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By Bloomberg

Teodomiro Melendres Ojeda, an organic coffee grower in Cajamarca, Peru, stands at a crossroads. Neither path is attractive.

Leaf-rust fungus, known as roya in Spanish, has devastated about a third of his crop. Melendres, 48, can use chemicals to kill it, though he risks forfeiting his organic certification and the 10 percent price premium it brings. Or he can preserve the certification and watch his plants die.

"We coffee producers are living between a rock and a hard place," Melendres said.

Global warming has been a friend to the fungus, enabling it to thrive in elevations that used to be inhospitable. The worst worldwide outbreak in 30 years has meant diminished yields, lower income and laid-off workers from Peru to Mexico. Organic growers face additional loss as they look for ways to save their livelihoods while at the same time avoiding chemical solutions.

Leaf rust is creeping to higher altitudes throughout Latin America. In Guatemala, for example, the fungus used to thrive only up to 3,000 feet (914 meters) above sea level, said Nils Leporowski, president of the National Coffee Association, or Anacafe. Now it can be found as high as 6,000 feet, he said.

Reduced production has thrown as many as 437,000 coffee employees out of work in Latin America since 2012, according to Guatemala City-based research foundation Promecafe.

Slower Growth

Growth in the consumption of packaged organic coffee in the U.S. has slowed, according to data from members of the Brattleboro, Vermont-based Organic Trade Association. U.S. sales rose 7 percent last year from 2012 to $349 million, down from 30 percent growth from 2011 to 2012, the association said. The growth rate will continue to decline this year due to the fungus and prices could increase as supplies diminish, it said.

Other data show a more-than-fourfold rise in sales of U.S. organic single-serving coffee, the kind sold by Waterbury, Vermont-based Keurig Green Mountain Inc., to $3.58 billion in 2013 from $823 million in 2009, according to StudyLogic, a Cedarhurst, New York-based research company.

To be labeled organic in the U.S., beans must be farmed without synthetic pesticides or other prohibited substances for three years with a sustainable crop rotation plan that controls for pests and prevents erosion and the depletion of soil nutrients, according to the Organic Trade Association.

The disease, first found in Latin America in the 1970s, is caused by the fungus Hemileia vastatrix. It disrupts photosynthesis and prevents beans from reaching full maturity.

To kill it, organic growers could use the same copper-based fungicide as conventional farmers, said Nate Lewis, a Galvin, Washington-based senior crop and livestock specialist with the association.

Endangering Wildlife

Simply adhering to organic principles, however, doesn't mean a fungicide is entirely safe, said Steve Savage, a plant pathology consultant in Encinitas, California, who has worked for DuPont Co. and Mycogen Corp. Even the copper-based fungicides approved for organic use can cause environmental damage, he said. They can wash off the coffee plants in wet weather, meaning that workers have to apply it every few days, increasing the amounts that run off into streams, endangering wildlife, and potentially poisoning soil, Savage said.

Melendres, who has been growing coffee since 1996, says that to make his plants stronger and therefore more resistant to roya he's had to increase the number of times he used guano fertilizer this year to as many as five from three. That's boosted his cost to produce 100 pounds to 320 soles ($112) from 270 soles a few years ago. In 2014, he will collect 180 bags, down from an average of 250. A bag weighs 60 kilograms (132 pounds). He said he plans to hire about 10 workers to help during harvest instead of the usual 15.

Peru is the world's leading organic coffee exporter, followed by Mexico, according to the U.S. Department of Agriculture.

Humid Weather

Ruben Bernabe, general manager at the Chiapas Federation of Ecologic Indigenous Coffee Producers, or Fiech, said humid conditions and erratic weather for the past two years in the southeastern Mexican state have allowed the fungus spores to spread much faster than in the past. That will reduce the crop, both organic and non-organic, in Mexico's largest producing state by 23 percent this year from 2013, local government data show.

Leaf rust devastated crops from 2009 to 2012 in Colombia, the second-largest grower of arabica coffees, sending prices for the beans favored by Starbucks Corp. to a 14-year high in 2011. The outbreak spread across Central America, Peru and Mexico, and coupled with drought in top grower Brazil pushed prices to 26- month highs earlier this year.

In Central America, warmer temperatures create "favorable conditions for pests and diseases that leave harvests crumbled," according to a study coordinated by Hague-based Humanist Institute for Cooperation with Developing Countries, or Hivos.

Jobless Workers

Failure to adapt to a changing climate would bring "heavy economic losses across the supply chain" and social disruption, according to World Coffee Research, a development program managed by the Norman Borlaug Institute for International Agriculture of the Texas A&M University System in College Station.

In El Salvador, more than half the approximately 100,000 people who depend directly on coffee for their livelihoods lost their jobs this year, a local growers' group said, as roya cut production by 60 percent in 2013-2014 from a year earlier, according to the International Coffee Organization. It was the smallest harvest since 1926, data from the Salvadoran Coffee Council show. Many unemployed workers migrated to the U.S., with some taking their children with them, said Mario Salazar, manager of planning and statistics at the San Salvador-based research group Procafe.

Seattle Guy

Genetically modifying the beans to resist leaf rust would be one way to combat the scourge, said Savage, the plant pathologist.

"You can't even contemplate that, though," Savage said. "The guy in Seattle wouldn't buy it."

The guy in Seattle, or the average coffee drinker in a developed country, may be paying more or sipping a lower quality cup of joe in the future. In the season starting Oct. 1, world coffee production will fall for the second straight season, which hasn't occurred since 1993-1994, USDA data show, just as world demand climbs to the most ever, led by record use in the U.S., the biggest consumer.

The average retail price of coffee in the U.S. was $6.91 a pound in the four weeks ending Aug. 10, according to data compiled by Bloomberg. Organic coffee is more expensive. Costco Wholesale Corp. offers a five-pound bag of Chiapas-grown organic dark roast for $41.99, or $8.40 a pound.

Infested Area

"Rust is a problem that's going to be around for a long time," said Mario Ordonez, deputy general manager at the Tegucigalpa-based Honduran Coffee Institute, or Ihcafe.

About 50 percent of plantings in Honduras, the world's sixth-largest producer, are susceptible to the fungus, with 25 percent showing signs of leaf rust and 8 percent severely hit, Ordonez said. The result: Ihcafe estimates that about 300,000 jobs were lost in the last two years.

In Guatemala, the world's ninth-largest producer, 70 percent of the planted area has been infested, which has increased production costs by an average of 10 percent, according to Leporowski of Anacafe.

Melendres, the Peruvian farmer, decided to keep on the organic path to earn his premium price even though about 40 percent of Peru's harvest has been affected, according to the USDA.

"Agrochemicals only stop plagues temporarily," he said. "And they bring another host of problems."