95 percent of the annual cardamom production produced in Guatemala goes to the Middle East, which is the main buyer, and although there are shipments on the way, the main effects would be expected for future shipments, mainly due to a possible increase in the cost of maritime freight.
This is what several analysts indicate in relation to the war conflict that has been going on for six months in Israel, now aggravated by Iran’s intervention. In addition, uncertainty would be generated among buyers, despite the fact that the crops are committed to multi-year contracts.
One of those cases is that of cardamom, whose harvest is about to conclude next month, but expectations surround producers and exporters. In 2023, foreign sales of this aromatic reached US$361 million 574 thousand -about Q2 thousand 820 million- but in 2022, they were US$408 million 775 million, which represented a contraction of 11.5 percent, according to foreign trade figures. of the Bank of Guatemala (Banguat).
What is the reading?
Efraín Álvarez, coordinator of the Cardamom Committee of the Guatemalan Association of Exporters (Agexport), stated that a first effect will be the increase in the cost of maritime transport to the indicated region, as a result of the increase in the price of a barrel of oil, fuels and other derivatives.
“It is very likely that cargo transportation rates will increase between 15 and 20%, because it takes 40 to 45 days of transit to the Middle East.” Within the aforementioned committee, there is also talk of uncertainty, although the cardamom purchase and sale contracts are multi-year.
““It is very likely that cargo transportation rates will increase between 15 and 20%, because it takes 40 to 45 days of transit to the Middle East”
Efraín Álvarez, Cardamom Committee
For the local industry that is related to this product, the Middle East market represents between 90 and 95% of national production, cultivated in an area of 170 thousand hectares. In the 2022-2023 season, total exports reached 50 thousand tons, but in 2023-2024 a reduction to 30 thousand tons is expected due to the impact of the drought. However, prices have improved and the average kilo is between US$16 and US$17, the manager explained.
He reiterated that Guatemala has around 60% of the world market, since another producing country is India, but it uses its cardamom for domestic consumption.
A general analysis
When making a preliminary analysis of the scope of the conflict for Guatemala’s foreign trade, Carlos Steiger, logistics competitiveness analyst at Agexport, broke down several aspects to consider:
- Regarding the variation in oil prices, the WTI (West Texas Intermediate) would have to be monitored for the impacts of local consumption, considering that the United States is our main supplier, which has had an increasing variation of 8.77% in the last twelve months, and will probably increase a few more points these days due to the instability caused by geopolitical tensions.
- Regarding the logistics field, it is important to understand the structure of the destinations of our foreign trade; this can be seen mainly by sea, since 73% of the products we import or export are moved under this mode of transport.
- Based on operations by port, Puerto Barrios has the United States as its main market, more than 90%. On the other hand, Santo Tomás de Castilla dispatches and receives products mainly from the east coast of North America (59%) followed by Europe (13.86%) and Asia (11.20%) made up of various destinations or origins, mainly China.
- As for Puerto Quetzal, the natural port of departure or entry for operations with Asian countries, it manages a proportion where the east coast represents 29%, followed by Asia, with 25%, of this percentage, and China is the one that occupies the largest participation due to the import of raw materials, semi-finished and processed products.
- By volume and economic amount, for maritime exports, the United States is positioned as our main trading partner for exports, followed by Europe (the Netherlands, Spain, the United Kingdom, among others). Regarding imports, the United States is our main trading partner, followed by China.
- Therefore, the conflict between Iran and Israel does not directly impact our foreign trade operations in terms of logistics, other than for products that have it defined within their export markets, as is the case of cardamom.
In the medium term, indirect impacts could be observed with regard to import trade operations with Europe, mainly due to the collateral effects derived from trade exchanges between the Middle East and certain countries of the European Union, in terms of increases in the costs of freight or alteration in ship routes,” he declared.
Analysis of foreign trade
José Andrés Ardón, executive director of the Institute for Economic Competitiveness (ICE), provided a perspective on the impact of the geopolitical conflict on Guatemala:
How can the geopolitical conflict in the Middle East impact Guatemala in terms of foreign trade?
This situation is not good news in economic terms. In immediately, two effects can occur:
i) Lower possibilities of reducing interest rates in the USA. There were already doubts that in the remainder of the year the Fed (Federal Reserve) could apply a rate cut, because inflation does not cease to subside and job creation remains at high levels. This means that the cost of credit for companies in that country will remain relatively high.
ii) Possible increase in energy prices. Iran is the third largest oil producer in OPEC (Organization of Petroleum Producing Countries).
In general terms, have you analyzed effects on freight and maritime transportation costs?
The ICE does not have a recent detailed study on freight and maritime transportation, although the preliminary information available indicates a possible increase in fuel prices, depending on the direction the conflict takes.
If it comes to fruition, the operating costs of all means of transportation will increase, specifically maritime transportation.
Regarding the energy part and especially about possible increases in the oil, what could occur throughout the entire production chain?
Fuel is an input in all links of the production chains, so it can affect the importer, but also the distributors in Guatemalan territory and the final marketers.
It is uncertain to determine how it may impact companies and consumers. In reality, what is likely, if an increase in fuel prices occurs, is that it will have differentiated effects by industry and by link. The effect will depend on the elasticity of demand, mainly in the final consumer segment, and the proportion that transportation represents in the value of the products transported.
It is likely that not all producers and marketers will be able to pass on cost increases to the final links.
What is the call for the economic agents that intervene in the production chain and foreign trade in the face of this panorama?
The productive sectors can do little in the face of external phenomena such as those that could arise. The Guatemalan economy is relatively small and in that context companies tend to be price takers and Guatemala depends on significant fuel imports.
These types of situations show the need to promote an infrastructure development policy, which allows greater investments in ports, airports and land transportation. Shocks coming from abroad can be cushioned if there is sufficient and efficient infrastructure that allows companies to minimize costs.
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