Twin Trading reports on Honduras coffee market

Following a recent visit, Matt Horsbrugh, Head of Trading at Twin Trading, offers his insights on developments in coffee in Honduras over the last ten years and looks at the current output of a number of certified coffee cooperatives.

Historically, Honduras has been viewed as a low quality washed arabica origin producing moderate to good volume. Overthe past few years this perception has begun to shift. The privatisation of the Honduran Coffee Institute (IHCAFE) in 2003 appears to be an important point in the development of a approach to try and both transform the level of production and also to improve the quality.

This is particularly marked in western Honduras where a number of dynamic cooperatives have benefited from certified coffee premiums (particularly Fairtrade and organic) and greater interest in specialty coffees (mainly from the US market) to invest more and more in improving quality, from farm management through to milling. More recently the higher NYC market has encouraged greater interest in coffee, leading to increased production and quality initiatives.

Cooperative investment in quality is, however, varied, with some making more substantial improvements than others. This relates to cooperative management – with younger, more dynamic managers leading the way.

Proximity to the Guatemalan border has meant that historically a large amount of coffee disappeared over the border due to the higher local market price in the neighbouring country (an estimated 10%). However, suggestions are that the flow of coffee over the border has reduced recently, which may be related to the lack of margin to exploit between the price of coffee in Guatemala and Honduras.

Farm sizes average around six hectares, with yields reported at 1,600 kg per hectare for organic coffee and reaching around 2,000-2,500/ha for conventional. One of the main reasons for the higher yields appears to be tree density, with 4,000 trees per hectare common.

There is a huge amount of new planting that has occurred on the back of the high coffee price. Moreover, this is actively encouraged by IHCAFE. This means that many anticipate Honduran production to increase by about 50% to 6,000,000 bags by 2014. . While impressive, the focus on production over processing raised concerns about bottlenecks, particularly at the drying stage. This was clear from this year’s harvest as coffee cherries matured during a comparatively short period. In some areas, some mills were reportedly open for buying only half the week. (Subsequent to my trip, this bottleneck was reported to be easing). The main varieties are: catuai (including yellow catuai) and, more recently, catimor. Also, paca, pacamara, sarchimor.

The cooperatives in Honduras are of a decent scale and seem to approach the market flexibly in relation to certifications. As FTO gives the greatest premiums there is an obvious preference for this. Nevertheless, this is tempered by a pragmatism that not all coffee can be sold as such and so combinations of some or all of Fairtrade, Rainforest Alliance, UTZ and CAFE Practices are the norm (see below).

Processing coffee bears more similarities to Guatemala and Costa Rica, including extensive use of vertical pre-dryers and cylindrical dryers (guardiolas) instead of drying fully on patios. Farmers either deliver to the coop in cherry or wet parchment (mojado). Drying patios are used to get the humidity down, initially to around 48% (oreado) before using mechanical dryers to get to 12%. Most cooperatives will have wet milling facilities.

Groups visited:

Beneficio Santa Rosa (BSR) and affiliated cooperatives
BSR is a privately owned mill that started in 2004. It is majority owned by an American ex-pat and has six other shareholders, including farmers, though by no means small (one with around 140 hectares). It has a very dynamic manager, Douglas Urquia, who has focused very strongly on the specialty market, with great results. The mill is state of the art and very efficiently managed. It currently processes around 150,000 bags. It will only accept quality from cooperatives. It has quite high milling costs, though not exhorbitant.

Douglas has built up an alliance mainly with six coops, which commit their volume to be processed at BSR, including Capucas and Marcala, both of which are sought after for their quality. He is in the process of helping them create a ‘federation’, in essence a secondary coop, though milling will stay with BSR, which one assumes is to remain in private hands.

Douglas is also general manager of Honduras Quality Coffee (HQC), which is a department that works on projects through donor sources to work mainly on quality and also some other areas (including climate change).

I visited three of the BSR coops:

COCAFELOL
This cooperative is very into organic and efficient use of resources. They have installed a system to extract bioethanol (from fermented water) and gas from coffee pulp, which they will install to use to power drying and milling.

Region: Central Ocotepeque, near El Guisayote reserve
Volume: 25,000 bags
Certification: FT, FTO, Organic, RA, Utz
Website: www.cocafelol.org

ARUCO
Founded in 2005 and named after the river that runs through their area. I visited a model farm where the owner was innovating on a number of productivity ideas, with smaller farms then following him on the more successful innovations.

Region: Rio Aruco de Corquín
Volume: 25,000 bags
Certification: FT, FTO, Organic, RA

COCAFCAL (Capucas)
One of the most developed coops, they have a strong reputation for quality. They were just putting in a new wet mill. This had been financed by an initiative backed by the World Bank and Swiss Cooperation. This includes soft loans for most of the investment (2%) plus an additional investment from the coop members.

Region: Copan, near the Celaque National Park
Volume: 45,000 bags
Certification: FT, FTO, Organic, RA, Utz

Others through BSR:

ECODOME
In addition to the above I visited ECODOME, not yet formally a coop and who are selling through COCAFELOL. They have poor milling infrastrure but were looking at working with BSR to secure the WB/Swiss financing to at least improve on their drying patios and water source. They were not on local electricity supply so were reliant on small diesel generators to power the wet mill, light and basic admin resources. They are in an area close to the Guatemalan border in the dept of Ocotepeque. I attended a meeting with their members (21) and representatives from HQC to discuss the project and gather info for the proposal.

Region: Central Ocotopeque, near the Guisayote reserve
Volume: 2,500 bags
Certification: Utz

CARSBIL
Though I didn’t visit this group, Douglas at BSR was keen to expand market possibilities for them and felt that the area has great quality potential. The quality comments were backed up in a blind cupping session in which their coffee came out well.

Region: Intibuca
Volume: 3,000 bags
Certification: FT, FTO

Beneficio Exportador del Occidente (BEO) and member cooperatives
Following the collapse of the secondary coop La Central in 2007, three coops, COAGRICSAL, COPROCAEL and CAFEL have retained an alliance (largely through strong relationships between their general managers) and have grown strongly over the past three years despite inheriting significant debts from La Central. This season they set up an export operation called Beneficio Exportador del Occidente (BEO). As opposed to BSR, the export and mill functions will be owned by the three coops as shareholders. They hope that in the future to export for other cooperatives.

Lack of working capital, drying capacity and international customers has meant that they sell quite a bit of coffee locally, particularlyto Molinos (Volcafe) and Honducafe (private owned largest exporter in Central America).

COAGRICSAL
They are one of the largest coops in Honduras but not as strong on quality as some of the BSR coops. However, they are improving their milling capacity, including the introduction of a new dry mill which will serve as the mill for BEO exports. They have invested in converting lower grown areas to cocoa as a diversifiacation strategy.

Region: Copan, Santa Barbara and Intibuca
Volume: 100,000 bags
Certification: FT, FTO, RA, UTZ, CAFE Practices

COPROCAEL
This group is geared more towards volume and there seems to be little interest to develop specialty coffee as per BSR.

Region: La Encarnacion, Copan
Volume: 50,000 bags
Certification: FT, FTO, UTZ, CAFE Practices

CAFEL
Smallest of the three organisations, it almost went under following La Central collapse. Quality potential is good though they have to invest a bit more and lack some funding.

Volume: 25,000 bags
Region: San Fernando, Copan
Certification: FT, FTO