Cuvee Coffee

JULY 29, 2011.A Prince of the Coffee Bean

Honduras Becomes Central America's Top Producer, Helping to Fuel Its Economy

By JEAN GUERRERO

SAN PEDRO SULA, Honduras—The coffee equation in Central America has changed.

This year, Honduras passed Guatemala as the top coffee producer in Central America, the region that produces the bulk of the world's washed arabicas, the most expensive and sought-after coffee beans, which are used in gourmet blends. Honduras's harvest this season was 3.8 million 60-kilogram bags of coffee, compared with 3.5 million bags for Guatemala.

While Colombia remains the world's top single producer of washed arabica, the rise of Honduras provides the global coffee market with another top player, and a boost for the impoverished nation's economy.

For Honduras, a poor nation known more for coups than coffee, besting its neighbor is sweet vindication. That's because for years, many Honduran coffee growers smuggled their beans to Guatemala, where they would fetch a higher price due to Guatemala's reputation for quality coffee.

Call it one of the dirty secrets to the coffee trade: Some of Guatemala's beans were actually grown in Honduras. As Guatemala's coffee commanded ever higher prices, it only encouraged more smuggling, creating a vicious cycle for Honduras's coffee industry.

"We've actually had bigger harvests than this, but it never showed because of how much coffee was getting smuggled," said Jorge Alberto Lanza, president of the National Association of Honduran Coffee Producers.

Things started to change a few years ago, when a government tax on coffee exports—which initially led to more smuggling—helped fund technical assistance to growers that boosted production and quality, helping local prices rise and make smuggling less attractive.

As a result, Honduran beans have averaged $2.45 a pound this season, surpassing Guatemala's prices for the first time in a decade.

Also for the first time this year, Honduras placed above Guatemala in the Specialty Coffee Association of America's Coffee-of-the-Year competition, closely watched by connoisseurs. Colombia was the only country that placed above Honduras.

Major coffee chains such as Starbucks Corp. and Peet's Coffee & Tea Inc. have single-origin blends from Guatemala, Costa Rica and Colombia, but not from Honduras. Starbucks representatives declined to comment on future procurement plans.

Coffee traders, however, are keeping an eye on Honduras.

"Honduras was like a sleeping giant," said Willem Boot, a San Francisco-based coffee quality consultant. "Now the giant is up and running."

Javier Oliva used to number among the Honduran coffee smugglers. But encouraged by higher local prices and patriotism, he has abandoned the contraband trade and contributed to Honduras' emergence as one of the most important coffee producers in the region.

For years, Mr. Oliva would smuggle thousands of kilograms of coffee beans across the Honduran border to Guatemala after nightfall.

"I started with my own plantation, and in 1996 I started buying coffee from others to sell in Guatemala," he said. "That's how I discovered that the quality of the coffee in our region was very good. And even though we were paid better in Guatemala, it wasn't what our coffee deserved."

Guatemalan officials don't dispute that Honduran beans were being smuggled through the border and sold as Guatemalan grown, but say that wasn't the case with Guatemala's highest quality coffee.

Ricardo Villanueva, president of the Guatemalan Coffee Association, said all of its branded coffees are bought directly from plantations, so such a mix-up of beans would be impossible.

"Maybe (Honduran coffee) was being exported as volume, but not as any of our specialty coffees," he said. As to the quality of Honduras' coffee, Mr. Villanueva said Guatemala's brew is still better, and said Honduras' win at this year's tasting competition was a "one time" thing.

Honduran officials say coffee smuggling for a long time put a damper on the nation's economy, as coffee makes up 6% of the country's $14 billion gross domestic product and 36% of agricultural output. . Officials say at least 300,000 bags were getting smuggled, and some producer estimates are as high as 2 million bags—more than half the harvest.

But it was almost impossible to control because smugglers could evade capture by telling border agents they were transporting coffee to Honduran storage facilities near the border.

"The transportation of coffee from one place to another isn't illegal, since coffee isn't a prohibited substance," said Kelsin Artiaga, head of public relations for Honduras' Ministry for Public Safety. "It makes it hard to establish whether it's a case of smuggling or not."

The government assistance through the new tax slowly boosted both production and quality. Quality certifications have skyrocketed. One coffee cooperative said around 400 of its growers have been certified over the past four years by groups like Fair Trade, Rainforest Alliance and Utz to secure premium prices.

Following in Guatemala's footsteps, Honduras started marketing coffee from six distinct regions, each with a slightly different flavor.

In 2006, Mr. Oliva organized about 90 farmers under a cooperative. About 80% of them now sell their coffee with certification seals to clients in Europe and other parts of the world.

"It's a quality coffee, and we don't have the need to sell to Guatemala anymore," he said.

Eno's Pizza Tavern (Dallas Texas) and Local Coffee (San Antonio) travel with Cuvee Coffee.

We all know that the “local” movement has really gained traction. This should be very exciting for anyone who provides a great product or service…especially if you are in a densely populated area…or should it? Before we dive deeper into that question, let’s define the term local. One of the most comprehensive definitions that I have seen comes from Robby Grubbs, owner of Local Coffee, a specialty coffee shop in San Antonio, Texas. Robby defines local as, “Local; Independent, non-franchise, entrepreneurial, creative, owner present and engaged, local surroundings considered in finish, respectful and responsible to the community it serves, creating a strong sense of community, a hub for a community and creative network, doing your best to purchase from local vendors (quality has to be priority over all else) keeping the pipeline of money in the community.” Personally, the part that I want to address is (paraphrased) keeping the money in your community, if you are able to find the quality you seek in your community. Like lots of other terms, labels or certifications, local has become a marketing campaign for many companies. It is often used to shame a business owner if they don’t buy a product produced locally. Robby hears it all the time, especially with a name like Local Coffee. And this is the problem with local. A company can produce a sub standard product and generate sales by strategically marketing it as local. We see it all the time with neighborhood coffee shops. People I don’t care if you are next door…if you serve bad coffee they will go somewhere else! I love the local movement and support it whole heartedly. When I need a product or service, I look locally first. If I can find the quality that I desire and it is provided by a local company, I am in! But, here is the catch. If you don’t have the quality I am looking for, I don’t really care that you are local. I will look outside of my community and will not be apologetic about it

I have never been to Blue Bottle, but hear great things. I did stop into Stumptown while I was in New York a couple months back and I had some great coffee. This report tries to explain what makes specialty coffee, special. I think they did a pretty decent job considering that reporters almost always get it wrong.

Watch the ABC Nightline Video

It is no secret that specialty coffees from Ethiopia can be some of the most interesting, unique coffees. One of my biggest issues the past 2 years has not been the flavor profile, but the poor prep. As a coffee buyer it is very difficult for me to justify the huge premium when the coffee prep is so terrible. Should I just bite the bullet and pay the high price to get that interesting cup character or should I use my money to reward someone else who is putting forth a total commitment to quality...including prep?

I know a lot of roasters tout the natural Ethiopian coffees because of that great fruit forward flavor. I mean, how can you not notice that blueberry or strawberry that completely dominates the cup? Another thing that is great for roasters is that when you have a coffee like that, it is really tough to screw it up during roast. Those fruit flavors will dominate with a number of different roast profiles. The coffee has a very large "sweet spot" if you will. To me, the coffees (particularly the naturals) are safe and an easy way to introduce the consumer to the idea that coffee can be unique. But for me, I will be investing my money into the specialty coffee farmer that is the total package. Once I see some changes, I will gladly re-visit the subject.

Here are some of the issues as described by an importer:
Having experienced many delayed shipments we visited our shippers to assess for ourselves the reasons behind this appalling state of affairs. Below is a statement of the circumstances that have led to such poor contract performance. We believe that since the
Reasons that have resulted in delayed shipments are several and it is possible that some of this information does not come as news, however hopefully this report puts things into some sort of perspective and brings some confidence that the worst is in the past!

Marketing System
The change in the marketing system at the start of this season, whereby coffee started to be sold x-region where the coffee is grown (rather than x-Addis) gave rise to some rather large logistical challenges resulting in a less than smooth marketing of the crop. Delays in starting the selling of the crop, delays in off-loading, loading and problems in finding adequate transport have been plaguing shippers since February. Coupled with increased rainfall and the subsequent deterioration of the roads meant that some up-country storage facilities were closed for several days at a time. Having coffee stored in several warehouses in and around Awassa has proven a logistical headache for shippers having to send trucks from one warehouse to another to collect a couple of hundred bags. In Djimmah, lack of a weighbridge and the very poor state of access roads resulted in multiple delays.

Port of Djibouti
Port in Djibouti bureaucracy and changes in procedures started a bottleneck that took weeks to clear in April; this issue has been well documented and was a very real problem; it delayed shipments with cargo stuck in Djibouti for weeks and shippers strapped for
Cash in Addis. An interesting consequence of the changes in Marketing mentioned in the previous paragraph has been the shortening of the time between harvest/primary processing and the marketing of the crop. Meaning that shippers are carrying stock for longer, putting more pressure on shippers financing.

Shipper Limitations
One of the consequences that came from the suspension of the "6 majors" has been that the shippers that remained active have increased their volumes quite substantially; this has put a strain on their resources, both financial and operational (logistics/transport and processing/storage capacity) and disrupting the flow.

Bags
The increased volumes of coffee offered this season have required additional quantities of export bags which have been in short supply; Relying on imported bags from Bangladesh has not been an alternative since it appears that shippers have not been able to find suppliers that can meet the strict chemical residue limits imposed by the authorities. There have been serious disruptions to local production of bags from power rationing after the new dam labeled has the answer to Addis' electrical power problems turned from panacea to joke when it collapsed shortly after its official inauguration!