BRAZIL: Global Crisis Encourages Processing of Coffee Beans

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Feb 7 2002 (IPS) - The dim outlook on the global coffee market, which is suffering the lowest prices in 30 years, has driven Brazil to put more emphasis on processing its coffee beans, to export more ground, roasted or instant coffee with greater added-value.

“It has not been proven that there is excess global production. What there is is speculation, which importers use to drive down prices,” one of the coordinators of the Brazilian Agriculture Ministry’s Department of Coffee, Eduardo Shacur, told IPS.

But the current crisis is blamed on overproduction and bulky coffee stocks in large consumer countries like the United States. And prices will continue to slide, given the projections of a bumper crop in Brazil for the 2002-2003 coffee year, which begins in May.

Brazil’s Agriculture Ministry projects a harvest of 37.9 to 39.6 million 60-kilo sacks, nearly 40 percent up from the 2001- 2002 harvest. But international traders say output could amount to an unprecedented 45 million sacks, higher than the country’s 1987- 88 record of 42.9 million.

Coffee producers in Africa and Central America will be the first to feel the impact of the worsening crisis, given their financial inability to support their growers, said Lauro Kfouri Marino, an expert with the FNP, a Brazilian agribusiness consultancy.

But the losses will be felt by all, because restoring market stability would demand a sustained effort, since reducing the production levels of coffee plantations is a slow process, said Kfouri Marino.

The social costs of cutting output are heavy, because coffee production employs a large number of people. Each hectare of destroyed coffee bushes leaves “one more beggar in the streets,” said Manuel Bertoni, a former president of the National Coffee Council, which represents Brazil’s 250,000 coffee producers.

The Association of Coffee Producing Countries (ACPC) tried to shore up prices, but failed in its attempt to curb the growth of output through a plan in which producers pledged to retain 20 percent of exports, which was adopted in May 2000 but abandoned last September.

The ACPC has since fallen into decline, and has been reduced to basically just a forum for discussion and debate.

In the midst of the crisis, Brazil decided to abandon regulatory actions for the time being, and to adopt a policy aimed at encouraging the processing of raw coffee beans, in order to boost exports of products with greater added-value like roasted, ground and instant coffee, said Shacur.

One disadvantage shared by producer countries, all of which are in the developing world and many of which are extremely poor, is that nearly all of their exports involve raw coffee beans, which are later processed in rich countries of the industrialised North, which then re-export part of the product.

Despite the fact that it does not have a single coffee bush, Germany, for example, is a major exporter of coffee.

That division of the coffee market was established long ago, and kept in place by mechanisms adopted by importer countries, such as tariff exemptions for imports of raw beans and high duties for roasted, ground or instant coffee.

The rich markets are also heavily dominated by local brands of coffee, which makes it even more difficult for exporter countries to introduce their own products, Mauro Malta, an economist with the Brazilian Association of the Instant Coffee Industry (ABICS), told IPS.

Brazil, the world’s top producer and exporter of coffee, has not been able to put one single brand of ground, roasted coffee on supermarket shelves in the European Union, Malta pointed out.

An attempt to break into the European Union market would require too great an effort of promotion and advertising, and a system of distribution and sales that would be hard to put in place, given the fierce competition.

That means the industry must seek out new markets, where promotion campaigns can produce better results at a lower cost, he recommended, based on the experience of ABICS.

Brazil’s instant coffee industry has made major headway in eastern Europe and Japan, for instance. And 20 Brazilian brands of instant coffee are sold in Russia, where pirate versions have already begun to be produced, “a sure sign of a brand’s success,” stressed Malta.

China is the big new challenge. The effort to export processed coffee to that huge market “should start with instant coffee,” he said.

Besides having more added-value, instant coffee has the advantage of winning over tea-drinkers more easily, because preparing a cup of instant coffee is more similar to fixing a cup of tea, and has more in common with the tea-drinking ritual which is so important in Asia, Malta maintained.

The battle for the international market, however, will not be easy. The instant coffee sold on the global market today is equivalent to nine million sacks of raw beans, but most of that – around 55 percent – is exported by rich countries that imported the beans, said Malta.