Honduras fears increase in coffee smuggling

Guatemala denies trafficking, but some years export
more than they grow

TEGUCIGALPA, Honduras, – The fact that Central American smugglers are getting
wealthy sneaking sack-loads of stimulants across borders in pick-up truck
convoys under the cover of night may not be shocking news.

The surprise is the sacks are frequently full of high quality coffee beans
instead of raw cocaine.

Smuggling coffee from Honduras into Guatemala to profit from higher prices
and tax breaks there has become a serious problem, say Honduran officials,
although their neighbors play down the practice.

Higher premiums are paid for Guatemala’s famously tasty coffee on international markets, and changes to the tax regimes in both countries have heightened the smugglers’ appeal to less sought-after growers from Honduras.

Guatemalan exporters admit some Honduran coffee is clandestinely imported but deny the amount of smuggled beans comes close to 767,000 60-kg bags Honduras claims will slip out of the country this year.

The majority of the contraband comes from the hilly growing areas in western and northern Honduras, close to the border with Guatemala, where ripening beans are protected from strong sunlight by shade trees, and cooler mountain air lets coffee develop into the best hard and strictly hard bean qualities.

“Our coffee continues to be smuggled to Guatemala. We estimate that in this harvest 767,000 60-kg bags will go to that country,” Honduran Coffee Institute Technical Manager Omar Funez told Reuters. “The Guatemalans then export this coffee as specialty coffee since it is good quality.”

Honduran officials and exporters peg contraband in previous harvests at half the amount they expect to be smuggled this year.

Gerardo de Leon of the Guatemalan cooperative federation Fedecocagua blames tax fraud as the main force behind the smuggling boom but said contraband was unlikely to reach half of Funez’s estimate.

“(The smuggling) goes on because in Guatemala there is a business behind the coffee that is not the coffee itself,” he said. According to de Leon, smugglers use their resales of the coffee to claim tax refunds from Guatemala’s value added tax of 12 percent afforded to coffee intermediaries.

Hondurans agree their producers are willing to sell to smugglers because they are offered a price between $0.05 and $0.07 per pound more than they could get selling legitimately to local firms.

According to New York coffee traders, on average Guatemalan HB coffee nets $0.02 cents to $0.04 cents per pound above the New York Coffee, Sugar and Cocoa Exchange, or CSCE, floor price while Honduran HB gets $0.03 per pound below the CSCE price.

Since the 2003-04 harvest, Honduras levies a tax of $0.04 per pound of exported coffee when the market price is below $0.90 per pound, and $0.09 per pound when it is above that level. The money is used to finance a fund for farm debts.

“Producers in the border zones prefer to sell their product to the Guatemalans since they get a better price and no tax retentions are applied,” Honduran Coffee Exporters’ Association Vice President Manuel Reyes told Reuters.

Guatemalan officials have long bristled at the Honduran accusations of massive contraband, even though in some years Guatemala’s exports have surpassed its total production.

They say the amount of coffee smuggled into the country is similar to the amount of Guatemalan-grown coffee snuck across the border to Mexico.

The smuggled coffee is taken from Honduras to Guatemala at so-called “blind spots” along the poorly patrolled and porous border, previously known as a drug smuggling route.

“We have reports from growers in the border areas with Guatemala that caravans of 10 to 15 trucks loaded with coffee leave daily,” Funez said.

Marion Peraza, a leading coffee grower in the northwestern province department of Copan, a popular tourist area close to Guatemala and one of Honduras’ best coffee-growing spots, said police did nothing to stop the practice.

Funez said the smuggling will not affect IHCAFE’s crop estimate for 2005-06 of 2.76 million 60-kg bags.

“We always take smuggling in to account in the estimates and we know that the smuggling to Guatemala is increasing,” he explained.

Honduras and Guatemala are the largest volume coffee exporters in Central America and combine for total production of 6.7 million bags, or 6.1 percent of global output.