Introduction:From June 2022 to December 2023, the exchange rate of the US dollar against the Costa Rican colón plummeted by nearly 24%, posing serious challenges to the country’s pillar industries—tourism and coffee exports. The weakening currency not only reduced the purchasing power of travelers but also significantly shrunk the actual income of coffee farmers. This article takes you deep into the industrial crisis behind the colón’s appreciation and the multiple pressures faced by coffee growers.
Costa Rica has long been one of the economically standout countries in Central America, with agriculture, foreign trade, tourism, and services being key pillars supporting the overall economy. However, from June 2022 to December 2023, the exchange rate of the US dollar against Costa Rica’s official currency, the colón, experienced a sharp decline of up to 24%, severely impacting two critical sectors—tourism and coffee exports.
During this period, the USD/CRC exchange rate once fell to around 1 USD to 700 CRC, and recently it has hovered at approximately 1:500. Although the appreciation of the colón may seem to reflect economic strength, it brings hidden worries for industries reliant on foreign exchange earnings.
Exchange rate depreciation hits tourism spending, sharply reducing travelers’ purchasing power
Tourism contributes about 8% of Costa Rica’s Gross Domestic Product (GDP) annually and attracts nearly 3 million international visitors, making it one of the important sources of foreign exchange. However, since many local transactions can be paid directly in US dollars, the depreciation of the dollar has significantly weakened the purchasing power of those holding USD. For example, services or goods that could previously be purchased for 100 USD now yield fewer colones due to the colón’s appreciation, leading to reduced travel budgets and lower consumer willingness.
The Costa Rican Tourism Board stated that although the Easter tourism peak in March has passed, the outlook for the coming months remains uncertain. It is worth noting that while the number of visitors may not necessarily decrease, their actual spending in the country will be significantly lower due to exchange rate factors, thereby affecting the overall revenue of the tourism industry. In addition, exchange rate instability has led some potential tourists to opt for other destinations with more favorable rates, further weakening Costa Rica’s appeal as a travel destination.
Coffee exports see “stable volume but falling prices,” sharply reducing growers’ actual income
The Costa Rican Coffee Institute (ICAFE) pointed out that although recent coffee export volumes have remained stable, overall sales have dropped by nearly 13%. This is mainly because international coffee prices are denominated in USD, while local transactions in Costa Rica require converting USD to colones. Therefore, the depreciation of the dollar has directly impacted the actual income from coffee exports.
The exchange rate trend means that when international buyers pay in USD, the equivalent income in colones has decreased significantly. It is estimated that compared to the previous year, coffee growers’ income per bushel (approximately 27 kilograms) has dropped by as much as 27,000 colones, a decline of nearly 20%. This means that even if production remains unchanged, the actual profits of coffee farmers have clearly diminished.
Rising costs add to challenges, as the coffee industry faces multiple pressures
To make matters worse, while coffee export revenues have decreased, the prices of imported agricultural inputs required for coffee cultivation—such as fertilizers, pesticides, and equipment—have not fallen accordingly. Instead, they remain high due to fluctuations in the international market. These supplies are mostly priced in USD, and the worsening exchange rate has further driven up procurement costs, creating a double burden for coffee farmers.
In addition to exchange rate and cost issues, Costa Rica’s coffee industry also faces irregular weather caused by climate change, unstable supply and demand in the international market, and the encroachment of real estate development on arable land. These factors combined have made the living environment for coffee growers increasingly harsh.
Although the government claims that the colón’s appreciation is a sign of economic strength (with GDP growth reaching 5.1% in 2023), the industry generally believes that if the negative effects of the exchange rate on exports and employment are not addressed, Costa Rica’s economic foundation will be undermined. Industry players are calling on the government to introduce relevant relief policies or exchange rate control measures to help the coffee and tourism industries weather the difficulties and ensure the sustainable development of these two pillar sectors.
The above content is compiled by CoffeeHunters, a coffee news website.
