Tegucigalpa, Apr. 22 - Honduran coffee farmers are sneaking their beans across the border to Guatemala at alarming rates to win better prices than at home as global supply of gourmet coffee tightens and prices soar.
Honduran producers in the high-altitude growing regions near Guatemala say that at the height of the harvest, around 200 60-kg bags of coffee a day were smuggled over the border where there were few customs officials checking the flow of trucks.
"Guatemalan intermediaries have been coming like never before to the farms in the mountains to buy coffee," said Honduran grower Marlon Peraza, whose farm is nestled in the hills near where the two countries share a border.
"They are offering prices between $20 and $25 higher than what we can sell for in Honduras," Peraza said.
The smuggling has cut into Honduras' exports as some 760,000 60-kg bags of coffee slipped out of the country this season, according to local industry officials.
Honduran coffee often fetches lower prices because it is considered lower quality by traders. Guatemala, on the other hand, has cultivated its reputation as a specialty brand and can be sold at a premium.
The problem increased in recent months as the physical coffee market for high quality beans soared because of tight supplies in No. 3 coffee grower Colombia, due to heavy rains and a renewal program to replace old coffee trees.
As a result, the premium for Colombian arabica beans surged to levels that traders and analysts said they have never seen before. Central American premiums likewise jumped.
TIGHT SUPPLY, HIGHER PRICES
The premium for Colombian UGQ (Usually Good Quality) beans surged this month to around 65 cents and higher over the ICE "C" coffee contract, up nearly five times from a level of 14 cents over in October 2008.
Benchmark July arabica coffee futures on ICE Futures U.S. were down 0.95 cent at $1.1340 per lb at 11:00 a.m. EDT (1500 GMT).
"There is a trend from Mexico to Colombia, a drop in production of fine coffees. This originally caused Colombia to raise its differentials and this has continued throughout Central America," said Christian Rasch, head of Guatemalan coffee association Anacafe.
"Normally the differential for quality Guatemalan coffee was around $8 to $10 above the market. Today we are between $30 and $35 above the market," Rasch said.
Guatemala says it carefully monitors its exports and is not aware of Honduran beans slipping into its blends.
"I haven't seen it and we don't have any proof of it ... but if there has been, it is because here they are paying the best prices, according to market conditions," Rasch said.
Honduras' coffee institute slashed its forecast for 2008/09 coffee exports by 7.4 percent this month, citing the increased smuggling and heavier rains at the end of last year.
Honduran coffee exports will likely reach 3.37 million 60-kg bags during this harvest season, unchanged from the previous cycle, the national coffee institute has said.
The institute previously projected exports of 3.64 million 60-kg bags.