"We are looking to diversify from coffee and the best option is forestry," he told Reuters on the sidelines of a meeting of the International Coffee Organisation (ICO), which brings together producers and consumers.

"If something is not done, we think the coffee crisis will become a world security problem," he added.

Mexico is the world's fifth largest coffee producer. Output from Veracruz represents some 20 percent of Mexico's coffee area. Low prices have slashed 65 percent from the value of Veracruz's coffee exports this crop year, Munoz said.

In the first five months of the 2001/02 crop year, Veracruz's coffee exports were worth $105 million, sharply down from $307 million in the same year-ago period.

Munoz echoed remarks by Nestor Osorio, ICO's executive director, who said last week that the situation in some countries was becoming potentially explosive as the slump in prices battered farm incomes.

Osorio said that half a million jobs in Central America had been lost as farmers could no longer cover their costs.

Global coffee prices have slumped by some 80 percent since a peak of $3.18 a lb in 1997 and are now hovering at just over 50 cents a lb.

Veracruz aims to destroy a third of its coffee area to try to encourage farmers to plant more remunerative alternatives, improve the environment and the quality of beans.

Mexico has been one of the key drivers behind an ICO-backed global quality improvement programme, aimed at destroying five percent of the lowest quality beans.

"But this is not enough, because of overproduction. We are going to keep having surpluses and that will continue depressing prices," Munoz said. Mexico is losing around 668,000 hectares of forest a year to agriculture and urbanisation. Veracruz has lost vast areas of forest, Munoz said.

But for diversification to have any lasting impact on coffee prices, it would need to be carried out globally.

Munoz said he was keen to present his idea to Vietnam, the world's second biggest coffee producer and a relative newcomer to the market, whose massive output increases had helped to destabilise the supply/demand balance.

WHO PAYS?

Although the latest idea from producers appears sound, getting it up and running will cost money, and that is all too often a major cause of failure for such schemes.

The Veracruz programme aimed to compensate farmers by paying them between $500 and $1,000 per hectare of destroyed coffee area for nine years - the time they estimate it will take for the forestry project to start earning money, Munoz said.

That compares with $200 per hectare which farmers were earning before the collapse of coffee prices.

Munoz said they would have access to some federal funds, but would also approach international bodies such as the World Bank.