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Guatemalan coffee industry could be outshined by more lucrative exports.

Guatemalan coffee industry could be outshined by more lucrative exports

Apparel, ornamental plants and other nontraditional exports may soon overtake coffee as Guatemala's most important source of foreign exchange, thanks to changing political and economic realities in this Central American country.

Even before the presidential run-off election scheduled for Jan. 6, the political situation had been turbulent. Businessman said neither of the two leading candidates--Jorge Serrano of the Solidarity Action Movement and Jorge Carpio of the Union of the National Center--has coherent solutions to Guatemala's economic problems and much-publicized political violence.

Nevertheless, the country's economic prospects are closely tied to whichever political party comes to power. Company executives interviewed here say their main concerns are political instability and exchange-rate fluctuations, which they believe go hand in hand. Uncertainly about the outcome of the runoff, a seesawing exchange rate, runaway prices and gasoline shortages are confounding all attempts at economic forecasting.

"How can you project an economic outlook when the political situation is so unstable?" asked one investor. Others interviewed said they would play it safe by manufacturing only for export markets.

Official figures for the first half of 1990 put Guatemala's total exports at $576.9 million, compared with $560.9 million for the same period in 1989. Although modest, this increase reflects the growing strength of nontraditional exports, given that coffee revenues were lower in the first half of 1990 than they had been a year earlier. A recovery in coffee prices should help bring about a larger overall increase in year-end export earnings.

Even so, the 1990 coffee market slump will hurt Guatemala's overall economic growth. Analysts expect overall economic growth in 1990 to total only 2.6%, down from 3.9% the year before, following the coffee quota system collapse and uncertainty generated by recent interest-rate and exchange-rate reforms. The general trend in Guatemala is now toward economic diversification and away from reliance on traditional sectors such as coffee to generate foreign exchange.

"Non-traditional exports are booming," says Roberto Cordon Schwank, president of the National Union of Agriculture and Fisheries (UNAGRO) in Guatemala City. "They should increase to about $450 million in 1991 from about $375 million in 1990, although they are mostly perishable goods for the U.S. market, and better-quality controls and pesticides need to be developed. I would say the best alternatives now, the products with greatest potential, are ornamental plants, vegetables and pre-cooked fruits."

Both government and private industry are promoting investment in spices, fruits, vegetables, liquors, preserves, apparel, footwear, handicrafts, pharmaceuticals, precious gems and furniture. Export growth in these sectors has more than offset losses in coffee earnings, following the collapse of the International Coffee Agreement in July, 1989, and in fact has been so rapid that transportation and communications can't keep up.

In fiscal 1990, the U.S. bought $104.6 million worth of Guatemalan coffee, up from $68.6 million in fiscal 1989. Other big buyers of coffee from Guatemala are Germany, Italy, the Netherlands, Saudi Arabia and other Central American countries.

Traditionally, coffee generates around 61% of the country's export earnings, followed by bananas (13%), sugar (9%) and cardamom (8%), of which Guatemala is the world's No. 1 exporter.

One casualty of the Persian Gulf conflict--which has already hurt Central America by doubling oil import costs, shrinking government accounts and jacking up consumer prices--is the loss of cardamom exports to Iraq and other Middle East markets. Even before hostilities began, coffee producers throughout the region were being encouraged to diversify into cardamom.

Despite the emphasis on diversification, the Guatemalan government is pushing coffee exports, particularly high-value gourmet coffees, with $25 million in help from the U.S. Agency for International Development.

Anacafe, the state-owned coffee agency, estimates that exports reached a record 3.53 million 60-kg bags in 1990, generating $392 million. Although another record harvest is expected for 1991, exports will drop to 3.15 million bags (generating $364 million) as stocks from previous years are depleted.

According to the Nontraditional Products Export Association (GEXPRONT), these exports will have generated $345 million in foreign exchange during 1990, compared with $259 million in 1989. This estimate is based on 23% growth recorded in the first quarter of 1990.

Although economic prospects for Guatemala in 1991 are not promising, exports will increase about 36.6% in volume, thanks to record coffee and sugar harvests.

THe U.S. Department of Agriculture estimates Guatemala's 1989-90 coffee crop at 3.3 million bags, up from 2.98 million in 1988-89. For 1990-91, the USDA forecasts a crop of 3.35 M bags.

This increased output, combined with the existence of large stocks, has enabled Guatemala to increase its coffee exports and compensate for the slump in world prices. Export volumes in the 1989-90 coffee season reached about 4 million bags, up from 2.4 million bags in 1988-89 when the quota system was in force.

This leap in volumes also resulted, in part, from a reversal in the flow of contraband coffee as producers in neighboring countries took advantage of the depreciation of Guatemala's currency, the quetzal. As a result, coffee export revenues in the first seven months of 1990 stood at $213 million, little changed from the $219 million recorded a year earlier. With prices firming up in recent months, export revenues for all of 1990 are expected to surpass 1989's $373 million.

In recent years, not just coffee revenues but all of Guatemala's export revenues have stagnated, reflecting their dependence on commodities which are vulnerable to weather and whose prices have tended to be weak. In 1988, export growth approached 10%, outstripping that of imports--which were curbed by falling oil prices, foreign-exchange shortages and currency depreciation--but the trade deficit fell only slightly, to $339.9 million.

In 1989, the deficit became still larger, with cofee export revenues remaining depressed because of the weak world coffee market. Even so, the region's high-quality Other Mild Arabica coffee has weathered the collapse of the world coffee market relatively well.

Since regional producers have boosted the volume of their exports to compensate for the price collapse, observers question whether they would want the ICA to be revived unless their quotes were significantly increased. Anacafe has said it will not support a new international quota system which gives Guatemala less than 5% of the world market. The old Agreement gave Guatemala a 3.26% share.

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Author:Ramaswami, Rama
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1991
Words:1063
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