7th Coffee Congress meets in Berlin.

7th Coffee Congress meets in Berlin

There was never a more interesting location or time amongst today's political world to hold a coffee convention. The 7th International Coffee Congress was held in West Berlin, June 13-15 at the Hotel Inter-Continental. More than 800 members of the international coffee industry convened and unfortunately space would not allow for the additional 200 persons wishing to attend. The number of participating countries reached a record of 41 for the EUCA/CECA/ECF event with 19 European countries including Hungary and Iceland, and 18 producing countries present.

While the convention was taking place, meters of the Berlin Wall were being demolished and new street connections between East and West Berlin were in progress.

Speakers included: Dr. Rotzell, president of EUCA and Kaffee Verband, whose organization sponsored the event together with tremendous financial support from many coffee companies: R. Roeher of the German Coffee Association, Reg Bickerton, chairman of ECF, R. von Herrn Staatssekretas Beckman, Bruno Tietz of the University of Saarland, M. Parker of Saatchie & Saatchie, Jorge Cardenas of the Coffee Federation of Colombia; and Michael Neumann of the Neumann Gruppe.

Cardenas spoke of periods in which the International Coffee Agreement was not in operation, saying that extremely volatile coffee prices distorted the marketing plans of the coffee industry, thus adversely affecting the economic and social development processes in coffee-producing countries.

Commenting on certain problems facing the coffee industry such as those associated with sales to non-member countries and quota distribution, Cardenas said "We in Colombia think that it is possible to find a satisfactory solution to the mentioned problems through the concept of a universal quota which is today more viable than a year ago considering the political and economic changes that have taken place in Eastern Europe, and also, through the improvement of the selectivity system for quota distribution."

He noted that the adoption of adequate policies on production and inventories is an additional aspect that deserves special attention. He further said that Colombia has advocated this particular point over the years as a means of maintaining a proper balance between supply and demand.

"At present, one year after the collapse of the Coffee Agreement, the outlook for producers is highly unfavorable. In spite of the increase in export volume, there has been a significant reduction in income. In global terms, this reduction can be estimated at around 3.5 billion dollars," he said.

He then went on to explain how the Colombian case is illustrative, and that between July 1989 and June 1990, Colombia would have exported close to 13.3 million bags, in comparison with an average volume of 10.0 million in July-June (81/82-88/89). In the same period, he said, the annual income received decreased from a level of 1,580 million dollars to $1,376 million dollars, that is to say, while volume increased by 33.0%, income decreased by 14.8%.

"Some estimates show that consumers have only received about 30% of the reduction in coffee prices," Cardenas said, and continued to explain that the balance has been kept by the trade and industry, which is updating its equipment and improving the quality of its products; a positive development that is beginning to have an effect in coffee consumption.

In commenting on the German unification, Cardenas said the new situation provides interesting opportunities for coffee producing countries as well as for the overall expansion of international trade. "We in Colombia look positively to the unification process and we are certain that this development will in the long run strengthen the economic and commercial relations between coffee producing countries and a unified Germany. We know that there are many near-term differences to be resolved, but we are confident that a substantial increase in coffee consumption will be realized."

Prof. Bruno Tietz of the University of Saarland in Saarbrucken spoke on the Euro-markets and Euro-marketing for coffee. Tietz stated internationalization efforts will not be much easier after the completion of the single European market. Europe's political will is differentiated. He told the Congress," There will not be any longer common economic cycles for specific industries; instead, there will be economic cycles for specific companies and groups, and polarization between ascending and descending companies."

"Each company creates its own economic cycle by opting for either growth or contraction objectives.

"The key to success is to choose the right strategy option on the basis of open, unvarnished self-analysis.

"Paying no attention to the development of competitors is not a sign of strength but of arrogance.

"Concept development and implementation must complement each other systematically.

"A strategy's quality is based on its integrity and an insurmountable complexity.

"Every company has to show interest in the medium-term and long-term future.

"Companies with strong marketing and communications programs will survive.

"Companies with weak programs will disappear, and we all die twice - the first time, when we stop learning."

Michael Parker of Saatchie & Saatchie Advertising saw excellent marketing opportunities for coffee with the cessation of political barriers. He told the Congress, "The world of globalization will continue to grow. Barriers are coming down. The barriers that will come down by 1992 in Europe are well known. Global marketeers are already benefiting. The political barriers that have come down between east and west raise exciting opportunities. Consumer demand is already there. The problems are not marketing problems but ones of manufacture and distribution. There are great opportunities now to create brand awareness."

"A movement in developing markets towards `individualism' has led to a search for quality and authenticity. This movement can benefit the niche marketeer.

"The other trend is that of increasing social responsibility and environmental concern. Consumers increasingly want to know more about the products and brands they buy. They want to know what the company behind the brand stands for - its stance on human rights, green issues and so on.

"How does the marketeer respond to these 2 polarizing worlds. Firstly through the increasingly sensitive use of research. Research across countries that is not rendered ineffective because of different methodology. Research that is sensitive to the underlying social trends - trends which were once minority pressure group interests but overnight can become popular causes.

"Secondly the marketeer should look to the power of creativity. Creativity that can stand out from the barrage of communication messages; creativity that can take a single minded proposition and bring it alive in a compelling way."

One of the most discussed speeches at the Congress was delivered by Michael Neumann of the Neumann Gruppe. He projected that within this decade, we will see by the year 2000: 1 - The European Community will consume 42 million bags of green coffee, all of Europe 58 million bags. 2 - 15 roasters will cover more than 80% of the European Community's household market. 3 - Throughout the European Community products of high quality standard will prevail; national and regional differences in quality will tend to level off. 4 - Europe will be the center of all green coffee world market activities.

The single European Market will become one international economic force from 1993 and it will release a wide variety of new forces for change. The open frontiers within Europe are destined to bring us all greater prosperity.

Greater prosperity means higher consumption - of coffee as well, of course.

"My second hypothesis states that the integration of Europe will continue the process of industry concentration across national borders. This assumption is based on the generally recognized phenomenon that concentration and cooperation tend to develop more strongly in larger volume markets. Therefore it is to be expected that the influence of trans-national corporations will increasingly make itself felt in many different spheres.

"The ten leading retailers in each of the EC nations already account for two thirds of total turnover in the grocery business. You will all have read in the press about the numerous mergers and joint ventures which are beginning to take shape.

"The degree of concentration found in the coffee industry may seem high to us, but really is not particularly so, when compared with many other products. I would estimate that four leading multinationals currently turnover more than 40% of the coffee volume in the Common Market, that is to say they process around 12 to 13 million bags of green coffee for the EC market every year. Within each of the national markets the level of concentration is actually much higher in most cases. Often the Roast and Ground and Instant markets are up to 80% in the hands of four to five roasters.

"Holland stands out as a market with an extraordinarily high concentration, where the top five roasters represent 99%. Concentration is very well developed at 80 to 90% in Belgium-Luxembourg, Denmark, France, Spain, Great Britain/Ireland. Medium levels of concentration exist in Germany, Italy, and Portugal, whereas Greece is still a very fragmented market with the degree of concentration at only 29%. The mean for the EC is estimated to be 77% for the respective "top five."

I have combined Belgium and Luxembourg, as well as Great Britain and Ireland, thus making a total list of 10 times 5 equals 50 leading roasters. The names of the genuinely trans-national corporations such as General Foods, Douwe Egberts, Jacobs - Suchard, and Nestle frequently appear in the lists of the "top five" in the individual markets. As a result, the number of companies making up the top 50 suppliers is actually reduced to 37.

"There is no doubt that the trend towards size in a larger market will continue. The trans-national enterprises, such as the 4 already mentioned, will strengthen their position in the European market. Family corporations - a typically European concept - such as Aldi, Tchibo, Eduscho, Lavazza, Segafredo, to name but a few, have been nationally oriented until now, or at least only active in countries neighboring their own homebase, but are in possession of the capital and corporate strength to take the offensive and become successful in a wider European arena. This process is unstoppable, if only because a higher level of concentration in the retailing sector itself leads inevitably to larger individual units in the roasting industry.

"My fourth and final hypothesis is that Europe will strengthen its central position in the international flow of the coffee business. Even today nearly 40 million bags are processed and consumed in this continent. By the end of the century European consumption will be approaching 60 million bags.

Table : EUROPEAN COMMUNITY (12 COUNTRIES)

HOUSEHOLD MARKET SHARES OF 5 LEADING ROASTERS AND

PRESENCE OF MULTINATIONAL CORPORATIONS (ESTIMATES)

                             Combined           Multinational
    Countries            Share of "Top Five"     Corps. among
                             (per cent)         the "Top Five"
  Belgium - Lux.                 82                   1
  Denmark                        85                   3
  France                         89                   3
  Germany                        77                   2
  Greece                         29                   1
  Italy                          68                   0
  Netherlands                    99                   1
  Portugal                       65                   1
  Spain                          81                   3

United Kingdom/

        Ireland                  82                   2
Average                            77

Table : EUROPEAN COMMUNITY (12 COUNTRIES)

           QUALITY STRUCTURE OF GREEN COFFEE IMPORTS
            1958 AND 1988 (per cent of all imports)
  Qualities                        1958       1988
  Milds                             32         42

Brazilian and

other Arabicas 23 24

Robustas and

      Unspecified                   45         34
  Total                            100        100

Table : EUROPEAN COMMUNITY (12 COUNTRIES)

           PER CAPITA CONSUMPTION OF GREEN COFFEE
                  1958 AND 1988 (in kilos)
  Countries                       1958      1988      Growth
  Belgium-Lux.                    5.68      7.29      + 28%
  Denmark                         8.53     10.42      + 22%
  France                          4.39      5.78      + 32%

Germany

          FRG                     2.89      7.92      + 174%
          GDR                     1.10      4.49      + 308%
  Greece                           .88      3.05      + 247%
  Italy                           1.69      4.41      + 161%
  Netherlands                     3.92      9.91      + 153%
  Portugal                        1.21      2.34      + 93%
  Spain                            .43      3.60      + 737%

United Kingdom/

      Ireland                      .87      2.46      + 189%
  Average                         2.33       5.17     + 122%
  For comparison: USA             7.00      4.36      -  38%

Table : EUROPEAN COMMUNITY (12 COUNTRIES)

        COFFEE CONSUMPTION 1958 AND 1988 (GREEN BASIS)
                   - in `000 bags of 60 kilos --
   Countries                      1958              1988
  Belgium-Lux.                         919               1.244
  Denmark                              654                 891
  France                             3,439               5,359

Germany

      FRG               2,794                   8,072
      GDR                 330        3,124      1,248    9,320
  Greece                               110               4,214
  Italy                              1,380               4,214
  Netherlands                          751               2,423
  Portugal                             161                 401
  Spain                                211               2,330

United Kingdom/

    Ireland                            783               2,332
  Total                             11,532              29,022