also revealed a high degree of heteroge-

Cost and Profitability Analysis of Producing neity in cost components included in the
Specialty Coffee in El Salvador and Honduras analyses and sources of information used
(e.g., interviews with producers, local
experts, and government institutions)
Carlos E. Carpio1, Luis A. Sandoval2, and Mario Mu~
noz3 (Montagnon 2017). This study contrib-
utes to this literature by estimating and
KEYWORDS. cost-profitability model, cost structure, labor cost, organic coffee comparing specialty coffee production
costs and profitability in Honduras and
ABSTRACT. In Honduras and El Salvador, coffee (Coffea arabica) is one of the El Salvador using data collected from
leading agricultural exports, and the share of specialty coffee is growing each year. interviews with farmers. The approach
However, despite the importance of specialty coffee production and exports, there is
a knowledge gap regarding its cost structure and profitability, particularly those also provided a comprehensive assessment
associated with labor costs. The specific objectives of the study were to determine of all the expenses involved in coffee
the cost structure of specialty coffee in Honduras and El Salvador and to estimate production.
the costs and profitability of producing specialty coffee in these countries. A semi- We considered two production
structured survey instrument was administered to 14 farmers in Honduras and systems in Honduras. The first corre-
El Salvador selected as a convenience sample to represent different farm sizes, sponds to organic coffee production.
regions, and specialty-conventional and organic production systems. Specialty- Organic coffee has experienced a sig-
conventional refers to high-quality coffee with or without certifications. Then,cost- nificant increase in demand in the past
profitability models were developed using an economic cost approach, which
several years and corresponds to a well-
considered cash, noncash cost, and the opportunity costs of inputs. The results
showed that although both countries are neighbors and economically and culturally identified specialty coffee. Additionally,
similar, the cost structure of producing specialty coffee differed significantly. Costs we considered specialty coffee produced
were lower and profits were higher in Honduras than in El Salvador, and the in a conventional (e.g., nonorganic) sys-
specialty-conventional coffee production system was more profitable than the tem. Organic production is less com-
organic production system. mon in El Salvador; therefore, we only
studied specialty coffee grown in a con-
ventional system. Hereafter, we refer to
this system as “specialty-conventional”

T
he global market for specialty
coffee (Coffea arabica) has in-
creased 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 signifi-
cant interest among coffee farmers in
producing countries. In the case of
Honduras, the registration of specialty
coffee began during the 2009 to 2010
Received for publication 26 Jan 2022. Accepted for
publication 5 Oct 2022.
Published online 16 Dec 2022.
1
Department of Agricultural and Applied Econom-
ics, Texas Tech University, 2500 Broadway, Lub-
bock, TX 79409, USA
2
Departament of Agribusiness Management, Zamor-
ano University Tegucigalpa Francisco Morazan,
11101, Honduras
3
Independent consultant, Km. 14.5 Carretera al
Pacıfico Condominio Hacienda de las Flores, Clus-
ter 5, Casa 89, zona 2 de Villanueva. Ciudad de
Guatemala, Guatemala
This research was sponsored by the Specialty Coffee
Association, Conservation International, Rainforest
Alliance, and Solidaridad. We also acknowledge Victor
Hernandez and Darnell Carrranza for their help with
data collection.
C.E.C. is the corresponding author. E-mail: carlos.
carpio@ttu.edu.
This is an open access article distributed under the
CC BY-NC-ND license (https://creativecommons.
org/licenses/by-nc-nd/4.0/).
https://doi.org/10.21273/HORTTECH05028-22
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 in-
dications of origin (USDA 2021). In
El Salvador, 80% of coffee exports
are now differentiated/specialty coffee
(Consejo Salvadore~ no del Cafe 2021).
The Specialty Coffee Association
defines specialty coffee as “ … any
coffee that earns a significant pre-
mium” in the market. Therefore, spe-
cialty coffee can be certified and have
“low” or “high” organoleptic attrib-
utes, such as organic, or they can be
uncertified coffee but with “high” or-
ganoleptic characteristics.
Several studies have evaluated the
costs and profitability of coffee produc-
tion in the region. However, most have
focused on coffee production in Hon-
duras, whereas studies in El Salvador
are less common. Moreover, most of
the studies have focused on conventional
coffee production. The literature review
Units
To convert U.S. to SI,
multiply by U.S. unit
0.4047 acre(s)
0.4536 lb
1.1209 lb/acre
coffee production.
The information generated in
this study can be helpful to potential
and current producers. Individuals plan-
ning 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 in-
terest to other actors in the coffee supply
chain (e.g., buyers, processors, govern-
ments, and consumers), who are increas-
ingly voicing concerns about the econ-
omic sustainability of the coffee business.
These concerns include long-term finan-
cial viability of farm operations.
The specific objectives of the
study were to determine the cost struc-
ture 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: docu-
To convert SI to U.S.,
SI unit multiply by
ha 2.4711
kg 2.2046
kg·ha−1 0.8922

8  February 2023 33(1)

mentation of production practices, input
use, and costs (to produce specialty cof-
fee); modeled and estimated the com-
plete cost structure of producing specialty
coffee (e.g., it includes all fixed and vari-
able costs); and evaluated the profitability
of the production of specialty coffee.
First, local coffee experts in each
country developed typical manage-
ment plans (the sequence of activities)
for coffee production to document
production practices. The plans com-
prised all production, marketing, and
management activities from planting
the crop until the end of the produc-
tion cycle. Then, we used the manage-
ment 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 lan-
guage appropriate for the individuals
interviewed. The instrument consisted
of four sections with questions de-
signed to gather information about
the farm and producer, questions re-
lated to the production activities per-
formed on the farm, questions about
the number and type of workers, and
questions about all inputs and equip-
ment used for each production activity.
The first section collected infor-
mation about yields and prices received
during the last two production seasons
(2017–18 and 2018–19). The first sur-
vey section also asked about the total
area of the coffee plantation, the propor-
tion of the coffee farm with mature and
productive coffee trees, and the propor-
tion of the farm with very low or no
coffee production (e.g., areas being
renovated, rehabilitated, or recently es-
tablished plantations). This simplified
classification of coffee plots by age was
used because coffee family farms gener-
ally 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 fol-
lowing activities: harvesting; process-
ing; fertilization; establishment; shade
management; pest and disease man-
agement; weed control; and other
farm management and maintenance
activities. The third section included
questions about the number of perma-
nent and temporary workers, family la-
bor involvement, and type of contracts
used to hire outside labor.
 February 2023 33(1)
The fourth section collected infor-
mation about the amounts and costs of
all inputs (e.g., materials and labor) and
equipment used for each production ac-
tivity. We also included questions about
the initial cost of the equipment, its use-
ful life, and annual maintenance. The
final questions in this section asked pro-
ducers 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 col-
lect 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 sur-
vey. No economic incentives were of-
fered 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 sys-
tem in each country. The farmers in
Honduras were located in Copan, La
Paz, Ocotepeque, and Santa Barbara,
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 Pro-
gram at Texas Tech University, Lubbock,
TX, USA. The Human Research Protec-
tion 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 sec-
tions: total labor costs for each produc-
tion activity; total costs of nonlabor
inputs and equipment; total costs of es-
tablishing 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 kilo-
gram) for the section of the farm with
mature coffee in production. This struc-
ture helped summarize all the informa-
tion 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 produc-
tion. Furthermore, the analyses used a
long-term and comprehensive view of
this production unit using an eco-
nomic 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 (G omez
et al. 2017). The economic costs ap-
proach considers both cash (e.g., hired la-
bor) 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 infor-
mation about the economic sustain-
ability of the operation. For example,
the income from coffee production
should be able to cover the annual pro-
duction costs for established planta-
tions and “recover” the initial costs of
establishing the plantation and buying
long-lived assets (e.g., equipment). Addi-
tionally, 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: establish-
ment, land, and administrative costs of the
owner, which we refer to as overhead non-
cash costs hereafter.
ESTABLISHMENT COSTS. In Hon-
duras, the total cost of establishing the
plantation was charged as an annual cost
of production for the mature plantation
using the amortization method (Ameri-
can 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. Cof-
fee production was assumed to increase
progressively in proportion to the yield
of mature coffee, beginning with 0% in
year 1 and increasing 20% annually (Le-
mus 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 mi-
nus costs) become positive (in most
9
cases, year 4 of the plantation) (Ameri-
can Agricultural Economics Association
2000). Therefore, the total cost of es-
tablishing the coffee farm includes in-
formation only about the years with
negative net returns. When applying
the amortization method, it was as-
sumed that the salvage value of the
plantation was zero after 20 years with
a 10% interest rate. Twenty years is gen-
erally the recommended age to replant
coffee because it can produce for a
more extended period (US Agency for
International Development 2017); how-
ever, new diseases and climate change are
forcing producers in the region to con-
sider 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% in-
terest 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 be-
come more common in the country
(American Agricultural Economics Asso-
ciation 2000). This was also necessary be-
cause 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 pro-
ducers and complemented with infor-
mation 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 es-
timated 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 Coop-
erativo Regional para el Desarrollo
Tecnol ogico y Modernizaci on de la
Caficultura 2018). The annual rental
value of a coffee plantation was used
as the yearly cost of land and estab-
lishment costs in El Salvador (Ameri-
can Agricultural Economics Association
2000).
ADMINISTRATIVE COSTS. The ad-
ministrative costs of the owners were
included to account for the time the
owners spend on administrative activi-
ties. 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
10
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 op-
erating 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 pro-
cessors; therefore, we did not include
processing costs (Caravela Coffee 2019).
All coffee yields and prices were standard-
ized 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 con-
vert 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 (Interna-
tional Coffee Organization 2021). The
use of green coffee facilitated the com-
parison of the results and methods
with the previous costs of production
studies. The exchange rate used was
$1 5 25 Lempiras. All of the informa-
tion regarding prices and yields for all
of the farms included in the study is
shown in Table 1.
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 activi-
ties, 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 manage-
ment activities were considered: harvest-
ing; fertilization; renovation (e.g.,
replacement of dead plants and growth
pruning); shade management; and pest,
disease, and weed control.
Preliminary study results and meth-
ods were shared with more than 200 indi-
viduals 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 dis-
cusses the costs and profitability results us-
ing 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 aver-
age costs of production differentiated
by production and management activ-
ity 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, re-
spectively. In El Salvador, the estimated
average cost of producing specialty-con-
ventional is $3033.15/ha.
The difference between the aver-
age costs of producing organic coffee
and specialty-conventional in Honduras
is attributable to the additional fertiliza-
tion and harvesting costs required in
the organic system (Table 2). Organic
coffee producers devote more resources
to the production and application of
pesticides and fertilizers of natural ori-
gin. Similarly, the significant difference
(1.74-times higher) between the total
production costs of specialty-conven-
tional coffee production in Honduras
and El Salvador is attributable to the
significantly greater fertilization and
pest management expenses (Table 2).
Why do producers in El Salvador spend
more on pest management and fertiliza-
tion than those in Honduras and still
obtain lower yields? The difference in
pest management is likely attributable
to the higher prevalence of coffee leaf
rust (Hemileia vastatrix) in El Salvador
than in Honduras (US Department of
Agriculture 2020b). El Salvador also
has been slower to adopt resistant
varieties (US Agency for Interna-
tional Development 2017). The
 February 2023 33(1)
Table 1. Specialty-conventional (SC) and organic coffee farms characteristics, prices, and yields (Honduras and El
Salvador).
Country Location Production system Size (ha)i Yield (kg
ha21)ii Price ($/kg)ii
Honduras Santa Barbara SC 0.50 1,733.75 3.52
Santa Barbara SC 0.71 846.14 2.30
Santa Barbara SC 1.78 808.56 2.30
La Paz SC 2.13 1,209.61 3.20
Copan SC 80.59 1,920.37 2.70
La Paz SC 101.46 2,747.79 3.56
Average 31.19 1,544.37 2.93
Ocotepeque Organic 1.02 797.40 3.67
Copan Organic 1.82 1,210.06 3.75
Ocotepeque Organic 2.14 2,238.55 3.21
La Paz Organic 2.13 1,859.87 3.20
La Paz Organic 3.55 777.46 3.52
Copan Organic 2.84 1,917.75 3.67
Ocotepeque Organic 10.65 1,727.70 3.52
Copan Organic 2.84 1,091.18 3.21
Average 3.37 1,452.50 3.47
El Salvador Santa Ana SC 1.07 841.39 4.78
Sonsonate SC 1.95 1,099.05 3.04
Santa Ana SC 8.70 1,099.05 4.70
Santa Ana SC 10.65 1,201.83 5.76
Sonsonate SC 83.78 1,201.83 2.57
Soyapango and San Marcos SC 99.40 457.57 1.90
Average 34.26 983.45 3.79
i
Size corresponds to the total area with mature coffee in production, not the total farm size; 1 ha 5 2.4711 acres.
ii
1 kg
ha 1 5 0.8922 lb/acre. $1.00/kg 5 $0.4536/lb.

higher fertilization costs are attribut- least three fertilizer applications to three groups of activities of harvesting
able to the higher frequency and to- (Inter-American Institute for Coop- (53%–60%), pest management/weed control
tal amount of fertilization applications. eration on Agriculture 2020). For (12%–17%), and financial costs (12%–14%).
The median number of fertilizer ap- Honduras, a production manual recom- The breakdown of the cost per hectare
plications was 1 in Honduras and mended only one fertilizer application as a percentage is shown in Fig. 1.
5.5 in El Salvador. This is likely be- (Fundacion Hondure~ na de Inves- However, the cost structure of
cause of technical recommendations on Agrıcola 2004).
tigaci specialty-conventional coffee produc-
from local experts that have become In Honduras, the cost structures of tion in El Salvador differs considerably
“tradition.” For example, a well- organic and specialty-conventional coffee from that in Honduras (Fig. 1). Al-
known coffee production manual production are very similar. Most of the though harvesting also accounts for
from El Salvador recommended at expenses for the two systems correspond the highest share of total costs (27%)
in El Salvador, it is less critical than
Table 2. Specialty-conventional (SC) and organic average coffee production costs that in Honduras. However, fertilization
by activity and cost category (excluding noncash overhead) in Honduras and El (26% of costs) and pest management/
Salvador. weed control (24% of costs) have more
Honduras important roles in El Salvador. Surpris-
El Salvador ingly, financial costs account for a signifi-
i
Activity SC ($/ha) Organic ($/ha) SC ($/ha)
cant share of the total annual costs in both
Harvesting 1,044.75 1,292.06 823.10 countries: 12% to 14% in Honduras and
Fertilization 57.16 340.71 786.28 8% in El Salvador. These values are signifi-
Renovation 115.80 90.65 144.55 cantly larger relative to the financial costs
Shade management 7.42 37.60 127.40 for agriculture reported in other parts of
Pest and disease 95.48 153.64 485.72 the world, such as the United States,
Weed control 193.90 120.65 228.10 where the average is less than 3% (US
Overhead cash 47.86 112.23 180.69 Department of Agriculture 2021).
Financial costs 176.61 303.69 257.32 The estimated total production
Subtotal 1,738.97 2,451.23 3,033.15 costs for all farms included in the study
Subtotal costs ($/kg)i 1.13 1.69 3.08 are classified by farm size and shown in
Subtotal by cost category Fig. 2. We found that total production
Labor 1,306.23 1,683.58 1,851.16 costs were highly heterogeneous, even
Inputs 374.71 733.83 1,086.65 within farms of the same size. For ex-
Equipment 58.03 33.81 95.34 ample, the minimum and maximum
i
$1.00/ha 5 $0.4047/acre, $1.00/kg 5 $0.4536/lb. values of specialty-conventional coffee
 February 2023 33(1) 11

Salvador
El
SC
Organic
Honduras
SC
0% 10%
Harvesting
Pest and disease
Fig. 1. Specialty-conventional (SC) and organic coffee cost production structure
by activity (excluding overhead noncash costs) in Honduras and El Salvador.
production on small farms in Honduras
were $1599.85/ha and $5307.42/ha,
respectively. There was also heteroge-
neity across farm sizes because some
small farms have lower production costs
than some larger ones (Fig. 2). Al-
though our analyses allowed us to ex-
plore some heterogeneity of costs and
profitability, the small size was a limita-
tion for these analyses.
A different perspective of the cost
structure of coffee production can be
obtained when analyzing costs by cost
category (Table 2). In every case, equip-
ment costs represented less than 3% of
the total costs of production, which re-
flected 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, ex-
cluding 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 or-
ganic in Honduras, respectively, and
Fig. 2. Specialty-conventional (SC) and organic coffee estimated average production costs by farm size category (excluding
noncash overhead costs) in Honduras and El Salvador: 1 5 small (<2 ha); 2 5 medium (2–20 ha); 3 5 large (>20 ha); and
1 ha 5 2.4711 acres. $1.00/ha 5 $0.4047/acre.
12
20% 30% 40% 50% 60% 70% 80% 90%
Fertilization Renovation Shade management
Weed control Overhead cash Financial costs
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-con-
ventional (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 spe-
cialty-conventional coffee is $3.08/kg
(Table 2). Therefore, the cost of produc-
ing 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 hect-
are because of the lower average yields
observed on the farms in El Salvador
(Table 1).
COST ANALYSES INCLUDING NONCASH
OVERHEAD COSTS. Estimated annual es-
tablishment, land, and management
costs for the owners for in Honduras
are provided in Table 3. The annual man-
agement costs for owners are $78.35/ha
for specialty-conventional coffee and
$118.0/ha for organic coffee.
The average costs of establishing
a hectare of specialty-conventional cof-
fee and organic coffee in Honduras are
$218.70/ha and $176.59/ha, respec-
tively. These costs were calculated based
on reports from farmers and local in-
formants. 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
100% the estimated values of land provided by
farmers in Honduras (lowest $3380.28/ha;
highest $11,267.61/ha). The wide vari-
ability in land costs likely reflects differ-
ences in agricultural productivity and
alternative land uses (e.g., tourism) across
the country, complicating the calculation
of annual land costs for coffee produc-
tion (American Agricultural Economics
Association 2000).
The annual combined land cost
value and cost to establish a hectare of
specialty-conventional coffee in El Sal-
vador 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 condi-
tions 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 esti-
mated for Honduras.
In Honduras, the total costs of cof-
fee production, including noncash over-
head costs, are $2338.13/ha ($1.55/kg)
and $3108.49/ha ($2.14/kg) for spe-
cialty-conventional and organic coffee,
respectively (Table 4). The total pro-
duction costs for specialty-conventional
coffee in El Salvador are $3683.87/ha
($3.75/kg). Because noncash overhead
costs are very similar across systems, the
differences in total annual costs between
and across production systems are comparable
to the differences in total costs when they are
excluded.
 February 2023 33(1)
Table 3. Specialty-conventional (SC) and organic coffee production noncash overhead costs by location in Honduras.
Owner management costs
Location Production system Establishment ($/ha)i Cost of land ($/ha) ($/ha)
Santa Barbara SC 212.74 281.69 97.05
Santa Barbara SC 304.96 281.69 93.25
Santa Barbara SC 155.66 253.52 61.42
La Paz SC 460.10 169.01 47.82
Copan SC 60.13 563.38 67.76
La Paz SC 118.62 563.38 102.78
Average 218.70 352.11 78.35
Ocotepeque Organic 217.26 422.54 58.98
Copan Organic ND 422.54 140.47
Ocotepeque Organic ND 422.54 122.55
La Paz Organic 516.91 169.01 225.12
La Paz Organic 278.48 338.03 117.63
Copan Organic 114.31 281.69 75.99
Ocotepeque Organic ND 422.54 123.44
Copan Organic 285.73 422.54 79.85
Average 176.59 362.68 118.00
i
$1.00/ha 5 $0.4047/acre.
ND = no data.

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 to-
tal costs (specialty-conventional in Hon-
duras: 27%) and lower in the system with
the highest total costs (specialty-conven-
tional in El Salvador: 18%) (Fig. 3).
PROFITABILITY ANALYSIS. A profit-
ability analysis uses the concept of net re-
turns (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 differ-
ence 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 cof-
fee 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 over-
head noncash costs on a per-area basis
followed a similar pattern (Table 5).
Although the price paid to Sal-
vadorean 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 re-
turns to noncash overhead costs (all six
specialty-conventional coffee producers
and six of eight organic producers). In
El Salvador, four of six farms had posi-
tive net returns.
When overhead noncash costs
were included in the analysis, the aver-
age 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 man-
agement time. The profitability analysis
at the individual farm level indicated that

Table 4. Specialty-conventional (SC) and organic coffee production average total cost including nonoverhead costs in Hon-
duras and El Salvador.
Honduras
El Salvadorii
i
SC ($/ha) Organic ($/ha) SC ($/ha)
Subtotal (Annual cash costs and machinery depreciation) 1,738.97 2,451.23 3,033.15
Noncash overhead 649.16 657.26 650.72
Establishment 218.70 176.59 167.00
Cost of land 352.11 362.68 333.00
Owner management costs 78.35 118.00 150.72
Total costs 2,388.13 3,108.49 3,683.87
Total costs - ($/kg)i 1.55 2.14 3.75
i
$1.00/ha 5 $0.4047/acre. $1.00/kg 5 $0.4536/lb.
ii
For El Salvador, only a combined value of establishment and land cost was available ($500). This value was allocated between establishment costs and land costs based
on the observed values in Honduras.

 February 2023 33(1) 13


El Salvador
SC
Organic
Honduras
SC
0% 10%
Harvesting
Weed control
Fig. 3. Specialty-conventional (SC) and organic coffee cost production structure
by activity (including overhead noncash costs) in Honduras and El Salvador.
8 of 14 farms have total positive net re-
turns (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 attribut-
able to the lower net returns to noncash
overhead values because noncash costs
are similar across all production systems.
Subtracting these costs from the consid-
erably lower net returns to noncash
overhead in El Salvador results in mark-
edly lower net returns.
COMPARISON OF COST ESTIMATES
AMONG STUDIES. To compare the re-
sults of this study with those in the liter-
ature, the results of previous studies
were converted to dollars per hectare
and/or dollars per kilogram. Cost esti-
mates of earlier studies are expressed in
nominal values for three reasons. First,
using nominal values allows us to men-
tion actual values reported in the studies.
Second, all the studies cited were con-
ducted 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 dol-
lars between 2015 and 2019 was 5%.
The accumulated inflation rate in El Sal-
vador between 2011 and 2019 was
5.5% (The World Bank Group 2020).
We found two studies about conven-
tional coffee in Honduras that included all
Table 5. Specialty-conventional (SC) and organic coffee production estimated net returns in Honduras and El Salvador.
Country System
Honduras SC
Organic
El Salvador SC
i
$1.00/ha = $0.4047/acre. $1.00/kg = $0.4536/lb.
NCO = noncash overhead (establishment, land, and owner’s management costs).
14
20% 30% 40% 50% 60% 70% 80% 90% 100%
Fertilization Renovation Shade management Pest and disease
Overhead cash Financial costs Non-cash overhead
production costs in their analyses. A study
the International Coffee Organization
conducted in 2019 that used an extensive
survey of producers estimated that the to-
tal 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 In-
ternational Coffee Organization study
included all conventional producers.
Moreover, the estimated cost of land,
establishment costs, and management
costs in the International Coffee Orga-
nization study were $140/ha com-
pared with our estimated $650/ha.
The International Coffee Organization
study assumed $2800/ha as the agri-
cultural 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 in-
terest rate of 3.25% ($91/year). Estab-
lishment costs in the International Coffee
Organization study were assumed as the
average establishment costs reported by
survey respondents who had recently es-
tablished coffee plantations divided by
20 years ($47.76/ha). In contrast, our
study collected data related to all activities and
expenses related to establishment costs.
Finally, the International Coffee Organi-
zation study excluded management costs.
Programa Cooperativo Regional para
el Desarrollo Tecnol ogico y Modernizaci on
Net returns Net returns
Price ($/kg)i to NCO ($/kg) to NCO ($/ha)i
2.93 1.08 1,672.90
3.47 0.77 1,113.23
3.79 0.71 668.00
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 spe-
cialty-conventional coffee ($1.55/ha).
The study by Programa Cooperativo
Regional para el Desarrollo Tecnol ogico
y Modernizaci on de la Caficultura relied
on interviews with experts.
A study sponsored by Heifer Inter-

national (Alvarez 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 cal-
culations excluded land costs and man-
agement costs. In summary, the average
estimated cost to produce specialty-
conventional coffee in Honduras deter-
mined 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. G omez
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 esti-
mated 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 can-
not 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 process-
ing costs are $800/ha. Therefore, even
after subtracting the processing costs
from the study by Gomez et al. (2017)
Total Net Total Net
Returns ($/kg) Returns ($/ha)
0.66 1,023.74
0.31 455.96
0.01 12.28
 February 2023 33(1)
study, their estimated production costs
are higher.
Two studies reported estimates of
the costs of conventional coffee pro-
duction in El Salvador. An estimated
value of $1904.23/ha has been re-
ported (Fundaci on Salvadore~na para
Investigaciones del Cafe 2011), but
noncash overhead costs were not in-
clude. Caravela Coffee (2019) reported
a total cost of $3900.87/ha. Fundacion
Salvadore~ na para Investigaciones del
Cafe (2011) used data from farmers,
whereas Caravela Coffee (2019) as-
sumed a “model” farm for the calcula-
tions. 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 esti-
mated cost of production of organic
coffee in Honduras, which was signifi-
cantly 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 dif-
ferences were mainly attributable to man-
agement and the natural conditions of
each farm. Costs of production for spe-
cialty-conventional were lower in Hondu-
ras than in El Salvador. Moreover, in
Honduras, the specialty-conventional cof-
fee system was found to be more profit-
able than that of organic coffee.
In terms of profitability, on aver-
age, all production systems generate
enough income to cover annual cash
costs of production at the prices ob-
served during the data collection pe-
riod (which are approximately the
average of the prices observed in the
past 20 years (International Coffee Or-
ganization, 2021). On average, spe-
cialty 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, reflect-
ing a lower likelihood of long-term
economic sustainability of the specialty-
conventional coffee sector in that coun-
try. However, producers with positive
total net returns were found in every
production system and country.
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