Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

TRADE-BRAZIL: Sights Set on Roasted Coffee Market

Mario Osava

RIO DE JANEIRO, Feb 11 2003 (IPS) - Brazil is the world’s leading producer and exporter of green coffee, and is now moving to take on the international market for roasted and ground coffee, where its presence is currently limited to just 0.6 percent.

Brazil’s green coffee output last year topped 47.2 million 60- kilo sacks, 39.8 percent of world production, according to figures from the International Coffee Organisation (ICO).

This super-production allowed the South American giant to recover markets lost in previous years, selling nearly 28 million sacks of green, unprocessed arabica coffee, as well as soluble (instant) coffee, worth 31.5 percent of the global market.

But the increased Brazilian exports also helped push international prices downwards, reaching their lowest point in three decades.

The low prices explain why the country’s coffee export revenues fell 5.4 percent last year, to 1.36 billion dollars, despite the fact that sales volume was 19.3 percent higher than in 2001. Five years earlier, Brazil took in twice that sum for its coffee exports.

To mitigate the effects of the coffee crisis and of the historic devaluation of commodities in world commerce, Brazil is moving to boost its exports of ground roasted coffee, Nathan Herszkowicz, quality director for the Brazilian Coffee Industry Association (ABIC), told IPS.

The price of green Brazilian coffee beans reached 280 dollars a sack in 1997, but since 2000 has fallen to less than a third of that price.

"The alternative is to increase added value, but it is a slow process to change our export profile," commented Herszkowicz, who is also president of the Union of Coffee Industries of Sao Paulo.

However, the governmental Export Promotion Agency and the roasting industry have launched an action plan on the foreign market. The goal is to sell 29 million dollars in roasted coffee in 2004 and 100 million dollars in 2006.

Brazilian exports of roasted coffee last year were worth six million dollars, just a drop in the cup, given the country’s overall output.

The value-added product – ground roasted coffee – represents around one billion dollars in international sales annually, with Germany, Italy and the United States exporting nearly two-thirds of the total although none of the three countries grows the bean.

International trade in all of coffee’s various forms varies between 40 billion and 45 billion dollars a year, says ABIC expert Herszkowicz. But the principal trade flow is in the raw bean, produced by poor, tropical countries and mostly exported without industrial processing to the wealthy countries.

The Brazilian authorities are hoping that green coffee prices recover more quickly this year, a process begun in the last months of 2002 in reaction to the nearly 40-percent reduction in total area planted with coffee in Brazil.

The decline is attributed to the biannual coffee cycle, in which periods of low and high yields alternate, to the drought in the second half of 2002 in Brazil’s main coffee-growing regions, and to the fact that growers left fields unattended, discouraged by the low prices of the last three years.

Growers are crossing their fingers that prices will at least cover production costs, expert Manoel Bertone said in a conversation with IPS.

But that will not be easy because production will remain low, said Bertone, head of the National Coffee Council, which represents "the 250,000 to 300,000 coffee growers in Brazil."

The initiative to promote exports of ground roasted coffee will be felt in the roasting industry, which until now has been focused on the domestic market: 175 million people who consume more than 13 million sacks of coffee a year. Only the United States, with a population of 280 million, surpasses that total.

The reality of Brazil as a green coffee exporter dates back to its colonial relations, and endured as a result of policies that established the country as a commodity producer. The rules set by the governments until 1990 prevented exports of roasted coffee, ABIC’s Herszkowicz explains.

Lacking an export culture, the roasting industry was also technologically behind the times, making it impossible for the Brazilians to compete with the European companies.

However, the last decade saw major advances in this area, and today 20 percent of the Brazilian coffee-roasting industry operates at a level comparable to the world’s best in technology, product quality and packaging, says the ABIC expert.

Conquering markets will not be easy at any rate, adds Herszkowicz. The problem is not tariff barriers, because they are practically nonexistent in the major markets of the industrialised North, though are high in Mexico (reaching 75 percent), and in some Eastern European countries, he says.

The big obstacle is the fact that 60 percent of the roasted coffee business is controlled by six European and U.S. companies, notes Herszkowicz.

Brazil will have to set priorities for markets that are "not as hard", that are not yet dominated by a handful of companies and where coffee consumption is expanding, such as Eastern Europe, China and Asia in general.

Another promising niche market is organic roasted coffee, produced without the use of agro-chemicals. With this lucrative sector in mind, six Brazilian companies are taking part in an organic produce fair this week in Nuremberg, Germany.

The Brazilian industry, however, also faces high financial costs. Interest rates here are much higher than in the wealthier countries and the tax system is a heavy burden, says a study by the Ministry of Development on the competitiveness of the country’s production.

Ironically, Brazil exports hardly any roasted coffee, but is a leader in exports of soluble coffee, which is not consumed much here. Nine percent of Brazil’s coffee exports last year were the soluble form.