The price, processing and production challenges
of growing coffee profitably & sustainably in Guatemala

Don Lotter visited three midsized shade-grown plantations and a variety of small growers. He found that many of the innovations in growing and processing coffee are coming from the medium scale certified growers.

By Don Lotter, for New Farm.
Panajachel, Guatemala - April 15, 2003

FOR A GUATEMALAN COFEE SLIDESHOW, CLICK HERE.

Pictured above: Coffee, with white flowers, and macadamia trees on Oriflama farm in the highlands of Guatemala.

Posted May 13, 2003: Good coffee, like wine, has cachet – it’s delicious, it adds richness to your daily routine, it expands your vision. Even more than wine however, coffee has embedded in it a rich matrix of social, economic, and environmental dynamics that span the globe.

Coffee is the second most valuable globally traded commodity; only the petroleum trade does more business. Furthermore, in a stark distinction from the notoriously concentrated petroleum industry, coffee is produced by more than 20 million farmers worldwide.

In 2001 the price of coffee fell from over $1/lb. on the world market to less than $0.50 because of the increase in supply brought on mainly by Vietnam becoming a major coffee producer and by increases in production in Brazil. The price drop has been an unmitigated disaster for Central American economies, causing some 600,000 people to become refugees and 1.2 million to need direct food aid.

"Worldwide it is widely said that the average coffee farmer receives about 1% of the price of a cup of coffee bought in a café. By simply increasing the percentage that goes to the farmer to 2%, a few pennies are added to the cost of a cup of coffee, but a doubling of the farmers income can be achieved, making coffee production profitable. "

The signs of the coffee crisis can be seen everywhere in the Guatemalan highlands, where some of the finest coffee in the world is grown. Huge swaths of land that formerly held coffee with beautiful stands of shade trees lie smoldering or blackened, being readied for planting of some other crop. The use of large trees for shading coffee is a Guatemalan coffee-growing custom and is said to have been developed here. Coffee grown under the proper level of shade takes longer to develop, which favors the development of rich and complex flavors. Shade-grown coffee is one of the most environmentally benign crops in the world and is perhaps the ideal agroforestry crop. Over 100 species of shade trees have been counted on a single Guatemalan coffee farm.

The vast majority of alternative crops being planted in the place of coffee are not nearly as environmentally friendly – most are monocultures, many need much higher levels of pesticides and fertilizers and many are annual crops that leave the soil exposed to erosion.

Less visible than the loss of coffee crop land is the human suffering and struggle due to the loss of jobs on and income from coffee farms. The indigenous people of the highlands of Guatemala are not a demonstrative people. They suffer their setbacks quietly. However, it doesn’t take a long conversation to find out how difficult the past two years have been for people here whose livelihood depends on coffee. While, historically, the coffee industry in Guatemala has been intimately linked with the exploitation of the Mayan people, as described in books such as the widely read I, Rigoberta Menchu, the loss of those jobs has made the situation worse. Swarms of people from the countryside ply the streets of tourist towns trying to sell homemade weavings and crafts.

Premium grade coffee, low grade prices: The Guatemalan
struggle to be recognized in the gourmet market

Central America, and particularly Guatemala, produces some of the finest, if not the finest coffees in the world. Terms like “kaleidoscopic, exceptionally sweet, elegant and powerful” have been used by coffee professionals when describing Guatemalan highland coffees. The problem is that much of the Guatemalan coffee is sold on the standard world coffee market, known as the “C market,” whose average coffee quality is far lower than Guatemalan highland coffee. The C market price is currently less than the cost of production. Reaching the “specialty” or “gourmet” coffee market is a major goal of Central American coffee producers.

The task of selling to the gourmet coffee market can be daunting, however, as there are at least two dozen major steps in the chain of production and processing that must be carried out flawlessly in order to sell to the specialty coffee market. If any one of those steps is botched, the coffee will surely be rejected by coffee brokers, whose practice of tasting, known as “cupping,” the roasted, ground and brewed product is a standard regimen in the marketing chain.

Everything from varietal selection, soil fertility, pest and disease management, harvesting, time from harvest to processing, plus a dozen major steps in processing from initial fermentation to final drying, storage, and transport have to be spot-on in order to make the gourmet coffee grade and get the top prices - $1 - $1.50 per pound for “green” (unroasted) coffee. (Green coffee is the form of coffee traded on the world market.)

I visited three traditional plantation style coffee farms as well as a number of small scale coffee producers and cooperative managers. The coffee plantation owners are relatively wealthy by Guatemalan standards. However, with the fall in coffee prices, even these families are struggling hard to make ends meet. Much of the pioneering work on the development of methods for coffee sustainability and quality is being done on these farms.

Oriflama Farm, in the mountains just south of Mexico:
Environmentally friendly, agriculturally innovative, socially bold

Walter Adams of Oriflama breaking social molds: Standing in the tan sweatshirt, Walter runs a workshop for his workers to apply for leadership positions on the farm. He encourages the women to attend, and says he actually prefers women as supervisors because they don't bring with them the old Latin American tradition of poor treatment of workers, as many men do.

Walter Adams, whose great-grandfather Don Bernardo Hannstein was one of some 5,000 German coffee pioneers in Guatemala in the 1800s, showed me his family’s 185 hectare coffee and macadamia nut farm, Oriflama, in the mountains just south of the Mexican border. After leaving the main road, we drove for two hours on a four-wheel track to reach Oriflama.

Oriflama is certified for sustainability by the Rainforest Alliance, a process that involves inspection of a spectrum of farm elements: fertilization, pest management, waterway protection, recycling, worker pay and housing, biodiversity, and transparency of the marketing chain, to name a few.

This certification is not an organic certification – it is broader in its scope than organic, although a farm can be certified under both frameworks. Under the Rainforest Alliance certification program, certain types of pesticides and low to moderate levels of synthetic fertilizers can be used, a major distinction from organic certification. On the other hand, criteria such as the recycling of waste from processing facilities and on-farm households, worker wage and housing criteria, coffee marketing channels and their transparency, and standards for protection of riparian and natural zones are all issues addressed by the Alliance that generally stand outside the scope of organic certification.

Oriflama Farm

Owner: Walter Adams
Size: 185 hectares
Certification: Rainforest Alliance sustainability certification
Innovations: water-efficient wet processing system; low-cost pest trap for the coffee berry borer; the hiring of women as supervisors on the farm
Sells to: Starbucks, others

Starbucks pays 10% more for coffee that is certified as sustainable by Rainforest Alliance and several other certifiers. They pay approximately $1.20 per pound, about twice the C-market price and close to the current Fair Trade price of $1.26 per pound. Oriflama sells a substantial percentage of its coffee to Starbucks.

Water pollution from the wet-processing system that most Central American coffee producers use is coffee’s biggest environmental impact. The waste water is acidic and high in natural effluents from the fermentation of the mucilage that envelopes the coffee berry. Oriflama has developed a method of wet processing the freshly harvested coffee beans that reduces the amount of water used by 95%, virtually eliminating the discharge of waste water into surrounding streams. They recycle all of their coffee processing pulp back to the coffee plantation as fertilizer.

"Adams and his crew at Oriflama have developed a low-cost attractant trap for controlling the coffee berry borer, coffee’s worst insect pest. The traps are made from discarded plastic liter-sized soda pop bottles and two inexpensive alcohols as attractants."

Over 100 species of trees have been counted as part of the shade regime on Oriflama. About a third of the coffee is interplanted with macadamia trees, the nuts of which are also processed on the farm. Where macadamia is not interplanted with the coffee, the predominant shade tree species is Inga spp., known as chalun. Chalun, is a legume, yields excellent firewood, and is the most commonly used coffee shade tree in Central America.

Adams and his crew at Oriflama have also developed a low-cost attractant trap for controlling the coffee berry borer (Hypothenemus hampei), coffee’s worst insect pest. The traps are made from discarded plastic liter-sized soda pop bottles and two inexpensive alcohols as attractants. In the absence of adequate research infrastructure for organic and sustainable methods in Guatemala, the better-off plantations such as Oriflama play an important role in developing this type of technology, which can then be replicated by small-holders.

Another of Walter’s innovative practices is to hold workshops for any of his workers who wish to train to become supervisors, known as caporales. He encourages the women to attend, and says he actually prefers women as supervisors on the farm, as they do not bring with them the old Latin American tradition of exploitation and poor treatment of workers, as many of the men do. Women tend to focus on the tasks at hand rather than power issues, as the men tend to.

Of three highly successful women caporales on the farm in the past, only one remains, as the two others’ husbands could not accept the women having an income greater than theirs and forced them to quit! The remaining woman caporal put her foot down and told her husband he could leave if he wanted, but she wouldn’t give up her post. He hasn’t left.

Finca Santo Thomas Perdido, on the lower slopes of the Toliman volcano:
Fighting erosion, preserving older varieities, supporting local people

Finca Santo
Thomas Perdido

Owner: Carlos Torrebiarte
Size: 280 hectares
Certification: Mayacert, a Guatemalan organization with standards similar to the Rain Forest Alliance
Innovations: using honey bees to increase productivity; promoting responsible use of firewood from coffee shade trees, along with fuel-efficient, home constructed adobe stoves; preserving older tipica varieties of coffee, which Carlos says are very flavorful

Several hours drive to the south of Oriflama, where the Guatemalan highlands begin to descend from Lake Atitlan to the Pacific Ocean, Carlos Torrebiarte owns and runs a 280 hectare coffee farm, Finca Santo Thomas Perdido. Santo Thomas is certified for sustainability by Mayacert, a Guatemalan-based organization that uses the same framework used by the Rainforest Alliance for certification. As with Oriflama, St. Thomas has reduced water discharge from processing to negligible amounts, the biggest step in making coffee production sustainable.

Carlos is also a leader in developing honey production in coffee, and keeps one hive per acre of coffee throughout the farm, harvesting 125 lbs. of honey per year per hive. The honey is from flowers of both coffee and chalun. Carlos maintains that pollination of coffee by bees raises his coffee yields by 25% -- a recent discovery. Coffee is mostly self-pollinated and has not been considered to be a crop that needs insect pollination. Carlos believes that the coffee crop has great potential to be a major honey producer in Central America.

Carlos is also enthusiastic about the substantial amounts of firewood supplied by coffee shade trees. Eighty percent of energy use in Guatemala is still firewood, and shade-gown coffee can provide much of that, taking some pressure off of the remaining beleaguered forests. Carlos works in the community to promote the Lorena stove, a simple, home-constructed, adobe stove that reduces fuel use by half. He is also involved with his coffee-grower neighbor, Andy Burge, in preserving the remaining forests in the area.

"Carlos maintains that pollination of coffee by bees raises his coffee yields by 25% -- a recent discovery. Coffee is mostly self-pollinated and has not been considered to be a crop that needs insect pollination. Carlos believes that the coffee crop has great potential to be a major honey producer in Central America."

Andy, whose farm I visited with Carlos, is one of the leaders of local conservation groups and is involved with The Nature Conservancy. Andy is attempting to obtain the Smithsonian “Bird Friendly” coffee certification, but says that it’s very stringent and not easy. As we sit and talk on the porch of his old plantation-style home, he identifies at least a half-dozen calls of birds considered to be rare and threatened. Andy says that since he and other neighbors have improved the shade tree abundance and diversity in their coffee plantations, plus banned the use of slingshots on their land by locals (traditionally used to hunt birds), many birds have reappeared that did not exist here a decade ago.

Destruction of forest on the volcano slopes above the Santo Thomas Perdido farm by people needing new crop land has caused wells to dry up, and two major mudslides to occur. The second mudslide wiped out a village, killing over 30 people in 2002. Carlos has housed the remaining villagers on his land. He has planted a South American bamboo Guadua angustifolia known as the world’s strongest and longest lasting bamboo, to help stabilize the slopes. Pressure to exploit the few forested areas left, mostly on steep slopes, has increased and will continue to grow. The population growth rate is high amongst the poor, mostly Mayan, highland population - the population doubling time is approximately 20 years. Families typically consist of at least 6 children. The gardener of the house I am renting has 12 children. The outdated, corrupt, and vastly unfair land tenure system of Guatemala makes the situation worse for the poor and landless.

Another of Carlos’ projects is the planting and preservation of tipica varieties of coffee. These varieties were brought to Guatemala by the Spanish hundreds of years ago and were selected to thrive under local conditions. The tipicas predate the venerable Bourbon variety, considered to be the oldest of the more modern coffee varieties. Carlos maintains that, while the tipica plants tend to be large and scraggly, the taste of tipica coffees is unparalleled.

Andy’s coffee farm is in transition to organic. He is the third coffee grower I have talked to who maintains that going organic means enduring a yield reduction of 50%-70%, due to soil fertility constraints. I am skeptical that this magnitude of yield reduction should be the rule, for several reasons. First, a study done in Costa Rica showed an average organic underyield of 17% in paired conventional/organic coffee farms, despite the fact that state-of-the-art organic methods have yet to be developed for coffee. Second, all of the evidence from other crops around the world shows that organic crops yield on the average 90% of conventional, after transition and the development of state-of-the-art organic methods. This point of view is bolstered by Carlos and Andy’s mention of a consultant who maintains that organically managed coffee can attain equal yields as conventional, all other things being equal. So the jury is still out on this issue. Research needs to be done, particularly on green manure crops for building soil fertility.

Smaller coffee growers near the shores of Lake Atitlan:
Struggling to survive the low world prices on less than an acre of land

The impact of low world prices: Small coffee grower Antonio Quic shows a neighbor's land, where coffee has been taken out because of the fall in prices and loss of income.

I visited Francisco Sajquiy’s small (less than an acre) coffee farm in San Pedro la Laguna, near the shores of Lake Atitlan. He is now harvesting the last of the coffee beans, and selling the “cherries” to buyers nearby for $7 per hundred pound sack, or seven cents a pound. The buyer, who has a pickup, then sells the cherries to a nearby processing plant for a small profit.

A one hundred pound sack of freshly picked coffee cherries, after going through the processing plant, makes 20 pounds of green coffee. Therefore, Francisco was paid about 35 cents per pound for what would end up as green.

The C-market price right now for green coffee is 63 cents per pound. Whoever ends up selling the green coffee from the processing plant may, depending on the quality, be able to sell it above the C-Market price because it is “strictly hard bean” (which means high quality Guatemalan) coffee. Let’s say they get 85 cents per pound. Several commercial steps later, the end of the marketing chain, Guatemalan premium highland coffee, roasted, is going for about $6 per pound on the Internet (the roasting process reduces the weight by about 20%). The higher one goes up on the marketing chain, the higher the value-added markup becomes.

The average size of the smallholder coffee crop around Lake Atitlan is about a half acre, and the average smallholder fresh bean coffee yield is 4800 pounds per acre. Thus at the current rate of $7 per 100 pound sack, the half acre of coffee pays $168. The average cost of production is considered to be $430 per acre, or $215 per half acre. Therefore it is not hard to see why farmers are ripping out their coffee to put in other crops.

Worldwide it is widely said that the average coffee farmer receives about 1% of the price of a cup of coffee bought in a café. At 1/3 oz. of coffee per cup (strong!), and $1.50 per cup (cheap!), a pound of coffee earns $72 in this bargain of a café. Francisco earned about $0.43 per pound of roasted coffee ($0.35 per pound for green). This comes out as exactly 1%, but my estimate is generous, and it is probably less than 1%.

"the consensus among North American coffee buyers is that the quality of Fair Trade coffees tends to be inconsistent at best and inferior at worst, compared to the traditional plantation coffee sold through private channels. Given the sophisticated management needs for production of top quality coffee, this is not surprising, and the challenge is for the cooperatives to develop the management skills to consistently produce high quality coffee. "

By simply increasing the percentage that goes to the farmer to 2%, a few pennies are added to the cost of a cup of coffee, but a doubling of the farmers income can be achieved, making coffee production profitable. One of the rays of hope in this area of improving producer-consumer equity is the work of organizations which promote what is known as Fair Trade coffee, whose goal is to increase the farmers’ share of profits. Fair Trade coffee currently pays a minimum of $1.26 per pound of green coffee to producers, nearly four times that which Francisco is receiving. Fair Trade coffee, such as that sold by Equal Exchange, is generally bought from coffee associations or cooperatives of smallholders who are certified by Fair Trade certification organizations such as Transfair.

I talked to Rainiero Lec, a Mayan Guatemalan who works for a American NGO with a consortium of smallholder coffee associations, representing several thousand farmers. Currently they are working at obtaining organic certification for several of the associations via Maya Cert. Because of the cost of certification, smallholders’ only avenue for organic certification is via forming an association, in which 300 holdings are certified at once. Currently organic Guatemalan highland coffee sells for $1.41 per pound of green, a higher price than the $1.26 Fair Trade rate. For coffee to be sold as certified organic, the coffee processing plant must be certified organic as well. Currently Rainiero’s associations pay processers for this service. They are in the process of building four organic coffee processing plants.

Rainiero’s consortium is also working to obtain Fair Trade certification for the small-holder associations, via Transfair. The main certification criteria is assurance of payment of the Fair Trade price to producers. Since farmers often need the money in hand immediately after harvest, credit and partial up-front payments are part of the Fair Trade certification program.

Much progress needs to be made to improve Fair Trade coffee commerce, both at the producer end as well as the consumer demand end, in order to bring about a consistent implementation of improved producer-consumer equity. One challenge is that the consensus amongst North American coffee buyers is that the quality of Fair Trade coffees tends to be inconsistent at best and inferior at worst, compared to the traditional plantation coffee sold through private channels. Given the sophisticated management needs for production of top quality coffee, this is not surprising, and the challenge is for the cooperatives to develop the management skills to consistently produce high quality coffee.

Mike Roberts, owner (as well as barista) of Crossroads Café in Panajachel, Guatemala, where one can buy possibly the best cup of coffee in Guatemala, has worked in the specialty coffee industry for nearly 20 years. Mike buys, blends, roasts, and sells coffee on the specialty coffee market, and often buys organic and cooperative produced coffee, but always tests each lot. “When you have 300 farmers bringing their coffee to one cooperative processing plant, if the management isn’t right on top of things, just one or two bad batches from one or two farmers can ruin the whole lot for selling to the gourmet coffee market.”

Dan Fireside, a Cornell University graduate student doing his Master’s degree thesis on Guatemalan cooperative coffee maintains that there is a bias against cooperative and Fair Trade coffee in the North American coffee buyer community, and that more could be done to increase demand for coffee from these sources. According to Dan, there are now associations of cooperatives in Guatemala with an umbrella organization in Guatemala City, the Federation of Coffee Growing Cooperatives of Guatemala (FEDECOCAGUA) that does quality selection, cupping, and marketing on a level as sophisticated as any of the established private sector businesses.

Ultimately, the quality debate will have to be settled with blind cuppings of Fair Trade coffees and privately produced and traded coffees from the same region. So next time you go to your favorite café for coffee, ask them if they sell Fair Trade or organic coffee, and give it a try – you may be pleased.