guate.jpgAt first glance, the Honduran-Guatemalan border at El Florido appears no different from any other international land border crossing in Latin America. Migrant day workers mix with road-weary truckers, soldiers, little kids selling everything from candy to cigarettes, and myriad other overland travelers destined for points unknown. Customs officials dutifully check documentation of each person and inspect the merchandise of trucks, whose license plates range from Maine to El Salvador, and whose goods are destined for places even more varied.Yet beneath the seemingly innocuous façade lies a more sinister truth: The border crossing at El Florido and the surrounding area is a hotbed for illegally smuggled goods and people. The most lucrative merchandise smuggled is not the traditional illegal drugs that are in such high demand in the United States. Instead, the moneymaker is something consumed daily (for some almost religiously) by millions around the world: coffee.

Check the label on your next cup of coffee. Does it say it comes from Guatemala? If so, you may unwittingly be participating in the consumption of a product that was illegally trafficked by organized crime in one of many lucrative smuggling businesses available at the porous borders of many Central American nations. According to an investigative report published on 24 February by La Prensa, a Honduran daily, the border area in Copán department, which is an ideal climate for growing coffee, is rife with trafficking of coffee at dozens of points, including El Florido.

Statistics from The Instituto Honduro de Café (IHCAFÉ) confirm this. This year, IHCAFÉ predicts they will export 2.16 million units (a unit is measured as a 46 kg sack of coffee as per IHCAFÉ’s standards) in 2009, a 25.2% decline in the sale of registered coffee from 2008 (2.84 million units). While part of this surely has to do with the decrease in global demand, officials worry about Honduran coffee illegally fleeing the country to be packaged and exported pure Guatemalan coffee. Honduran authorities estimate that of the 5 million quintals of coffee the nation produces, some 230,000 are smuggled illegally, accounting for 4.6% of total production. Some think that number is even higher.

The reasons are twofold. Unsurprisingly, the most important factor is money. Honduran coffee cultivators have to pay a Fideicomiso of 190 lempiras (roughly US $9-10) for every quintal of coffee they produce. By selling directly to smugglers, they avoid this charge, the bureaucracy of dealing with the Fideicomiso, and delays associated with selling the coffee legally. Instead, coffee cultivators can sell their harvest to one or two people in a pickup truck at a higher price and get paid in cash that same day. Once the coffee is in the hands of the smugglers, they have great incentive to sell it with the Guatemala brand. Guatemalan coffee sells for $5-10 more per quintal than Honduran coffee, which leads to the other reason for the illegal flight of Honduran coffee beans.

The Role of Nation Branding

In the coffee growing regions of Honduras and Guatemala, the climate is very similar. The farms where coffee is grown are in many ways indistinguishable. Shipping processes to the United States, Europe, and Japan (the main export partners for Honduran coffee) are similar. So why is Guatemalan coffee valued higher on the international market?

The answer has to do with the perception of Guatemalan coffee being of higher quality than Honduran coffee. I am not a coffee connoisseur and have very little knowledge about growing and harvesting coffee, but I have tasted the final product of both Honduran and Guatemalan coffee, and did not find one to be of supremely higher quality than the other. The answer thus must be in consumers’ perceived value of “brand Guatemala”, placed at a higher value than “brand Honduras” on the global market.

Nation Branding is a concept first coined at the end of the 20th century by renowned British consultant Simon Anholt. The idea is that each nation has a brand, and that people use heuristics to gauge the value of a product by its place of origin. In his book “Competitive Identity: The New Brand Management for Nations, Cities, and Regions”, he cites Swiss chocolate and Japanese automobiles, two products which may not even be produced in country but whose value is derived from the product’s place of origin. Consumers value the product and are willing to pay a higher price because of the brand equity of the nation, even if the Japanese car was built in a factory in Kentucky with parts shipped from Mexico.

Thus, in attempting to curb the flow of coffee to Guatemala, Honduras’s government has a two-fold task. They should not only make it easier for Honduran growers to sell their product to Honduran authorities, offering a better price and removing barriers to receiving payment, but also work on developing “brand Honduras” so that their coffee fetches equal value on the international market, which will in turn discourage smugglers from wanting to package the coffee as Guatemalan.

This is no easy task for Honduran president Mel Zelaya. A report published on 3 March by the IMF put Honduras as one of three nations in the Americas (St. Lucia and Haiti were the others) as being at “high risk” to effectively absorb the effects of the global financial recession. The report warns of a 2.6% slowdown in the economy, which is heavily reliant upon exports (coffee is Honduras’ largest agricultural export) and manufacturing. The nation is also facing a startling rise in street violence, gang activity, and organized crime increasingly using Central American nations as a major transition point for smuggling cocaine to the United States.

Yet the task is not insurmountable. Guatemala faces many of the same social and economic problems as Honduras. But when it comes to coffee, their brand is more valuable, which is hurting Honduras’ coffee exports and encouraging a black market for coffee, which may have the unintended consequence of encouraging organized crime to take control of the smuggling. As LatAmThought wrote back in January, black markets do not only exist for illegal goods. Yet the consequences can be just as dire.

A cup of coffee does not carry the weighty connotation that cocaine does, yet the illegality, which is indirectly encouraged by faulty Honduran policy, encourages the growth of the same type of organized crime and the perils it brings. Thus, to curb this growing problem, perhaps Zelaya’s response should include the mandatory reading of La estrategia detrás de la marca about the success of the Juan Valdéz brand and its impact on Colombian coffee exports in addition to tighter border control.