Abstract
In Honduras and El Salvador, coffee (Coffea arabica) is one of the leading agricultural exports, and the share of specialty coffee is growing each year. However, despite the importance of specialty coffee production and exports, there is a knowledge gap regarding its cost structure and profitability, particularly those associated with labor costs. The specific objectives of the study were to determine the cost structure of specialty coffee in Honduras and El Salvador and to estimate the costs and profitability of producing specialty coffee in these countries. A semi-structured survey instrument was administered to 14 farmers in Honduras and El Salvador selected as a convenience sample to represent different farm sizes, regions, and specialty-conventional and organic production systems. Specialty-conventional refers to high-quality coffee with or without certifications. Then,cost-profitability models were developed using an economic cost approach, which considered cash, noncash cost, and the opportunity costs of inputs. The results showed that although both countries are neighbors and economically and culturally similar, the cost structure of producing specialty coffee differed significantly. Costs were lower and profits were higher in Honduras than in El Salvador, and the specialty-conventional coffee production system was more profitable than the organic production system.
The global market for specialty coffee (Coffea arabica) has increased significantly in the past several years. For example, in 2015, ≈55% of total coffee sales in the United States ($48 billion) comprised specialty coffee. The increase in the demand for specialty coffee has generated significant interest among coffee farmers in producing countries. In the case of Honduras, the registration of specialty coffee began during the 2009 to 2010 harvest. By the 2019 to 2020 harvest season, specialty coffee accounted for 54% of total exports (US Department of Agriculture 2020a). The country has also obtained two geographic indications of origin (USDA 2021). In El Salvador, ≈80% of coffee exports are now differentiated/specialty coffee (Consejo Salvadoreño del Café 2021).
The Specialty Coffee Association defines specialty coffee as “… any coffee that earns a significant premium” in the market. Therefore, specialty coffee can be certified and have “low” or “high” organoleptic attributes, such as organic, or they can be uncertified coffee but with “high” organoleptic characteristics.
Several studies have evaluated the costs and profitability of coffee production in the region. However, most have focused on coffee production in Honduras, whereas studies in El Salvador are less common. Moreover, most of the studies have focused on conventional coffee production. The literature review also revealed a high degree of heterogeneity in cost components included in the analyses and sources of information used (e.g., interviews with producers, local experts, and government institutions) (Montagnon 2017). This study contributes to this literature by estimating and comparing specialty coffee production costs and profitability in Honduras and El Salvador using data collected from interviews with farmers. The approach also provided a comprehensive assessment of all the expenses involved in coffee production.
We considered two production systems in Honduras. The first corresponds to organic coffee production. Organic coffee has experienced a significant increase in demand in the past several years and corresponds to a well-identified specialty coffee. Additionally, we considered specialty coffee produced in a conventional (e.g., nonorganic) system. Organic production is less common in El Salvador; therefore, we only studied specialty coffee grown in a conventional system. Hereafter, we refer to this system as “specialty-conventional” coffee production.
The information generated in this study can be helpful to potential and current producers. Individuals planning to enter into coffee production can use the results as a guide for their decisions, whereas current producers can benchmark their operations. The findings of this study may also be of interest to other actors in the coffee supply chain (e.g., buyers, processors, governments, and consumers), who are increasingly voicing concerns about the econ-omic sustainability of the coffee business. These concerns include long-term financial viability of farm operations.
The specific objectives of the study were to determine the cost structure of specialty coffee in Honduras and El Salvador and to estimate the costs and profitability of producing specialty coffee in these countries.
Materials and methods
We performed the following to achieve the research objectives: documentation of production practices, input use, and costs (to produce specialty coffee); modeled and estimated the complete cost structure of producing specialty coffee (e.g., it includes all fixed and variable costs); and evaluated the profitability of the production of specialty coffee.
First, local coffee experts in each country developed typical management plans (the sequence of activities) for coffee production to document production practices. The plans comprised all production, marketing, and management activities from planting the crop until the end of the production cycle. Then, we used the management plans as the basis for developing a semi-structured interview instrument for farmers.
All the research group members developed the interview instrument to ensure comprehensiveness and language appropriate for the individuals interviewed. The instrument consisted of four sections with questions designed to gather information about the farm and producer, questions related to the production activities performed on the farm, questions about the number and type of workers, and questions about all inputs and equipment used for each production activity.
The first section collected information about yields and prices received during the last two production seasons (2017–18 and 2018–19). The first survey section also asked about the total area of the coffee plantation, the proportion of the coffee farm with mature and productive coffee trees, and the proportion of the farm with very low or no coffee production (e.g., areas being renovated, rehabilitated, or recently established plantations). This simplified classification of coffee plots by age was used because coffee family farms generally include multiple plots of different ages.
In the second section, we asked producers about all of their activities during the coffee production cycle and their timing while considering the following activities: harvesting; processing; fertilization; establishment; shade management; pest and disease management; weed control; and other farm management and maintenance activities. The third section included questions about the number of permanent and temporary workers, family labor involvement, and type of contracts used to hire outside labor.
The fourth section collected information about the amounts and costs of all inputs (e.g., materials and labor) and equipment used for each production activity. We also included questions about the initial cost of the equipment, its useful life, and annual maintenance. The final questions in this section asked producers about the overall administrative, management, and financial costs of the coffee operation.
We collected 14 surveys from farmers (eight organic and six specialty-conventional) in Honduras and six farmers (specialty-conventional) in El Salvador. All interviews were conducted one-on-one between the farmers and the field consultants using the semi-structured interview instrument to collect the data. Farmers were selected as a convenience sample to represent farms of different sizes and regions. Farmers were known to our field consultants, and the only requirement to participate was the willingness to complete the survey. No economic incentives were offered for participation in the survey. The sample included at least two small (less than 2 ha), two medium (between 2 and 20 ha), and two large (more than 20 ha) farms for each production system in each country. The farmers in Honduras were located in Copán, La Paz, Ocotepeque, and Santa Bárbara, whereas those in El Salvador were located in Santa Ana, Sonsonate, Soyapango, and San Marcos. Before collecting data from the farmers, we submitted the study to the Human Research Protection Program at Texas Tech University, Lubbock, TX, USA. The Human Research Protection Program approved the investigation after determining that it met at least one federally exempt category (institutional review board 2019-1211).
We developed the cost-profitability models for each farm using spreadsheet software (Microsoft Excel version 2005; Microsoft Corp., Redmond, WA, USA). The models included the following sections: total labor costs for each production activity; total costs of nonlabor inputs and equipment; total costs of establishing a coffee plantation; monthly and annual costs of production for all of the sections of the farm; and total costs per unit of area (dollars per hectare) and per unit of weight (dollars per kilogram) for the section of the farm with mature coffee in production. This structure helped summarize all the information collected during the interviews and facilitated the appropriate allocation of costs.
It is important to note that the primary unit of study is an established mature coffee plantation in production. Furthermore, the analyses used a long-term and comprehensive view of this production unit using an economic cost approach. The long-term outlook is necessary because coffee is a perennial crop that lasts several years; therefore, the cost analyses included the costs observed, the year we collected the data, and establishment costs (Gómez et al. 2017). The economic costs approach considers both cash (e.g., hired labor) and noncash costs (e.g., equipment depreciation), as well as opportunity costs of the inputs (e.g., owner’s management time and land costs).
An additional advantage of using the economic approach for coffee costs analyses is that it provides more information about the economic sustainability of the operation. For example, the income from coffee production should be able to cover the annual production costs for established plantations and “recover” the initial costs of establishing the plantation and buying long-lived assets (e.g., equipment). Additionally, the farmer should obtain sufficient returns to cover the costs of unpaid family labor. However, including all economic costs of production presents challenges from a methodological point of view and the data needed for the analyses. Three costs are difficult to estimate: establishment, land, and administrative costs of the owner, which we refer to as overhead noncash costs hereafter.
Establishment costs
In Honduras, the total cost of establishing the plantation was charged as an annual cost of production for the mature plantation using the amortization method (American Agricultural Economics Association 2020). Therefore, yearly costs budgets for the establishment phase (4 years) were calculated for each farm using the information collected in the survey. Coffee production was assumed to increase progressively in proportion to the yield of mature coffee, beginning with 0% in year 1 and increasing 20% annually (Lemus 2018; Peguero et al. 2021; US Agency for International Development 2017). Estimated annual net returns were used to calculate the net present value of total establishment costs in which the year net returns (income minus costs) become positive (in most cases, year 4 of the plantation) (American Agricultural Economics Association 2000). Therefore, the total cost of establishing the coffee farm includes information only about the years with negative net returns. When applying the amortization method, it was assumed that the salvage value of the plantation was zero after 20 years with a 10% interest rate. Twenty years is generally the recommended age to replant coffee because it can produce for a more extended period (US Agency for International Development 2017); however, new diseases and climate change are forcing producers in the region to consider changing varieties even more often (Wiegel et al. 2020). Therefore, 20 years was assumed as the useful life of the crop and a salvage value of zero. The 10% interest rate was used because it is a rate commonly used by the World Bank for the economic analyses of projects in the region (Johnson et al. 2009).
Establishment costs (and land costs) in El Salvador were obtained using the rental value of coffee farms, which has become more common in the country (American Agricultural Economics Association 2000). This was also necessary because only one of the farmers interviewed in El Salvador had established a coffee plantation recently.
Land costs
For Honduras, land costs were obtained directly from producers and complemented with information from local informants. Producers were asked about the average cost of land (per hectare) in the region where they were located. Five percent of the estimated land value in each location was used as the annual opportunity cost of land. Similar values have been used in previous studies (International Coffee Organization 2019; Programa Cooperativo Regional para el Desarrollo Tecnológico y Modernización de la Caficultura 2018). The annual rental value of a coffee plantation was used as the yearly cost of land and establishment costs in El Salvador (American Agricultural Economics Association 2000).
Administrative costs
The administrative costs of the owners were included to account for the time the owners spend on administrative activities. Given the large variability in the estimates the farmers provided for the amount of time they spend on management activities, 5% of variable costs was used as the estimate of these costs. This value was consistent with the administrative costs provided by the largest farms included in the study (two farms), which have full-time hired managers.
Equipment and machinery costs
Annual costs of long-lived equipment included yearly maintenance and operating costs and depreciation. The linear depreciation method was used to calculate depreciation using the purchase price of assets and length of life information the farmers provided (Kay et al. 2016). The salvage value of assets was assumed to be zero.
Yields and prices
All farmers interviewed sell their coffee to processors; therefore, we did not include processing costs (Caravela Coffee 2019). All coffee yields and prices were standardized to a green coffee weight basis (e.g., coffee with the silverskin removed). Some producers provided the yield information as dry parchment (e.g., coffee with all layers removed except the parchment), coffee cherry, or green coffee. To convert the dry parchment coffee weight to green coffee weight, we used the constant 0.2153; to convert the cherry weight to the green coffee weight, we used the constant 0.8192 (International Coffee Organization 2021). The use of green coffee facilitated the comparison of the results and methods with the previous costs of production studies. The exchange rate used was $1 = 25 Lempiras. All of the information regarding prices and yields for all of the farms included in the study is shown in Table 1.
Specialty-conventional (SC) and organic coffee farms characteristics, prices, and yields (Honduras and El Salvador).
Financial costs for annual cash expenses
The actual cost of capital paid to lenders for annual cash expenses was considered as the capital cost. Producers, on average, reported using annual loans for ≈40% of their yearly cash expenses. Monthly interest payments for these loans were included as financial capital costs (average interest rates were 9% and 16% for El Salvador and Honduras, respectively). Because most cash expenses are related to harvesting activities, which are highly concentrated during ≈16 to 18 weeks of the year, and because producers can use income from harvest immediately to continue financing these activities, we did not include additional opportunity costs of capital.
Other costs
For the interview and cost analysis, the following management activities were considered: harvesting; fertilization; renovation (e.g., replacement of dead plants and growth pruning); shade management; and pest, disease, and weed control.
Preliminary study results and methods were shared with more than 200 individuals in the region, including producers, technicians, and coffee production leaders. We used these presentations to obtain feedback regarding the study assumptions, findings, and results.
Results and discussion
The first part of this section discusses the costs and profitability results using current labor costs. The second section compares the estimated costs with those obtained by previous studies. The discussion of the results focuses on average values (e.g., average costs per hectare for all of the farms in a specialty-coffee type/country).
Cost analyses excluding noncash overhead costs
Data about the average costs of production differentiated by production and management activity and by costs category (labor costs, input costs, equipment) are shown in Table 2. The estimated average costs of producing specialty-conventional and organic coffee in Honduras are $1738.97/ha and $2451.23/ha, respectively. In El Salvador, the estimated average cost of producing specialty-conventional is $3033.15/ha.
Specialty-conventional (SC) and organic average coffee production costs by activity and cost category (excluding noncash overhead) in Honduras and El Salvador.
The difference between the average costs of producing organic coffee and specialty-conventional in Honduras is attributable to the additional fertilization and harvesting costs required in the organic system (Table 2). Organic coffee producers devote more resources to the production and application of pesticides and fertilizers of natural origin. Similarly, the significant difference (1.74-times higher) between the total production costs of specialty-conventional coffee production in Honduras and El Salvador is attributable to the significantly greater fertilization and pest management expenses (Table 2). Why do producers in El Salvador spend more on pest management and fertilization than those in Honduras and still obtain lower yields? The difference in pest management is likely attributable to the higher prevalence of coffee leaf rust (Hemileia vastatrix) in El Salvador than in Honduras (US Department of Agriculture 2020b). El Salvador also has been slower to adopt resistant varieties (US Agency for International Development 2017). The higher fertilization costs are attributable to the higher frequency and total amount of fertilization applications. The median number of fertilizer applications was 1 in Honduras and 5.5 in El Salvador. This is likely because of technical recommendations from local experts that have become “tradition.” For example, a well-known coffee production manual from El Salvador recommended at least three fertilizer applications (Inter-American Institute for Cooperation on Agriculture 2020). For Honduras, a production manual recommended only one fertilizer application (Fundación Hondureña de Investigación Agrícola 2004).
In Honduras, the cost structures of organic and specialty-conventional coffee production are very similar. Most of the expenses for the two systems correspond to three groups of activities of harvesting (53%–60%), pest management/weed control (12%–17%), and financial costs (12%–14%). The breakdown of the cost per hectare as a percentage is shown in Fig. 1.
Specialty-conventional (SC) and organic coffee cost production structure by activity (excluding overhead noncash costs) in Honduras and El Salvador.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Specialty-conventional (SC) and organic coffee cost production structure by activity (excluding overhead noncash costs) in Honduras and El Salvador.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Specialty-conventional (SC) and organic coffee cost production structure by activity (excluding overhead noncash costs) in Honduras and El Salvador.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
However, the cost structure of specialty-conventional coffee production in El Salvador differs considerably from that in Honduras (Fig. 1). Although harvesting also accounts for the highest share of total costs (27%) in El Salvador, it is less critical than that in Honduras. However, fertilization (26% of costs) and pest management/weed control (24% of costs) have more important roles in El Salvador. Surprisingly, financial costs account for a significant share of the total annual costs in both countries: 12% to 14% in Honduras and 8% in El Salvador. These values are significantly larger relative to the financial costs for agriculture reported in other parts of the world, such as the United States, where the average is less than 3% (US Department of Agriculture 2021).
The estimated total production costs for all farms included in the study are classified by farm size and shown in Fig. 2. We found that total production costs were highly heterogeneous, even within farms of the same size. For example, the minimum and maximum values of specialty-conventional coffee production on small farms in Honduras were $1599.85/ha and $5307.42/ha, respectively. There was also heterogeneity across farm sizes because some small farms have lower production costs than some larger ones (Fig. 2). Although our analyses allowed us to explore some heterogeneity of costs and profitability, the small size was a limitation for these analyses.
Specialty-conventional (SC) and organic coffee estimated average production costs by farm size category (excluding noncash overhead costs) in Honduras and El Salvador: 1 = small (<2 ha); 2 = medium (2–20 ha); 3 = large (>20 ha); and 1 ha = 2.4711 acres. $1.00/ha = $0.4047/acre.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Specialty-conventional (SC) and organic coffee estimated average production costs by farm size category (excluding noncash overhead costs) in Honduras and El Salvador: 1 = small (<2 ha); 2 = medium (2–20 ha); 3 = large (>20 ha); and 1 ha = 2.4711 acres. $1.00/ha = $0.4047/acre.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Specialty-conventional (SC) and organic coffee estimated average production costs by farm size category (excluding noncash overhead costs) in Honduras and El Salvador: 1 = small (<2 ha); 2 = medium (2–20 ha); 3 = large (>20 ha); and 1 ha = 2.4711 acres. $1.00/ha = $0.4047/acre.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
A different perspective of the cost structure of coffee production can be obtained when analyzing costs by cost category (Table 2). In every case, equipment costs represented less than 3% of the total costs of production, which reflected production systems with low levels of capital-intensive technologies. Because “equipment” costs include operating, maintenance, and depreciation costs, depreciation costs represented an even lower proportion of the total annual costs of specialty coffee production in these two countries. Therefore, total costs, excluding noncash overhead, are a good approximation of the annual coffee farm cash costs, particularly for farms that use limited family labor.
Labor costs comprise the highest share of total costs (Table 2): 75% and 69% for specialty-conventional and organic in Honduras, respectively, and 61% for specialty-conventional in El Salvador. The total cost share of inputs was higher for specialty-conventional coffee in El Salvador (36%), followed by organic (30%) and specialty-conventional (22%) in Honduras.
On a per-weight basis, the average costs of producing specialty-conventional and organic coffee in Honduras are $1.13/kg and $1.69/kg, respectively. In El Salvador, the average cost of specialty-conventional coffee is $3.08/kg (Table 2). Therefore, the cost of producing 1 kg of specialty-conventional coffee is approximately three-times higher in El Salvador than in Honduras. This difference is more significant than the difference observed in costs per hectare because of the lower average yields observed on the farms in El Salvador (Table 1).
Cost analyses including noncash overhead costs
Estimated annual establishment, land, and management costs for the owners for in Honduras are provided in Table 3. The annual management costs for owners are $78.35/ha for specialty-conventional coffee and $118.0/ha for organic coffee.
Specialty-conventional (SC) and organic coffee production noncash overhead costs by location in Honduras.
The average costs of establishing a hectare of specialty-conventional coffee and organic coffee in Honduras are $218.70/ha and $176.59/ha, respectively. These costs were calculated based on reports from farmers and local informants. Estimated average annual land costs for organic and specialty-conventional coffee in Honduras are very similar (≈$350/ha) (Table 3). However, there was high variability in the estimated values of land provided by farmers in Honduras (lowest $3380.28/ha; highest $11,267.61/ha). The wide variability in land costs likely reflects differences in agricultural productivity and alternative land uses (e.g., tourism) across the country, complicating the calculation of annual land costs for coffee production (American Agricultural Economics Association 2000).
The annual combined land cost value and cost to establish a hectare of specialty-conventional coffee in El Salvador is $500/ha. This value is based on current rental rates of coffee farms in the country, ranging from $300 to $500, depending on the farm conditions and production potential. The highest value was used because the farms in the study produce specialty-conventional coffee. Interestingly, this value is very similar to the combined land value and establishment costs estimated for Honduras.
In Honduras, the total costs of coffee production, including noncash overhead costs, are $2338.13/ha ($1.55/kg) and $3108.49/ha ($2.14/kg) for specialty-conventional and organic coffee, respectively (Table 4). The total production costs for specialty-conventional coffee in El Salvador are $3683.87/ha ($3.75/kg). Because noncash overhead costs are very similar across systems, the differences in total annual costs between and across production systems are comparable to the differences in total costs when they are excluded.
Specialty-conventional (SC) and organic coffee production average total cost including nonoverhead costs in Honduras and El Salvador.
The structure of the costs of coffee production when all costs are included is shown in Fig. 3. The share of overhead noncash expenses comprising total costs is higher in the system with the lowest total costs (specialty-conventional in Honduras: 27%) and lower in the system with the highest total costs (specialty-conventional in El Salvador: 18%) (Fig. 3).
Specialty-conventional (SC) and organic coffee cost production structure by activity (including overhead noncash costs) in Honduras and El Salvador.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Specialty-conventional (SC) and organic coffee cost production structure by activity (including overhead noncash costs) in Honduras and El Salvador.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Specialty-conventional (SC) and organic coffee cost production structure by activity (including overhead noncash costs) in Honduras and El Salvador.
Citation: HortTechnology 33, 1; 10.21273/HORTTECH05028-22
Profitability analysis
A profitability analysis uses the concept of net returns (e.g., the difference between income generated from selling the coffee produced and costs). Two net returns values were calculated. The first corresponds to the difference between returns and all costs except noncash overhead. The second corresponds to the difference between returns and total costs. Net returns calculations are presented per weight (dollars per kilogram) and production area (dollars per hectare).
Average net returns to overhead noncash costs were all positive; therefore, the three specialty production systems generate, on average, sufficient returns to pay for the farm’s annual cash costs and to recover the capital investment on machinery and equipment. There is some income left to cover overhead noncash costs, at least in part. On a per-weight basis, specialty-conventional coffee in Honduras had the highest average net returns to overhead noncash costs, followed by organic coffee in Honduras and specialty-conventional coffee in El Salvador. Average net returns to overhead noncash costs on a per-area basis followed a similar pattern (Table 5).
Specialty-conventional (SC) and organic coffee production estimated net returns in Honduras and El Salvador.
Although the price paid to Salvadorean farmers for conventional-specialty coffee is higher than that paid to Honduran farmers, net returns in El Salvador are still lower because of the higher production costs.
On average, net returns to noncash overhead costs are positive. Moreover, the profitability analysis of individual farms revealed that 12 of the 14 farms in Honduras obtained positive net returns to noncash overhead costs (all six specialty-conventional coffee producers and six of eight organic producers). In El Salvador, four of six farms had positive net returns.
When overhead noncash costs were included in the analysis, the average net returns per kilogram remained positive for all production systems in both countries (Table 5). When the net returns per hectare were analyzed, they all remained positive. However, the estimated net return for El Salvador was very small. Therefore, on average, farms in Honduras and El Salvador can recover establishment, land, and management time. The profitability analysis at the individual farm level indicated that 8 of 14 farms have total positive net returns (four of six specialty-conventional and four of eight organic). In El Salvador, three of six had positive total net returns.
A final point regarding profits is that the markedly lower net returns observed in El Salvador are attributable to the lower net returns to noncash overhead values because noncash costs are similar across all production systems. Subtracting these costs from the considerably lower net returns to noncash overhead in El Salvador results in markedly lower net returns.
Comparison of cost estimates among studies
To compare the results of this study with those in the literature, the results of previous studies were converted to dollars per hectare and/or dollars per kilogram. Cost estimates of earlier studies are expressed in nominal values for three reasons. First, using nominal values allows us to mention actual values reported in the studies. Second, all the studies cited were conducted 3 to 4 years earlier, except for one study conducted in El Salvador in 2011. Third, the inflation rates in these countries were relatively low during the last decade (in dollars). In Honduras, the accumulated inflation rate in US dollars between 2015 and 2019 was ≈5%. The accumulated inflation rate in El Salvador between 2011 and 2019 was 5.5% (The World Bank Group 2020).
We found two studies about conventional coffee in Honduras that included all production costs in their analyses. A study the International Coffee Organization conducted in 2019 that used an extensive survey of producers estimated that the total cost of coffee production was $1557/ha, which is lower than our estimated $2338.13/ha. The observed difference may be because the sample of producers used in our study included only specialty-conventional producers, whereas the International Coffee Organization study included all conventional producers. Moreover, the estimated cost of land, establishment costs, and management costs in the International Coffee Organization study were ≈$140/ha compared with our estimated $650/ha. The International Coffee Organization study assumed $2800/ha as the agricultural land price of the country (the authors did not collect data land data directly from coffee farmers). Then, the annual land cost was calculated as the yearly interest of $2800/ha with an interest rate of 3.25% ($91/year). Establishment costs in the International Coffee Organization study were assumed as the average establishment costs reported by survey respondents who had recently established coffee plantations divided by 20 years ($47.76/ha). In contrast, our study collected data related to all activities and expenses related to establishment costs. Finally, the International Coffee Organization study excluded management costs.
Programa Cooperativo Regional para el Desarrollo Tecnológico y Modernización de la Caficultura (2018) estimated that the total cost of producing 1 kg of conventional coffee in Honduras is $3.49, which is more than twice the value estimated in our study of specialty-conventional coffee ($1.55/ha). The study by Programa Cooperativo Regional para el Desarrollo Tecnológico y Modernización de la Caficultura relied on interviews with experts.
A study sponsored by Heifer International (Álvarez 2018) reported that the estimated costs of production were between $1515/ha and $1780/ha; however, it is unclear what costs were included in the calculations. Ruerd et al. (2019) also provided production costs for specialty and conventional coffee ($1.52/kg); however, these cost calculations excluded land costs and management costs. In summary, the average estimated cost to produce specialty-conventional coffee in Honduras determined in this study is within the range of values reported previously.
We found only one previous study that reported the costs of production for organic coffee in Honduras. Gómez et al. (2017) determined that the total production costs of coffee were $6027/ha, which is nearly double our estimated value of $3108.49/ha; only their estimated variable cost was $3898/ha. Unfortunately, the study by Gomez et al. (2017) did not provide detailed information about the costs for each production activity; therefore, we cannot pinpoint the specific source of the differences in the production process. One difference is that they calculated production costs per hectare, assuming some processing is conducted on the farm (e.g., they produced parchment). In contrast, we assumed that the coffee is sold as cherry. Processing costs from cherry to parchment are ≈$0.44/kg (data provided by some farmers). Because these authors assume yields of ≈2000 kg⋅ha−1 of parchment, the total processing costs are ≈$800/ha. Therefore, even after subtracting the processing costs from the study by Gomez et al. (2017) study, their estimated production costs are higher.
Two studies reported estimates of the costs of conventional coffee production in El Salvador. An estimated value of $1904.23/ha has been reported (Fundación Salvadoreña para Investigaciones del Café 2011), but noncash overhead costs were not include. Caravela Coffee (2019) reported a total cost of $3900.87/ha. Fundación Salvadoreña para Investigaciones del Café (2011) used data from farmers, whereas Caravela Coffee (2019) assumed a “model” farm for the calculations. The total estimated value of $3033.98/ha of our study is within the range of the previous two studies.
In summary, except for the estimated cost of production of organic coffee in Honduras, which was significantly lower than that of a previous study, other cost estimates were within the range of values reported previously.
Summary and conclusions
Large differences in total costs and the cost structure of specialty coffee were found in two countries that are neighbors and located in the same region. These differences were mainly attributable to management and the natural conditions of each farm. Costs of production for specialty-conventional were lower in Honduras than in El Salvador. Moreover, in Honduras, the specialty-conventional coffee system was found to be more profitable than that of organic coffee.
In terms of profitability, on average, all production systems generate enough income to cover annual cash costs of production at the prices observed during the data collection period (which are approximately the average of the prices observed in the past 20 years (International Coffee Organization, 2021). On average, specialty coffee producers in Honduras can cover all the production costs. For El Salvador, the estimated average net returns for specialty-conventional were negative or very close to zero, reflecting a lower likelihood of long-term economic sustainability of the specialty-conventional coffee sector in that country. However, producers with positive total net returns were found in every production system and country.
Units
References cited
American Agricultural Economics Association 2000 Commodity costs and returns estimation handbook A report of the AAEA task force on commodity costs and returns. http://www.economics.nrcs.usda.gov/care/aaea/ [accessed 15 Oct 2021]
Consejo Salvadoreño del Café 2021 Exportaciones de café por calidad al 31 de mayo de 2021 http://www.csc.gob.sv/estadisticas/ [accessed 8 Sep 2021]
Caravela Coffee 2019 A Study on costs of production in Latin America https://caravela.coffee/project/a-study-on-costs- of-production-in-latin-america-white-paper/ [accessed 8 Sep 2021]
Fundación Hondureña de Investigación Agrícola 2004 Guía práctica producción de café con sombra de maderables http://www.fhia.org.hn/descargas/Programa_de_ Cacao_y_Agroforesteria/guia_produccion_%20cafe_con_sombra_de_maderables.pdf [accessed 4 Oct 2022]
Fundación Salvadoreña para Investigaciones del Café 2011 Costos de producción de café en fincas cafetaleras de El Salvador 2010/2011 https://docplayer.es/6723074-Costos-de-produccion-de-cafe-en-fincas-cafetaleras-de-el-salvador.html [accessed 8 Sep 2021]
Gómez, M., Hernández-Aguilera, J., Rivadeneira, B. & Anunu, C. 2017 Cost of sustainable production an overview of farm-level production analyses in Latin America https://business.cornell.edu/hub/2017/11/29/research-recap-cost-financially-sustainable-coffee-production-latin-america/ [accessed 8 Sep 2021]
Inter-American Institute for Cooperation on Agriculture 2020 Guía práctica de caficultura https://iica.int/sites/default/files/2020-11/impresion%20GPCAFI%2010.2020.pdf [accessed 4 Oct 2022]
International Coffee Organization 2019 Profitability of coffee farming in selected Latin American countries - Provisional report https://www.ico.org/documents/cy2018-19/Restricted/icc-124-6e-profitability-latin-american-producers.pdf [accessed 15 Oct 2021]
International Coffee Organization 2021 Historical data on the global coffee trade: Prices to growers https://www.ico.org/new_historical.asp [accessed 15 Oct 2021]
Johnson, T.M., Alatorre, C., Romo, Z. & Liu, F. 2009 Low-carbon development for Mexico https://www.ccmss.org.mx/wp-content/uploads/Low-carbon-development-for-Mexico.pdf [accessed 28 Jun 2022]
Kay, R., Edwards, W. & Duffy, P. 2016 Farm management 8th ed Mc Graw Hill New York, NY, USA
Lemus, F. 2018 Evaluación de la rentabilidad de recuperar plantaciones de café infectadas por roya (Hemileia vastatrix) BSc Thesis Zamorano Univ., San Antonio de Oriente, Francisco Morazán Honduras
Montagnon, C. 2017 Coffee production costs and farm profitability: Strategic literature review https://static1.squarespace.com/static/584f6bbef5e23149e5522201/t/5c2cd83970a6adae0b4747bf/154644 2816347/Coffee+Production+Costs+and+Farm+Profitability.pdf [accessed 15 Oct 2021]
Programa Cooperativo Regional para el Desarrollo Tecnológico y Modernización de la Caficultura 2018 El estado actual de la rentabilidad del café en Centroamérica https://promecafe.net/wp-content/uploads/2018/04/Estudio-de-Costos-CABI-BR.pdf [accessed 15 Oct 2021]
Peguero, F., Sánchez, R.O., Peñaló, J.P., Mejía, E., Álvarez Varela, D. & Somarriba, E. 2021 Desempeño financiero y económico de alternativas de rehabilitación y renovación (R&R) de los cafetales agroforestales de la República Dominicana https://repositorio.catie.ac.cr/handle/11554/11026 [accessed 5 Oct 2022]
Ruerd, R., Sfez, P., Pensioen, T. & Meneses, N. 2019 Análisis integral de la cadena de valor del café en Honduras:Informe final https://research.wur.nl/en/publications/analisis-integral-de-la-cadena-de-valor-del-cafe-en-honduras-info [accessed 4 Oct 2022]
The World Bank Group 2020 World Bank open data https://data.worldbank.org/ [accessed 15 Oct 2021]
US Agency for International Development 2017 Renovation & rehabilitation for resilient coffee farms: A guidebook for roasters, traders and supply chain partners https://pdf.usaid.gov/pdf_docs/PA00TK8B.pdf [accessed 28 Jun 2022]
US Department of Agriculture 2020a El Salvador: Coffee annual https://www.fas.usda.gov/data/el-salvador-coffee-annual-5 [accessed 15 Oct 2021]
US Department of Agriculture 2020b Honduras: Coffee annual https://www.fas.usda.gov/data/honduras-coffee-annual-4 [accessed 15 Oct 2021]
US Department of Agriculture 2021 Farm production expenditures 2020 summary https://www.nass.usda.gov/Publications/Todays_Reports/reports/fpex0721.pdf [accessed 15 Oct 2021]
Wiegel, J., del Río, M., Gutiérrez, J.F., Claros, L., Sánchez, D., Gómez, L., González, C. & Reyes, B. 2020 The coffee market system in Honduras: Opportunities for supporting renovation and rehabilitation https://hdl.handle.net/10568/108111 [accessed 5 Oct 2022]
