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Honduran Coffee Growers Slowly Recover From Mitch
The Tico Times / February 4, 2000

By Larry Luxner

SAN PEDRO SULA, Honduras -- Hurricane Mitch, which devastated Honduran banana exports when it roared through Central America in October 1998, inflicted far less destruction on the nation's coffee industry than was first feared.

"One year ago, during Mitch, everybody was expecting damages and a lower crop," said Frank Reese, commercial manager at Beneficio de Café Montecristo S.A. (Becamo). "Regarding quantitites, there was no effect. The main problem was infrastructure. There were some producers who lost coffee, though right now, the reconstruction of infrastructure is one of the first priorities."

Becamo is the most important of 40 companies officially listed as coffee exporters in Honduras, accounting for 15% of the country's production. About 70% of Becamo's production goes to Europe, another 20% to Europe and the remaining 10% to Asia.

"Coffee was the first product after Mitch to be exported," said Reese, acknowledging, however, that quality still isn't the best. "Honduras has a name for filler coffee, and right now it's the truth. It's still suffering. Three weeks to a month of steady rains after Hurricane Mitch affected the quality."

During the first three months of the 1999-2000 season, Honduran coffee exports reached 23 million kilograms (50.66 million pounds) worth 597.2 million lempiras -- about $41.1 million at current exchange rates. That represents 14% of this season's projected total harvest of 3.5 million 46-kg sacks, says the Honduran Coffee Institute (IHCAFE).

In the 1998-99 season, coffee exports totaled $263.9 million, down $146 million from the previous harvest. Production delays caused by unfavorable weather conditions and low international coffee prices have hurt the current export cycle.

When the harvest is finished in March or April, coffee will rank as Honduras' second-largest foreign exchange earner behind the apparel manufacturing industry.

"We have a network of agencies throughout Honduras. This allows us direct contact with a lot of producers," says Reese, whose company was established in 1987 and employs 150 permanent workers. "For this year's crop, things are very good. The coffee is coming in good quality. That's because the exporters who haven't gone bankrupt are sending a message to the middleman and producers that they have to deliver good quality, because the final clients are very worried about the quality of Honduran coffee."

In fact, Honduran coffee pays a penalty of 14 cents a pound, off the current price of $1.12 a pound. Reese says at least seven coffee exporters have gone bankrupt in the past two years, representing 25% of the market.

In the 1998-99 season, Becamo exported 453,510 bags, representing 15% of the total crop of 2.95 million bags. Other important Honduran coffee exporters were Hawit and Expocafé (11% market share each); Coex and Molinos de Honduras (9% each); Inaginsa and Sogimex (5% each); Incarsa and Excosa (4% each) and Cohmasa (3%).

As of mid-January 2000, Becamo has exported 185,588 bags, or about 26% of the partial crop of 710,903 bags, according to IHCAFE, followed by Inaginsa (11%); Coex (9%); Molinos (8%); Expocafé (6%); Incarsa (5%) and Expozel and Sogimex (4% each).

"The hurricane didn't have as much of an impact as we thought it would," said Maria Guadalupe Argüeta, general manager of Café Continental S.A. in San Pedro Sula.

According to Argüeta, the 1997-98 coffee crop brought Honduras $276 million in foreign exchange -- down from $445 million the year before. But that's more due to depressed international prices than lower coffee volumes.

"There's a lot of volatility in the coffee industry these days," says Argüeta, 40, one of the few Central American coffee companies run by a woman executive. Café Continental has 60 employees and ranks 15th in export volume.

Controlled by stockholders Pedro Schmidt and Jaime Rosenthal, Continental gets most of its coffee from the Honduran provinces of Comayagua, El Paraíso, Copan and Santa Barbara. Farmers are paid 50 lempiras (just over $3.00) per lata or gallon of coffee beans, says Argüeta, who's also treasurer of the Asociación Hondureño de Exportadores de Café (ADEHCAFE), an industry association.

Manuel Reyes, president of ADEHCAFE, says what concerns him most isn't coffee prices or recovery from Hurricane Mitch, but the smuggling of Honduran coffee to Guatemala.

"We are very worried about this smuggling," Reyes told The Tico Times. "It's a big problem, because in the last crop about 500,000 bags of coffee were taken over the border into Guatemala without paying the export permit tax that is due."

Reyes, whose own company, Excafé, is a small player in the Honduran coffee industry -- exporting 80,000 to 100,000 bags a year -- says this smuggling is going on for two reasons: one, to avoid a $5-per-bag tax recently imposed by the Honduran government, and two, because Guatemalan coffee commands a higher price than Honduran beans.

"We are not totally against the tax, but we think it wasn't the right time because the market was not doing so well," says Reyes. "Coffee prices were $90 a bag. To take $5 from that is a relatively important amount, so we think it would have been better perhaps to approve a tax depending on the price. For example, if prices were $90, you'd pay a per-bag tax of $3. At $110, the tax would be $4, and so on."

The $5 tax, instituted in July 1999, is divided among three entities: IHCAFE, which gets $1 per bag to finance its operations; the government, which gets $2.25 a bag as repayment for a $22 million loan issued to coffee producers last year, and the Fondo Cafetero Nacional, a producers' organization, which gets $1.75 a bag to help the welfare of its members.

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