Simon Brown

We have been working on sourcing and importing specialty coffee from Honduras for several years, but in the last twelve months, we’ve also implemented a grass roots project. This project has been aimed at raising quality and increasing access to market for small producers in the Copan region of western Honduras, near the border with Guatemala. This project is the first of many quality development projects we have lined up for Falcon Specialty, with a focus on giving small producers access to specialty buyers and increasing their resilience to fluctuations and volatility in the coffee market. Part one of this blog post will explain the backdrop to the project, why we decided to work in Honduras specifically, and also some of the many challenges we faced when getting the project off the ground.

Honduran Coffee: As it Stands

Honduras has been one of the smaller coffee producing nations historically, but has seen a huge increase in production over the last twenty years, culminating with becoming the largest producing nation in Central America in 2011. Despite this increase in the volume of production, the qualities of most Honduran coffees are still perceived as lacking for the specialty market, cited as fast ageing and lacking the complexity and acidity that specialty roasters look for. This perception is largely attributed to two things: Firstly, the prevalence of lower quality, Robusta-hybrid varieties being produced — such as Lempira, Catimor and Sarchimore; Secondly, the diversity of growing conditions varies massively, from very hot and dry to cool and humid, which results in coffees that are dried too quickly or too slowly and in many cases, incompletely. In either eventuality, much of Honduras’ production falls into the category of “value coffees”, that don’t trade much higher than the market price on the commercial side, and are rarely sought towards the end of the season, due to a propensity for fading.

Like so many other countries in Latin America, coffee production in Honduras was decimated by coffee leaf rust during the epidemic in 2012/13. However, the Honduran coffee association — IHCAFE — were very reactive to the disaster and recognised that substantial changes were necessary to reinvigorate the business of coffee production after the epidemic. IHCAFE had been working for many years to develop rust-resistant varieties, and they quickly and efficiently persuaded farmers in rust affected areas to plant and cultivate these varieties. Since Honduras hasn’t historically been an origin known for specialty coffee, producers didn’t face the pressure of exporters, importers and roasters advising them against planting the lower quality, resistant varieties. IHCAFE’s swift action resulted in a productive shift in the coffee landscape in Honduras, albeit one that has helped to increase yields and ensure the livelihoods of producers, rather than promote more specialty production and the potential price premiums that these coffees attract.

It is worth comparing IHCAFE’s approach to the post-leaf rust situation in El Salvador — an origin known for its beautiful, complex coffees, regarded as being some of the best in Latin America. El Salvador was also decimated by coffee leaf rust in the years running up to, and peaking in 2014. Large swathes of older farms covered in ancient Bourbon trees were wiped out, and producers suffered with a lack of support and alternatives. Many producers have since recovered, regenerating their farms with younger Bourbon and Pacamara varieties and with a renewed commitment to specialty coffee, but production volumes are greatly declining, and the industry overall in El Salvador is seriously under threat. So even though the resistant varieties promoted by IHCAFE in Honduras are perceived to have lower cup quality, they have stabilised and increased production and coffee farmers are generally less vulnerable as a result of adopting their replanting strategy.

Honduras has a large FTO (Fairtrade and Organic certified) market, with cooperatives and IHCAFE investing in training producers in organic farming practises and helping them become certified. Aside from reducing dependence on chemical fertilisers, FTO certification carries a minimum price of 190c/lb when the market is below 140c/lb and a premium of 50c/lb when the market is above 140c/lb. This premium is considerable for small producers, and the minimum price helps to ease some of their financial worries and their exposure to fluctuating world coffee prices. However, this has further contributed to the slow adoption of specialty coffee in Honduras, since the focus is on boosting yields as high as possible and banking the FTO premium, and only considering quality as much as its required to remain competitive. In essence, the coffee culture has shifted from focusing on details and quality, to speed of production and quantity. The foundation of specialty coffee is picking ripe cherries and drying them slowly and evenly, but this costs time and money.

Despite this culture, Honduras remains relevant to the specialty coffee community because it is an origin with enormous potential. It has an array of microclimates, which give a diverse range of cup profiles; Honduras has a history of organic production, which is true to terroir and is more sustainable; there are still plenty of pure Arabica varieties grown; and most pertinently of all, Honduras has a great number of smallholder producers who can really benefit from the price premiums that specialty coffees bring. It is for these reasons that we decided to focus our attention on grassroots development in Honduras, since we see it as our responsibility to give these farmers and this origin fair representation in the specialty coffee market.

Falcon in Honduras

Three years ago, we began our specialty sourcing journey in Honduras, after meeting the relative of a producer from Altos de Erapuca — a coffee farm based in the Copán region. We were impressed with the quality of their coffees we cupped, and the following year the owner of the farm put us in touch with a local cooperative — Aruco — who they said were producing microlots.

Aruco is a small cooperative named after the river that runs through the town of Corquin, where the co-op is based. Aruco was formed in 2010 by a number of producers who were frustrated with the lack of support and representation they were receiving, and who wanted to market their coffee more directly, in an attempt to cut out middle men and to increase the revenue flow back down the supply chain to producers. Aruco now has hundreds of members covering the whole region of Copán, but most are still concentrated around the town of Corquin. The cooperative provides support and financial assistance to their members and offers the option of selling coffee in dry parchment, semi-dry parchment or cherry. They have a full wet mill, patios and as of this year, some drying beds in solar tents. Most members only use the wet milling service for their lower quality cherries, or ones that are picked late in the day, and can’t be processed until the following afternoon. It is worth noting that the culture in Honduras is to sell in parchment, with many producers not considering cherry sales worthwhile.

Aruco had been trying to produce and sell microlots for the last 4 years. Microlot production had until recently been exclusive to larger or more advanced producers within the co-op, since their levels of cash flow allowed them to hold on to their coffee for long enough to find buyers. Most of these larger producers are also better connected in the local market. Previously, these microlots were often lots from the middle of the harvest cycle, when there are more ripe cherries for pickers to focus on and better cherries available, generally. Beyond this, the informal classification of microlots would simply be washed coffees that are traceable down to producer level. Since few producers had access to international markets, Aruco had to sell these lots to a local exporter, who blended them by cup score for the international market, and provided little or no traceability and transparency to producer level. In addition to this, the producers themselves weren’t receiving the quality premiums they deserved for their efforts towards producing higher quality coffees. This lead Donaldo - Aruco’s co-op manager - to seek direct relationships with international buyers. Fortuitously, it was also around the same time that he met us.

We bought our first microlots from Aruco directly in 2016, when Donaldo and his family were experimenting with producing a small lot of natural processed coffees. The quality was good, and there was clearly potential, but the coffees lacked some of the refinement, complexity and consistency that we were looking for. After speaking to Donaldo at length, we saw an opportunity to help improve the quality of his production and expand microlot production to more members of the co-op, who suffered from the same difficulties faced by Donaldo, and would otherwise be unable to benefit from quality premiums.

Beginnings — Phase 1

I travelled to Copán in November 2016, and spent a month there, working with Aruco to launch this project. We started things off by holding a producer meeting, where we invited everyone to the Aruco office for breakfast and an informal chat, with the intention of explaining who we were, the project and what we hoped to achieve. We also wanted to give the producers a chance to voice their concerns and have some input into the structure of the project. One of the senior Aruco members thought it best to begin by explaining some different processing methods, how to control drying and the basics of Brix picking, in order to give producers the ability to process microlots on their own farms. It was decided initially that this would be the first option we would put forward, the second being to sell their cherry to Aruco and have them process it. However, the problem with this idea is central to why quality is relatively low in Honduras; most producers have improper drying conditions and trying to process honeys and naturals — which are even harder to dry well — would be certain to fail. Consistency and quality require maximum control over variables in order to repeat the process and standardise it. Outsourcing that to more than 20 different producers means that each one would have their own version or variation of the process, and some may cut corners or make compromises, which wouldn’t give us repeatability. Despite these reservations, we put the original idea forward to the members.

Attendance at this first meeting was strong and interest seemed high, but it became clear that there were reservations. What we were proposing comes at a great additional cost to small producers. Not only do they have to pay pickers extra for ripe cherry selection, but it requires having cash savings to allow them to hold on to their coffee, to dry it down properly and then finally wait for payment. A couple of producers had an unpleasant experience previously when specialty buyers had promised to buy their coffee at a premium, and then not followed through on their agreement, leaving them holding onto coffee at the end of the harvest. Regardless, we had expected and actively invited producer’s questions and reservations, so in this sense the meeting had gone well and the producers there seemed to respond positively to the open dialogue we shared.

Based on this first meeting, we formed a team of technical staff who would oversee the whole microlot project. Together, we called all the producers that attended the meeting to request a commitment to an experiment to produce one single microlot each, and to continue a dialogue with us about their individual requirements in doing this. To our surprise, all but two of the producers who had attended the meeting said that they weren’t interested. There was a complete rejection of the project, and nobody would tell us why.

Time For Change — Phase Two

After this set-back, we had to go back to the drawing board and to figure out what was turning producers off the concept we had put forward. We decided to visit a few of those who had been unwilling to participate, to see if we could persuade them, or at least understand their motives. One of the producers we visited was Jorge Alberto Romero. He explained that whilst he was interested in the idea, he didn’t trust us enough to invest the extra cash in ripe picking, hold onto his coffee for longer and then to invest extra time in the additional care it required. He was also disinterested in selling cherry to Aruco, since he would still have to pay extra for the ripe picking, and then trust the technical staff to process and dry it properly for it to achieve the quality levels we were aiming for. Critically, the sticking point was his steadfast belief that he could get more for his coffee if he processed and dried it himself, and sold it as parchment.

It was clear from speaking to Jorge that producers were not sufficiently incentivised to sell cherry rather than parchment. It was also clear to me that the only way we could get the quality, consistency and volume we required from the project, was if we bought cherry and educated producers on the benefits they would derive from this approach. We would need to change the whole structure of the project in order to properly incentivise this, which is what we set about doing.

Firstly, we needed to address the issue of ‘buying’ the cherry. Previously, producers could deliver cherry and get a cheque for the local market value of that delivery. That was the system producers were used to, and one which had worked, up to a point. However, a second payment to producers didn’t exist, as it had never been necessary, so we determined a suitable payment structure based on predicted cup score, and then a second payment system which would pay a quality premium once cup score had been properly determined. Using cash borrowed against a contract we put in place, which committed us to the coffees regardless, spread the risk. There was still also the matter of the additional cost of ripe cherry picking, since it was integral to our plan that only ripe cherry would suffice for these high quality microlots. This cost of ripe picking is prohibitive for many small producers, since they often don’t have the ready cash to front. To overcome this hurdle, we had to create a new, ‘artificial’ cherry price: We set a minimum as the local market price and then built in incremental increases as the percentage of ripe cherries in the sample increased. Strict protocols and training were required to execute this, but we were sure it would adequately incentivise and cover additional producer costs. Having set these ideas in place, it was then just a case of persuading producers that this was a good model and that they would benefit greatly without much additional work. Most importantly, we provided clarity that the risk is spread, since once those cherries are sold, a minimum price is guaranteed. In effect, it should be an easy sell — we would come and collect their cherries, pay cash upon collection, process and dry it and then provide a second payment further down the line, once quality had been established.

Once again, we hit the pavement and visited producers. I made it a priority to visit every single producer that had shown any interest whatsoever, to explain the new structure and encourage them to trust us and the technical staff. Inevitably there was still some hesitation, because the system we were proposing was so different to what they had become used to, and required trusting in an unfamiliar system. These second meetings were difficult, but ultimately positive, and we shook hands with the majority of producers we’d visited.

Ripeness Is Everything

Cherry deliveries started to arrive thick and fast, but there was a catch: roughly 50% were ripe cherries, with the rest being semi-ripe, green and dried. We had to take on extra staff at the mill in order to clean the cherries that were delivered, in order to get a sufficient amount for the microlots. This wasn’t at all practical — we didn’t have much additional time and the labour costs rocketed. Because the cherry deliveries are scheduled for the evening, by that time there is also very little natural light to work through all the bags, selecting cherries.

The whole project seemed to be in a curious situation, one that I’m guessing not too many people in specialty coffee will have encountered. The issues we were facing were not only down to a lack of appreciation for the importance of ripeness: The cause was primarily that producers couldn’t find pickers who wanted to ripe pick, because they can earn far more money picking ‘normally’ elsewhere. Furthermore, production is so abundant in most parts of Honduras that producers need to get cherries off their trees rapidly, so that they don’t fall and go to waste, which could end up being even more costly.

I realised that producers have two choices if they want to only pick ripe cherries: they either wait for enough cherries to ripen and then pick as normal, but risk large quantities over-ripening or falling off the trees; or they seek out dedicated pickers to pick only ripe cherries - people who are hard to find and whose wages will cost a lot more. This situation is a symptom of the success of the commercialisation of coffee in Honduras. The reason pickers are reluctant to do ripe picking is because it is harder work and then they are not adequately incentivised to do so. Since production is so high, pickers can pick much more coffee in the same amount of time, and so when paying for ‘ripe only’ picking, producers have to pay the equivalent hourly rate, which is much more than in most other Central American countries. It’s also worth noting that this is the reason that Honduras doesn’t have a labour crisis, and is the incentive for workers from neighbouring Guatemala and Nicaragua to travel there to pick coffee. I heard that even some Nicaraguan pickers, who would usually go to Costa Rica to work, are now travelling to Honduras because they can earn more money there.

We had to have yet another change of approach. Having to constantly adapt our our method was a struggle, and whilst we had prepared ourselves for these hurdles, there were times when I personally thought the project may never work. However, by this point we had persevered to a point where we owed it to the producers who had shown us faith, and to ourselves, to persevere and find a solution. We reverted back to our original discussions with producers, and decided that in order to get to the root of this problem we had to teach producers and their seasonal workers how to Brix pick, and fairly compensate them for this. We found a number of pickers who were willing to be paid a premium for selective, ripe-picking, and then coordinated with producers when their cherries were ready for harvesting using a Brix refractometer, which measures the sugar content of the cherry. This way we could be sure that the cherries would be picked at an optimal stage of development, and overcome the risk to producers of losing part of their harvest due to overripe cherries falling. We then calibrated this approach to different varieties — since different varieties ripen to different shades of colour— and then sent in our picking team once they were ready. This method produced excellent results, saved time and money, and producers didn’t even have to front the cash — we just deducted the picking costs from the cherry price. I felt like we had finally found momentum, and the project moved forward at a greater pace.

End of Part 1…

Part two of this blog post, will explain the outcomes of the project, such as how producers have benefitted, both short and longer term, where we will be implementing similar programs in the future, and the microlot coffees that came out of the project.

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