By Mitra Taj

LIMA (Reuters) - Jose Jorge Durand never thought he would end up harvesting dung for a living when war forced him from his home.

Thirty years ago he fled to safety high in Peru's Andes mountains as a bloody leftist insurgency took root in the jungle where his family grew coffee.

Having since returned home, Durand is now making one of the most expensive coffees in the world by picking arabica beans out of the dung of a long-nosed jungle critter called the coati, a tropical cousin of the raccoon.

His company, Chanchamayo Highland Coffee, is the second Peruvian venture to copy a rare technique from Indonesia that harnesses a mammal's digestive tract to strip bitter-tasting proteins from coffee beans.

After the creatures eat ripe coffee cherries, the growers wash, roast and export the beans that emerge partially fermented, but whole, in the animals' scat.

In doing so, the Peruvians are catering to the whims of global coffee consumers willing to pay anywhere from $20 to $65 for a cup of the odd treat, a sign coffee farmers here have come a long way toward tapping niche markets since the days when political violence and unscrupulous buyers stunted their reach.

Peru, one of the world's top ten growers, lags far behind its neighbor Brazil in overall sales, but the Andean nation is the world's biggest producer and exporter of organic coffee.

Specialty coffees, from kosher brands to those produced by women's cooperatives, make up between 25 and 30 percent of Peru's exports, according to the Peruvian chamber of coffee and cacao.

Online prices for dung-processed coffee offered on Amazon.com, mostly from southeast Asia, range from $40 to $1,160 per pound ($18 to $526 per kilo).

"This is the most expensive crap in the world!" Durand shouted at a recent coffee fair in Lima, delivering a well-worn punchline to his pitch for coati-dung coffee.

While stands around him tried to lure wholesale buyers with chocolate or women in revealing jungle-themed outfits, Durand drew small crowds by detailing the scatological habits of Lucas, the coati climbing up and down his arm.

"This guy eats a lot of fruit so you might taste notes of papaya or Amazonian berries in your coffee," he said.

Durand said 60 coati helped him produce the 990 pounds of dung coffee he is exporting to the United States for the first time this year at $36 per pound ($16 per kilo).

But he said the final vendor sells it for more than $270 per pound ($122 per kilo). "With this financial crisis, the rich have become richer and don't know how to spend their money, so this is one option."

The Cecovasa collective in southern Peru has already been exporting coati-dung coffee for four years.

Cecovasa's Marketing Manager Miguel Paz said he first heard about the process at a conference in Geneva in 2008. When he came back to Peru he brought it up at the group's next board meeting.

"I always like to make jokes to lighten the mood so I said 'the Indonesians sell animal excrement as the most expensive coffee in the world!' and I showed them pictures," he said. "Then one producer said 'hey, I can do that, too.'"

Last year Cecovasa shipped 220 pounds to Japan and England - their smallest export but the most profitable at about $66 per pound ($30 per kilo).

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At the Arabica coffee shop in an upscale district in Lima, barista and coffee taster Roberto Caldas declared Durand's coati-dung coffee "very nice" - less bitter and more full-bodied than most coffees, and with an unusually long aftertaste.

But he said he suspects it was roasted with light brown sugar, a no-no for purists. "It tastes really sweet" he said.

It is unclear how Indonesians developed the original dung coffee - Kopi Luwak - into a global delicacy that has inspired versions in Vietnam, Thailand, the Philippines and now Peru.

One story says Dutch colonialists forbade Indonesian natives from picking the crop to make their own coffee and so the locals turned to the droppings of the Asian palm civet - a plantation pest known for plundering coffee cherries.

Research has shown the civet's digestive enzymes biochemically alter the coffee beans to make them less bitter.

The Peruvian coati are similar but unrelated to the civet, and are often adopted as pets or hunted for their meat by locals, who call them 'uchunari' or 'mishasho.'

Paz said his coati are certified free-range, and Durand said his team roam the jungle most of the time, and are corralled to eat and leave their droppings.

K.C. O'Keefe, a Lima-based coffee consultant, said he thinks the coffee-producing coati and civets are not treated humanely. And he says no animal-dung coffee, including Kopi Luwak, has ever won a taste award from coffee-tasting associations.

"I think it's great producers here are becoming more aware of global marketing," he said. "But just because wealthy foreigners will pay good money for a laugh after dinner doesn't make it a specialty coffee from a sensorial perspective."

The Cecovasa collective has won a number of awards for its organic Tunki coffee, including the 2010 "Coffee of the Year Award" by the Specialty Coffee Association of America - but so far it has not earned any accolades for its coati-dung "uchunari" coffee.

Durand, whose business represents some 1700 farmers, said to him coati-dung coffee tastes like success. As a boy his family used to earn a pittance in the Chanchamayo region selling coffee to middlemen who routinely ripped them off.

"They'd manage to steal up to 25 kilos (55 pounds) from us for every bag" of 46 kilos, he said. "But my sister and I loved to go to town to sell our beans because they'd give us a soda and chips."

Then in the 1980s an armed rebellion began to thrive in the same shady jungle slopes ideal for growing coffee.

Durand said Shining Path guerrillas kidnapped, killed and recruited locals in a conflict that eventually claimed 69,000 lives over two decades.

"Our area was really torn apart by the conflict," he said. "My parents sent me to live with relatives ... when I went back my friends were moving to the U.S. to work in construction."

Like many of Peru's coffee growers today, Durand said he joined forces with other farmers to sell directly to exporters.

He said he hopes the jobs created by coati-dung and specialty coffees can help end what remains of the insurgency.

The rebel group collapsed in the 1990s when its leaders were captured, but remnants of the Shining Path now control drug trafficking in remote jungles and regularly ambush the army. The government has been promoting specialty coffees as an alternative to planting coca, the raw ingredient for cocaine.

"But if we make too much coati-dung coffee," he said, "it might not be the most expensive stuff in the world anymore."

(Reporting By Mitra Taj; Editing by Terry Wade and Jackie Frank)