June 01, 2006 08:50 AM ET

Violence Threatens E.Timor Coffee Industry

DILI, East Timor (AP) - East Timor's resurgent coffee industry, known for its high-quality organic beans, has been badly hurt by a wave of violence in the capital that halted operations at the start of the harvesting season, officials said Thursday.

Harvesting began in May and normally peaks in late June.

"But with all roads blocked, there's no way to transport the beans from inland to the processing factories," said Caetano Cristovao, director of coffee at the Ministry of Agriculture, Forestry and Fisheries.

"Only small-scale farmers are picking and processing the beans either in small machines or drying them out in the sun," Cristovao said. Big factories are shut "because nobody is going to work," he said.

Impoverished East Timor is a tiny player in the world coffee market, contributing no more than 1 percent of world output with average annual production of 7,000-10,000 tons.

But coffee is a major contributor to the four-year-old nation's economy and is its main source of foreign exchange. A quarter of the population depends on coffee for their livelihood.

East Timor's special status as a certified grower of organic, mild arabica coffee has gained the attention of the coffee industry.

Largely because of the absence of modern pesticides and fertilizers and the still-primitive ways of growing coffee on rarely pruned and long-neglected trees, East Timor has been able to market its coffee as 100 percent organic, commanding a 15 percent to 20 percent premium in prices over the New York arabica futures prices.

Most East Timorese beans go to the United States, including the Seattle-based coffee chain Starbucks, while 20 percent to 30 percent goes to Europe. The rest is shipped to Australia, South Korea and New Zealand.

East Timor's larger coffee factories use wet processing, which washes the pulp of the cherry from the bean, rather than waiting for it to dry in the sun, and is considered to produce better quality coffee that fetches higher prices.

If the beans aren't processed soon, their quality is likely to deteriorate.

"It's a pity, because the industry has just begun to sort itself out after years of decline and with coffee prices significantly up from its lows five years ago, we should be thriving," Cristovao said.

At least one person was reported killed in new unrest in Dili, East Timor's capital, on Thursday, despite the presence of more than 2,000 foreign peacekeepers. Rioters set fire to a whole row of shops and several vehicles in one neighborhood.

Fighting between factions in the armed forces has given way over the past week to gang warfare, arson and looting, forcing tens of thousands of people to abandon the city or take refuge in camps scattered across the seaside capital.

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Dow Jones Newswires reporter Shahira Yusoff contributed to this story.

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