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Central America's coffee crisis: Honduras report.

Honduras, the world's original "banana republic," is doing everything it can to reduce its economic dependence on bananas--and coffee--both of which are now being threatened by instability on the world market.

Ramon Medina Luna, the Honduran economy minister, summed it up in a recent interview in Tegucigalpa: "For us, the drop in coffee prices has been disastrous. We're not even covering costs," he said. "Given the fact that the market for coffee and bananas is something we have no control over, we feel that the more we diversify our productive base, the better off the country will be, and we're definitely encouraging that by the introduction of macroeconomic policies."

Nevertheless, bananas still account for 44% of Honduras foreign exchange earnings, compared to 15.4% for coffee and 12.5% for shrimp. "The increase in non-traditional exports and liberalization of the exchange rates hasn't been enough to compensate for the fall in coffee prices," says one foreign diplomat stationed here.

Just ask Norma Zuniga, general manager of Beneficios Merendon S.A. in the northern city of San Pedro Sula. "This year, the poorest campesinos haven't fertilized their fields because low prices don't allow them," she told the Tea & Coffee Trade Journal during a visit to San Pedro Sula, the country's secondlargest city. "Some big producers are investing in other industries. But coffee here is in the hands of many small producers, and these people don't have the resources to switch to other sectors."

Beneficio Merendon is among the three largest coffee exporters in Honduras, the other two being Molinos de Honduras, which is wholly owned by Volcare of Switzerland, and Roberto Hawit & Compania. All three are headquartered in San Pedro Sula, 30 miles from the main port.

According to government estimates, the 1992-93 crop will total 2.5 million 46-kg bags--a 15% drop from last year's production of 2.9 million bags. Some 92% of Honduran coffee is exported; last year, 50% of those exports were shipped to Western Europe, 37% to the United States, and the remaining 13% to Japan.

Honduran coffee, which falls into the Other Milds category, is expected to bring in $150-160 million for the 1992-93 crop. The industry employs 65,000 workers, who, according to Zuniga, earn an average L12 (60) per quintal of coffee produced.

Says a U.S. official who asked not to be named: "Honduras has been very pragmatic regarding international coffee policy, and it's cooperating with other countries to try to negotiate a new coffee agreement. With a free market, Honduras would probably survive very well." The official added that, despite the low price., "it's not a total disaster. If production has not declined, it shows you something. They haven't gone out of business yet."

Roberto Viileda, general manager of the Association of Honduran Coffee Exporters (known by its Spanish acronym Adecafeh), says he's also optimistic about his country's long-term coffee outlook even though things don't look too encouraging now.

"Coffee is the backbone of the economy. It's not the largest foreign-exchange generator, but it employs so many people," said Viileda. "Unlike El Salvador and Guatemala, many of the growers are small, less than 30 acres. Honduras can maintain the current level of production. We believe it's going to stabilize or keep growing slowly if prices improve. In spite of these terrible prices, somehow we'll manage."

He said the government recently approved a "bono" or incentive Of 50 Honduran lempiras per quintal (qq). This works out to $9/qq.

"We think this will definitely help," he said. "Hopefully it will go up $10 next year, and the government will no longer have to finance the crop. Let's keep negotiating with the ICO. The producing countries are wasting time. We can't be in the hands of speculators.

Villeda, who has his own 130acre plantation near La Montanita, is not your typical Honduran coffee farmer. He studied at both Boston University and New York University, speaks impeccable English and at 32 years old, heads an organization whose 35 or 40 members represent 80% of Honduran coffee production.

Members pay LO.33/qq, or about U.S. 6 per quintal, as dues to Adecafeh, which in turn represents their interests.

To help coffee growers cope with low prices, the government, under the recently passed Ley de Emergencia Nacional, has eliminated the 15% export tax as long as prices remain under $70/qq. The government is also paying a subsidy of L50/qq for "care oro" and helps the grower with L20/qq of fertilizer bought for coffee farms, up to a maximum of L4,000 for 200 quintales, according to Julio Adolfo Gonzalez, subdirector of Instituto Hondureno de Care.

The institute, formed in 1970 and regulated by the state, operates on an annual budget of L29 million (USS 6 million) and has a staff of 300, of which 170 are agricultural technicians.

"As a nation, Honduras can't suspend exports," says Gonzalez. "This is the second most important export of the country, and many people depend on it."

Says Viileda: "Guatemalan and Costa Rican coffees are the best in the world. However, our quality is very good. The problem in Honduras is that we don't have big wet mills where the producers take their cherries to be processed adequately with good water. The government has gotten into areas where they're not using what they have efficiently. I think they should concentrate on quality, starting programs such as installing wet mills in the major coffee growing regions."

Yet Osmond Maduro, president of Comercial Agronorte S.A. and president of Adecafeh, says "the government is doing what it can," adding that the government of president Rafael Leonardo Callejas isn't thrilled about subsidizing any commodity and that given the country's shaky economic picture, "they can't keep this up for very long."

Maduro, who's been in business for 17 years and also has invested in the cigar and resin industries, says he favors a quota system. "I'm in favor of a quota system, providing we have an agreement totally different from what we had in 1989, which was mostly political. The reason the agreement failed was because it wasn't based on objective criteria. It was unfair to many countries, not only small ones like Honduras but large countries like Indonesia."

In the meantime, the government is encouraging coffee farmers to switch to other crops like cacao and cardamom. Last year, some 4,900 hectares of cacao were in production, representing $3.7 million in exports, said Maria Eugenia de Ruiz, manager of investment development for the Federation of Producera and Exportera of AgroInduatrial Producta (FPX). The total area of cacao under cultivation is expected to increase to around 7,000 hectares in the next few years.

She a also been experimenting with cardamom. "We've been doing some exports to Jordan. Much of our cardamom is going to Guatemala and El Salvador, and from there to the Mideast. FPX is helping cardamom growers in Honduras improve their yields by providing technical assistance and dryers to get a value-added product," said Ruiz, formerly a commercial attache at the Honduran Embassy in Washington.
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Author:Luxner, Larry
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1993
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