What Would it Cost? Calculating Specialty Coffee Farmworker Living Wages in Honduras and El Salvador | 25, Issue 18
Professors CARLOS CARPIO, PhD and LUIS SANDOVAL, PhD worked with BRENDA MAMANI, MSc to ask: what are the living wages in El Salvador and Honduras, and how would current total costs and profitability of coffee production be affected if farmworkers were paid living wages?
Much of the SCA’s work in recent years is related to fostering a coffee sector in which coffee is sourced from profitable farms that enable rural communities to thrive (which should be a business imperative in sourcing operations for specialty coffee companies). Living wages could be a key tool to achieve this, while additionally boosting brand reputation and aligning reliable sourcing operations with evolving customer expectations around coffee value and quality. The action of closing the living income gap may also act as a new cornerstone to address inequalities in the coffee market’s cracked foundations, contributing to equitable value distribution and mitigating endemic vulnerabilities linked to coffee price volatility.
At the same time, the payment of living wages—fully aligned with key United Nations Sustainable Development Goal targets to create a prosperous future for all—could be a pillar of sustainable economic development and decent work promotion. A focus on the achievement of living wages in sourcing operations also holds inherent potential to address root causes associated with poverty in coffee-producing regions, changing the approaches from doing less harm to making things (coffee) better.
One of the things that stands out to me in this next feature from Professor Carlos Carpio—an elegant summary of a report (still to be published) for the SCA on labor dynamics in El Salvador and Honduras—is the steep path ahead. To quote the authors, “while the coffee industry must continue to strive to improve coffee workers’ living conditions, it’s important to keep in mind that expecting coffee farmers to pay their workers living wages only works when they’re able to earn additional income to cover the additional cost.” Effective living wages must be backed by prosperous farmers first. For those of you familiar with the SCA’s Price Crisis Response Initiative Summary of Work, this is not a new idea (but remains important as ever): the transition of farmers to other livelihoods (beyond coffee) makes the diversity, availability, supply, and price increasingly vulnerable to climatic and geopolitical events that may jeopardize the business model structures and sourcing operations of specialty coffee companies worldwide.
Across the forthcoming report and the summary provided here, the authors’ methodology and analysis of the elements of a decent standard of living, juxtaposed with a comparison of the living wage with the cost of production for different coffee production typologies (i.e., organic, specialty), is sound. I suggest you carefully consider the data and analysis, as this is always embedded in a wider and ever-evolving context; it offers new insights on the challenges facing farmers and farmworkers to cope with the complexity of the coffee market. This research offers us a valuable perspective on what the payment of living wages could represent to both the wider specialty industry and individual coffee companies striving to design novel social innovations to nurture a thriving coffee supply chain.
Andrés Montenegro
Sustainability Director, SCA
In addition to being one of the most popular drinks worldwide, coffee is also a primary agricultural product in many nations, including all Central American countries, making it an important driver of rural employment, GPD, and export earnings.
In Honduras, the largest producer of coffee in Central America and the world’s fourth-largest exporting country,[1] coffee production involves more than 120,000 producers—largely small producers—and accounts for approximately 30% of the agricultural gross domestic product and 5% of the country’s total gross domestic product.[2],[3],[4] Coffee is also a significant crop in El Salvador, where it represents approximately 8% of the country’s agricultural gross domestic product and involves more than 20,000 producers, again, primarily small producers.[5],[6]
While much discussion and research about the economics of coffee production focuses on coffee farmers, they are not the only actors who participate in coffee production. In addition to the many individuals who participate in the production, aggregation, distribution, and processing of coffee,[7] coffee production involves millions of coffee farmworkers. Despite being outsize in number and in impact—it’s difficult to imagine our industry without the labor of the millions who grow, harvest, and process specialty coffee!—little is known about coffee farmworkers’ wages, living conditions, and demographics.
At the same time, consumers’ growing demand for sustainable food products has motivated discussions about the social and economic implications of coffee production, including workers’ conditions and wages. The concept of a living wage, defined as the wage workers need to support themselves and their household at an acceptable standard of living,[8] is prominent in these discussions, as it provides a quantifiable metric of economic sustainability.
As a part of a forthcoming multidisciplinary Coffee Science Foundation research report on specialty coffee labor dynamics in El Salvador and Honduras, generously funded by Conservation International, Rainforest Alliance, Solidaridad, and the Specialty Coffee Association (SCA), we conducted a study of coffee farmworkers’ living wages. As we also estimated total production costs through the project’s earlier literature review and a cost of production study, we were also able to use the living wages calculated to evaluate the effect of paying these wages on the production cost overall.
Estimating “Living Wage”
To estimate the living wages of coffee farmworkers in Honduras and El Salvador, we followed the “Anker Methodology,” first proposed by Richard and Martha Anker in 2006 and later adopted by the Global Living Wage Coalition to estimate living wage in nearly 40 countries. For a household to have an acceptable standard of living, it must have the capacity to cover four types of expenses: food, housing, education, and healthcare. These four categories, plus a percentage for emergencies and unforeseen events, comprise the household expenses data needed to calculate minimum living wages. The other information required for the calculations is the number of full-time workers in each family.
As the number of workers and family expenses vary across regions and countries, the Anker Methodology requires the collection of locally specific data on which to base our calculations. Primary data collection efforts, i.e., data we collected ourselves, were conducted in 2020 using a short survey of 18 coffee farmworkers (9 in each country). The survey collected information about household size, the household members’ employment status, and the monthly costs of the four expenditure categories of interest. Secondary sources, i.e., relevant data published by other sources, included several local government agencies and the literature. All our data were collected with the intent of understanding and determining what households would need to spend to have an acceptable standard of living, rather than simply describing current expenditure levels, which in many cases may be insufficient.
To understand food expenses, we asked households what they spend on food weekly to avoid recall bias over extended periods, and then multiplied the weekly value by four to obtain a monthly estimate. To estimate housing expenditures, we asked families how much they would have to pay if they had to rent their house. We also asked households about their educational expenses in five categories: materials, tuition, clothing, transport, and food. Finally, we asked about their expenditures on healthcare, as most coffee farmworkers do not have access to the countries’ healthcare/social security systems, given the temporary nature of their location and part-time employment.
Using the information on the number of full-time workers in each family and their expenditures, we first calculated the total living costs for a representative household to attain an acceptable standard of living. Then, we divided the family’s total living expenses by the number of full-time workers to identify the living wage per individual. The average household size of the individuals interviewed in El Salvador and Honduras was 4.1 and 4.3, respectively, and both had 2.1 children, on average; we found these to be consistent with government estimates. In all households interviewed, one of the parents worked full-time, while the other (usually the mother) had seasonal part-time jobs, so we estimated 1.25 full-time workers per household in both countries.
Finally, to allow for comparison between the two countries of study, all calculations are presented as US dollars (US$), although the official currency in Honduras is the Lempira.[9]
The Breakdown: Living Wage in El Salvador and Honduras
The household living wages in coffee-producing regions were estimated to be US$459.12 in El Salvador and US$450.75 in Honduras (see Table 1). In examining how we got to both numbers, we also have a small window into these households’ living conditions—although it’s important to remember that these are broad estimates for coffee-producing regions in each country. Just as conditions can vary significantly from country to country, so too can they vary between and within regions. Applying the same methodology with more specific regional data can offer specific regional estimates, and these numbers can be used as a point of departure to estimate and benchmark any regionally adapted estimates.
Table 1. Living wage estimates.
Farmworkers’ households interviewed in Honduras spent, on average, US$132.9 per month on food. In El Salvador, households reported average food expenditures of US$237.76 per month. The information on food expenses reported in the surveys was compared to the spending required to purchase minimum-cost diets for a representative household[10] and was estimated to be US$158.10 and US$257.07 for El Salvador and Honduras, respectively. The minimum-cost diet is the cheapest basket or list of locally available food products that satisfy a family’s nutritional requirements (e.g., calories, protein, vitamins, and minerals). These minimum-cost diets are generated using market price data, complete dietary recommendations, and mathematical models. Unlike a “food basket” or list of food products that considers calorie requirements alone, the minimum- cost diets comprise all-important micro- and macro-nutrients needed in a healthy diet; however, they may not represent consumers’ preferences (e.g., they might include more vegetables or fish products than traditionally consumed). The highest value between the average food expenditures reported in the interviews and the value of the minimum-cost diet were selected for the living wage analyses. Therefore, we used the value of the minimum-cost diet for Honduras (US$257.07) and the mean food expenditure value from the interviews in El Salvador (US$237.76) as the estimated food costs for living wages. This also indicated that food costs are the most significant component of the living wages, as they account for more than 50% of their value (52% in El Salvador and 57% in Honduras).
All Honduran farmworkers’ households interviewed were homeowners, but only 33% of the families in El Salvador reported owning the home in which they live. The remainder of the households in El Salvador reported that they live as colonos [settlers] on the coffee farms on which they work (not on their property). Therefore, to estimate housing expenditures, we asked families how much they would have to pay if they had to rent the house in which they live. The average rent estimate Salvadorean households provided was US$55.56/month; as none of the Honduran households offered a rent estimate, we used the same value. Housing costs also included expenses for utilities (electricity, water, and gas) based upon the data the survey respondents provided. A housing value is necessary even if households own a house, because money is required eventually for renovation or reconstruction. Housing costs represent approximately 15% of the total living wage in each country.
With respect to education expenses, only a small number of households reported expenditures on education. On the other hand, data from the 2019 Household Expenditure Survey of El Salvador found that rural households in the country spend, on average, US$68.06 per month on education. This expenditure includes tuition, materials, uniforms, transport, and meals related to education.[11] Because no estimate was found for Honduras, we used the same value as that for El Salvador. Education also represents approximately 15% of the total living wage in both countries.
All households in Honduras and most Salvadorean households (66%) reported using free public healthcare services providers for healthcare (the remaining 44% used private medical providers). In addition, all the families reported that they visit the doctor only when needed and not for preventive care. The average healthcare expenditures among the group that reported healthcare expenses were used for the living wage calculations. We estimated that the average monthly healthcare expenditure in Honduras was US$5.75 and US$28.17 in El Salvador.
Finally, we included two additional values: emergencies and social security. We calculated an additional 10% of the food, housing, and other expenditures as emergency costs, to guarantee the sustainability of the living wage and help the households cope with unexpected expenses and inflation.[12] For social security, we added 3% expenditure, an estimate of what workers need to contribute to social security institutions in both countries if they had full-time employment.
After considering the number of full-time workers in each family (1.25), monthly household living wages were estimated to be US$459.12 for El Salvador and US$450.75 for Honduras. In Honduras, the legal minimum salary for full-time agricultural workers in 2020 was US$282.84 (63% of the living wage) for companies with 1 to 10 employees and US$343.45 (76% of the living wage) for companies with more than 150 employees.[13] For El Salvador, the minimum legal wage for full-time agricultural workers in 2019 was US$202.88 per month, only 44% of the identified living wage. While this is already indicative of the significant gaps between existing wages and the living wage, it’s also important to note that most production activities on a coffee farm are only temporary—the majority of coffee farmworkers are hired part-time and paid a daily or hourly minimum wage, making their total monthly income lower than even the monthly minimum wage estimated here. If farmworkers are to achieve decent living standards, paid wages would need to be higher than those currently required by minimum wage laws.
There is More to Economic Sustainability Than Living Wages
Although the living wage concept is an essential metric to analyze coffee production’s economic and social sustainability, it is not its only component. Ultimately, a coffee farm’s viability overall is determined by its long-term economic viability, which in turn is affected by the costs of production and prices received. As coffee production requires considerable labor, changes in labor costs will likely affect the coffee production costs overall significantly.
How significant can these effects be? Specifically, how much would the costs of coffee production increase if farmers were to pay all their workers living wages rather than the current wages? We used recently constructed cost of production models of specialty coffee producers, both those who produce specialty coffee organically and “conventionally,” in Honduras and El Salvador, to answer this question.
Although more information about the specific construction of these models will be available in both the forthcoming report as well as an article in the scientific journal, HortTechnology, these cost models were built using data on the amounts and costs of all inputs and equipment used in 14 specialty coffee farms in Honduras (8 specialty-organic and 6 specialty-conventional) and 6 specialty-conventional farms in El Salvador. The analyses also included costs related to the establishment of the plantation, land costs, and the time farmers spend on management activities (costs usually referred to as non-cash fixed costs). Inputs included labor needs and current wages, with farmers selected to represent farms of different sizes and regions.
We estimated that 181 worker-days per hectare and 252 worker-days per hectare are needed to produce specialty-conventional and specialty-organic coffee in Honduras, respectively. In El Salvador, 190 worker-days per hectare are required to produce specialty-conventional coffee. It was also determined that labor costs comprise the most significant component of total costs: 75% and 69% for specialty-conventional and specialty-organic in Honduras, respectively, and 61% for specialty-conventional in El Salvador.
Figure 1. Costs of production: Current versus estimated living wage.
Paying workers living wages rather than the current wages was found to affect production costs significantly (see Figure 1), as labor costs to produce 1 kg of green coffee would increase at least 2.5 times and total production costs at least 1.75 times. For example, in Honduras, the labor and total costs to produce 1 kg of conventional specialty coffee were US$0.88 and US$1.70, respectively, when considering current wages. When living wages were used, the estimated costs increased to US$2.32/kg and US$3.15/kg, respectively (Figure 1).
These results—that estimated living wages are higher than both the existing minimum wages and existing wages for specialty coffee farmworkers, and that paying workers the estimated living wages would increase the cost of production significantly—suggest that the social and economic sustainability components of living wage conflict.
By situating the results of this study alongside the anonymized, aggregated dataset published by the 2021 Specialty Coffee Transaction Guide, it becomes all too apparent what kind of changes will need to be made if the coffee industry is interested in pursuing living income as a mark of sustainable production. Using voluntarily donated historic data, the guide suggests that reported median prices—situated at US$3.50 for El Salvador and US$2.75 for Honduras—wouldn’t currently cover this increase in cost of production to cover living wages for farmworkers (which this study has estimated as US$6.64 for El Salvador and US$3.15 for Honduras, both specialty-conventional). While the coffee industry must continue to strive to improve coffee workers’ living conditions, it’s important to keep in mind that expecting coffee farmers to pay their workers living wages only works when they’re able to earn additional income to cover the additional cost. Otherwise, living wages can affect the long-term economic sustainability of many farms, regardless of size. ◇
Professor CARLOS CARPIO, PhD teaches and researches agricultural and applied economics at Texas Tech University. Professor LUIS SANDOVAL, PhD teaches and researches agribusiness at Zamorano University in Honduras. BRENDA MAMANI, MSc is a Research Associate at Texas Tech University and Zamorano University.
References
[1] IHCAFE, Memoria Cosecha. ICAFE (2019).
[2] Comisión Europea, Análisis de la cadena valor cafe en Honduras, Comisión Europea (2018).
[3] INE Honduras, Boletin Estadística sobre el Cafe 2015–2019, Instituto Nacional de Estadística de Honduras (2019).
[4] USDA, Coffee anual report Honduras, US Department of Agriculture (2021).
[5] Cervantes Coffee Roasters, El Salvador: Finca San Gabriel. Accessed July 7, 2022.
[6] Consejo Salvadoreño del Café, Estadísticas cafetaleras del 31 de octubre de 2021, Consejo Salvadoreño del Café (2021).
[7] Specialty Coffee Association, Coffee Systems Map, SCA. Accessed July 7, 2022.
[8] A living wage is “remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, healthcare, transportation, clothing, and other essential needs including provision for unexpected events.” Global Living Wage Coalition; Anker (2006).
[9] Data collected in Lempiras were transformed to USD using an exchange of 23.91 Lempiras to US$1.00.
[10] Luis A. Sandoval, Carlos E. Carpio, E. Alexandra Alfaro, and Ana Alvarado, Minimum Cost Diets as a Food Security Indicator in Central America. Poster presented at the 2020 Agricultural & Applied Economics Association Annual Meeting, Kansas City, MO (July 26–28, 2020).
[11] Ministry of Trade and Industry, El Salvador, 2019 Household Expenditure Survey of El Salvador, MINEC (2020).
[12] Richard Anker, “Living Wages Around the World: A New Methodology and Internationally Comparable Estimates,” International Labour Review, 145, no. 4 (2006): 309–338.
[13] Secretaria de Trabajo y Seguridad Social, Tabla de Salario Mínimo. CCIC Honduras (2020).
We hope you are as excited as we are about the release of 25, Issue 18. This issue of 25 is made possible with the contributions of specialty coffee businesses who support the activities of the Specialty Coffee Association through its underwriting and sponsorship programs. Learn more about our underwriters here.