What is the National Coffee Fund (FoNC)?
It is a parafiscal account of resources considered public, mainly fed on the coffee contribution (coffee tax) paid for each pound of coffee exported (green, roasted, soluble or in extract).
Why does the FNC administer the FoNC?
As legitimate representative of coffee growers and because of its democratic structure, effectiveness and transparency in resource management, since 1928 and every 10 years the Colombian Government has signed a new contract with the FNC for it to be the administrator of the FoNC.
What is the coffee contribution (coffee tax)?
It is the contribution paid by producers to the National Coffee Fund to obtain collective benefits.
This contribution is 6 cents (US ¢) for each pound of green coffee exported, US ¢ 1.08 for roasted coffee, US ¢ 0.48 for soluble coffee and US ¢ 0.36 for coffee extract.
When was the FoNC created?
As a special account, the FoNC was created on November 22, 1940 through Decree 2078, and its management and administration by the FNC was formalized through a contract signed with the Government in December of that year.
The history of coffee parafiscality dates back to 1927, when a special-allocation tax on coffee exports was established, as the resources collected could only be used for the benefit of Colombian coffee farming and coffee promotion and marketing in the country and abroad, among other activities.
From that same year, the Colombian Congress entrusted the FNC with the administration, collection and investment of the coffee tax, whose specific regulation was formalized through a contract signed in April 1928 that could be extended for 10-year periods.
How many administration contracts have been signed since then?
Ten contracts, including the current one, have been signed since 1928, without taking into account some other additions or contracts for other purposes that were signed between the FNC and the Government in the past.
The current contract will enable the FNC to work for strengthening the Fund, whose primary object is to protect and maximize the income of over 500,000 Colombian coffee-growing families.
What is the FoNC for?
The Fund’s priority objective is to contribute to maximizing coffee producers’ income. It must meet the objectives set forth in the applicable regulations, that is, to promote and encourage an efficient, sustainable and globally competitive coffee farming.
The FoNC is the main source of financing for the public goods and services that benefit coffee farmers themselves, such as:
- The purchase guarantee.
- Scientific research and technological development carried out by institutions such as the National Coffee Research Center (Cenicafé).
- The technical assistance provided by the Extension Service (the main knowledge transfer vehicle, the yellow-shirted “army”).
- The marketing and advertising efforts that have contributed to adding value to Colombian coffee and positioning it as the best mild washed coffee in the world, among others.
What does the FNC commit to by signing the administration contract?
To administering and realizing, with high transparency, efficiency and effectiveness standards, the FoNC resources for the benefit of Colombian coffee farming.
What elements are taken from previous contracts?
The financing of provision of the aforementioned public goods and services, which benefit all coffee growers; and the network of cooperatives remains as one of the channels to exercise the purchase guarantee.
The important work of the coffee grower committees to contribute to development and well-being of coffee regions is recognized; as they continue playing a role in construction of economic and social infrastructure works in coffee regions, the costs of management and administration of regional investment projects (in education, social well-being and community infrastructure) are also recognized, allowing to leverage resources from different sources in the coffee regions.
The importance of research (through Cenicafé, for example) and technical assistance to coffee growers (Extension Service) is reinforced, as well as the importance of the governing and contract administration bodies, namely: the National Coffee Growers Committee and the budget, marketing and intellectual property commissions.
The participation of the Ministries of Finance, Agriculture and Commerce and the National Planning Department (DNP) in the top administration of the FoNC is preserved, as well as the collaboration of an advisor on coffee matters.
The marketing obligations derived from the regulations still in force of Law 9 of 1991 are conserved for the National Coffee Growers Committee: registration of exporters, coffee quality, marketing and external promotion policy, adoption of annual sales programs, authorization of costs, rates and fees of coffee marketing services associated with the FoNC.
Protection of the FoNC resources remains a priority, ensuring suitability of new investments and avoiding debts that endanger its resources.
The healthy prohibition of the FNC assuming the hiring of labor necessary to serve these functions is kept, so that no employees are paid with FoNC resources.
What changes or modifications does the new contract incorporate?
The new contract (as done throughout its history) conforms to the new applicable legislation and removes obsolete vestiges and realities already repealed, such as provisions on coffee retention, quota agreements and some controls related to coffee export that are unnecessary today in a globalized world.
As regards management of parafiscal resources, the application of disciplinary and fiscal provisions is recognized, adjusting deadlines of ineligibilities and incompatibilities of the different actors to the terms of the Anti-Corruption Statute (Law 1474 of 2011).
It incorporates the principles of planning, efficiency, effectiveness, economy, transparency, responsibility, objective selection, due process, and publicity in realization of the FoNC resources.
Good Governance principles are also introduced, so the FNC shall issue a Code of Ethics and Good Governance that states and disseminates the principles, values, policies and ethical guidelines related to:
Transparency that allows effective information to union members, coffee growers, workers and authorities.
- The governance that guarantees having a representative and democratic organization in search of profitability and sustainability of coffee growers.
- Management control in the eyes of union members, workers and authorities, as well as timely and effective accountability for the FNC itself, its workers and governing and representation bodies.
- Ethical principles, understood as the basic beliefs and ethical values on which the appropriate form of internal and external relationships and the management and good use of coffee resources are built.
And in general, all those that contribute to raising the management transparency standards as the coffee union representative entity legitimated to administer the FoNC resources.
What is the highest FoNC governing body?
The National Coffee Growers Committee, made up of the highest coffee grower representatives and those of the national Government. This governing body also acts as a coordinating body for the country’s coffee policy.
What remuneration does the FNC receive for administering the FoNC?
The Government authorized that, with resources from the FoNC, the FNC receives as remuneration an annual sum that does not exceed the equivalent of 3 US cents per pound of the country’s total exports.
It should be noted that this is an upper limit, which does not mean that this is the sum really charged. The current ceiling is 2.5%, a rate that was in force for 10 years and that, adjusted to inflation, today corresponds to the abovementioned 3%.
In those 10 years, the upper limit was not charged, it was not adjusted to 3%, and the FNC assumed the full impact of exchange rate.
Who oversees the FoNC administration?
The Comptroller General of the Republic (CGR) through the methods, systems and procedures of fiscal, investment and transfer control provided in the law, as well as for other state assets and funds administered by the FNC.
Since 1940, the fiscal control of the FoNC has been guided by the accounting standards set by the CGR. The FoNC was first overseen by the Banking Superintendence, and since 1972, directly by the CGR itself through demanding annual audits.
What similar mechanisms has the FoNC inspired?
Based on the history and important achievements of the FoNC, the General Law of Agriculture and Fisheries Development (Law 101 of 1993) adopted parafiscal funds as a mechanism to promote development of other agricultural sectors, understood as contributions (taxes) that the law imposes on a sector for their own benefit.
Research and technology transfer; technical assistance; marketing; export and consumption promotion, and protection of producers’ income from abnormal price variations are objectives of these funds set by this law.