businessmen involved in grain production and exports, who request anonymity for fear of reprisals, say the end of Cisa benefits is affecting their customers, but that is not the biggest problem, as grain processing capacity is well established in productive areas. They even note that the stage of the process that requires the most infrastructure is drying, and Cisa does not own all the patios it used for this process, but rents them out each season to neighbors for its profit.
Read also: What is the Chapter 11 that Mercon filed and what follows its bankruptcy filing?
Will they find buyers for coffee?
They claim that the really serious problem at the moment, when most of the crop has already been cut and processed, is finding buyers on the international market. “The only way to get them is to get in touch with coffee buying houses, which are mainly in the United States. We will have to see if the exporters have these contacts or if they are only supported by Cisa,” says one of the exporters consulted.
Another producer explains that in the absence of Cisa Exportadora, middlemen are buying more coffee from small producers. But with medium and large manufacturers the situation is more complicated.
At the beginning of the crisis, beneficiaries refused to receive coffee that was contracted with Cisa. They considered that the company paid for this production in advance because the company provided what they call authorization, that is, technical assistance and resources for agricultural work carried out throughout the year on the plantations, and this financing was paid along with the harvest. But when they saw that not a single executive or owner of this company showed up anymore, they started to get it, as not drying and processing coffee in a timely manner negatively affects the quality of the beans.
Read also: Four national banks among Mercon creditors filing for bankruptcy
Middlemen are at risk with this coffee
Now, in exchange for paying the commission they charge their customers, some benefits are given to Cisa-negotiated coffee. It is dried, processed and in other cases also classified. However, since they are new customers, it is difficult for them to get these incentives that will help them export grain, so they look for buyers themselves.
So much of the uncertainty lies in who the coffee brokers and producers are going to sell to as they seek a market for that portion of the crop, which could account for up to half of total production. That is, up to 1.50 million quintals, since in the last production cycles exports exceeded three million quintals.
“In this coffee business, contracts are signed in advance, so the question is what do these people do to find buyers. This situation forces them to agree to prices set by intermediaries and even other buyers, because the main thing is not to lose the harvest,” says one of the interviewed producers.
You can also read: They propose to Cisa Exportadora’s creditors to intervene in the company and resume operations to avoid a crisis in the coffee market.
Police seized Cisa facilities
At the same time, the manufacturer explains that “although internationally the price is about $200 per hundredweight, those who buy this coffee have to pay less because they take a lot of risk. What happens if they don’t find buyers? If they fail to sell it, they will lose a lot of money, because if they get sales contracts next year, this coffee will be left over for the next harvest and they will have to pay warehouses for storage. it lasts for many months, and when they sell it, they can even pay lower prices because it’s leftover from the previous harvest,” he notes.
While the producers are making numerous efforts to reduce the damage caused by the demise of Cisa Exportadora, the police continue to seize the company’s advantages and offices, although it is still unknown whether the presence of the police is part of the intervention process, which may be a consequence of the embargo that Lafise Bancentro introduced a few weeks ago, a banking institution that is locally Mercon’s main lender.
There are also concerns that the intervention was supported by the Nicaraguan state under the pretext of guaranteeing compliance with the company’s obligations to its local and international clients. However, four days after the seizure, there is still no official statement regarding the action.
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Debt leading to bankruptcy
According to the Chapter 11 bankruptcy petition Mercon Coffee Group filed in New York federal court in early December, its failure to pay $363.34 million in debt caused the financial disaster.
The group’s largest creditor is Dutch Rabobank Facility, to which Mercon owes $202.25 million, which is part of a $500 million revolving credit facility. Locally, the hardest hit is Banco Lafise, which is $26 million in debt.
The list of local creditors also includes BAC Nicaragua and Bank of Finance (BDF), with an outstanding balance of $2 million each, as well as the state-owned Banco de Fomento de la Produccion, or Proproductomos, which is owed $4.5 million. which, according to official documents, are protected by active fixed assets.
You can also read: The Ortega regime reacts to the bankruptcy of Cisa Exportadora and says it will force it to fulfill its commercial and financial obligations