Brazil and the cup that cheers.

Whoever coined the phrase "The cup that cheers but not inebriates" happily describes the pleasures of the world's most popular beverage. However, the performance of the coffee markets over the past months has left many players from growers to traders in a dazed and not-too-cheerful state.

The dramatic drop in local and world prices has hurt Brazilian producers and exporters in particular since the first quarter of last year. The disaster of the retention program, which was the last hope to "turn the tide," left growers and the Coops "holding the bags" and exporters looking at lost markets and customers.

The coffee crisis for Brazilians perhaps had one positive effect, as it is finally awakening growers and their rural representatives and policy makers to the fact that the world no longer depends on Brazil as a major supplier. Since the 1994 Brazil frosts that sharply escalated prices, there has been a remarkable change in the world coffee picture. New plantings in Brazil and other countries, principally Asia, have created an oversupply, while roaster competition in consuming countries stimulated an increase in the use of Robustas, which, through natural and new technical preparations methods, have succeeded in improving their taste and blending qualities.

Bruno Angst, a former manager of Volkart Brothers Santos Coffee department, is now a trader with Comexim Com. Expt.e Impt. and has been president of the exporters department of the Santos Commercial Association for the past two terms. He is well known for his always-conservative Swiss analysis of Brazil politics and coffee economics. In a recent interview, Angst expressed his opinion that in the immediate and middle range future, the prospects for the coffee markets are not at all encouraging.

Projections for world production in the next three to four years, according to Angst, are around 115 million bags against an estimated present consumption of 105.5 million bags. With yearly consumption increases estimated at best at about 1.5%, the accumulation of stocks, barring unforeseen factors, can be expected to continue until at least 2005.

Angst stated that, "Ruling out frost and drought damage, the outlook for the next two to three years for Brazil coffee continues to be very bleak and it will take some time to reach an equilibrium between supply and demand." He noted that in the last crisis in the early 1990s it took four years to see a real improvement in prices, and the present situation is worse due to the tremendous increase in Robusta production (e.g. from Vietnam), which has become all the time more useful in roaster blends.

Angst, despite his present pessimism, registered an observation that could change the price picture for quality Arabica coffees. The present Brazil crop (2001/02) estimated by reliable sources at 30 million bags or more, he noted, is disproportionate in the volume of Robusta (Conillon) qualities in comparison with Arabicas. The reduction in fine quality Arabicas from the Cerrado, Sul de Minas and Mogiana zones plus the growing demand for gourmet quality Brazils could, later in the year, lead to the tightening of the differentials that could help to stabilize the market in general. So there is a possibility, over the short term, that Brazil producers and the trade could be enjoying a more cheerful cup.

Angst has served as coordinator of the last two Santos International Coffee Seminars and is currently involved in the planning of the 14th Santos Coffee Seminar scheduled for May 2002 at the traditional site of the Casa Grande Hotel in Guaruja, where many of the world coffee problems will be examined and discussed by leaders of the trade.

Brazilian coffee consumption has been increasing steadily in recent years largely due to the programs of ABIC the Brazilian Coffee Roasters Association and the Sao Paulo Union of Coffee Roasters headed by their dynamic president, Nathan Herszkowicz. The consumer campaigns began in 1989 with a "Seal of Purity" promotion that encouraged retailers and consumers to stock and buy only coffee brands with the quality seal on the bag. The campaign included random quality checks in the stores and outlets that reduced the practice of some roasters using cereals and other impurities in their blends. The resulting improvement in quality along with a more stable economy succeeded in producing a yearly increase in Brazilian coffee consumption. According to ABIC's statistics, per capita consumption at the beginning of the campaign in 1990 was at 2.71 kilos, equal to 8.2 million bags, and has increased to 3.77 kilos per capita, equal to 13 million bags in the year 2000. ABIC's target is to reach 15 million bags by the year 2 003, equal to an estimated 4.7 kilos per capita, which would be around the rate enjoyed in the 1960s and 1970s.

Additional programs developed by Herszkowicz and The Roasters Union along with the Coffee Chaimber of the Sao Paulo Secretary of Agriculture over the last two years were designed to promote improvements in the quality of production and to increase consumer awareness of the pleasures and availability of higher quality coffees. A manual was distributed to growers on how to produce better quality coffees. The manual described the proper procedure for preparing natural dry, washed and semi-washed coffees from before harvesting through all the phases to final marketing. Meetings and field visits to fazendas in the principal regions were organized with talks by agronomists to demonstrate to the farmers and their administrators the basic rules and latest methods for preparing quality coffees.

The Roasters Union also organized this year, in Campinas, their first seminar on "Coffee Qualities in the Industry"; 135 participants representing producers, roasters and consumers attended this event. The objective of the seminar was to present and discuss the global qualities of the beverage that, by packaging and marketing, can alert consumers to all the various characteristics of aromas and flavors that translate into an agreeable sensation during and after tasting. The Roasters Union believes that consumer awareness of quality differences can also be achieved by a segmentation of the product through marketing and positioning on grocers' shelves into three categories: Gourmet, Superior and Traditional. This recommendation is also part of the latest ABIC promotion among their roaster members called "PME," Program of Marketing Education.

Also on the consumer side, the Roasters Union, along with ABIC, have installed three locations, Sao Paulo, Rio de Janeiro and Santos, Coffee Preparation Centers (CPC) with instructors to tell the coffee story and to teach the owners and personnel of bars, restaurants and consumer groups the correct methods of preparing a good cup of coffee. The CPC locations have all the necessary material for the different preparation methods with special attention given to espresso coffee and the importance of maintaining all equipment and machines in good, clean working order.

The Roasters Union along with the Sao Paulo Coffee Chamber also have organized over the last two years a campaign called "The Flavor of the Crop." During the harvesting months of June and July, a number of Sao Paulo restaurants were selected to serve their customers a special gourmet coffee. Folders on the tables outlined details of the promotion mentioning the regional growing areas and the special procedure to produce high quality coffees. The characteristics and distinct taste nuances of a gourmet blend were also described. Coffee Chamber representatives were present in the restaurants for further explanations and gathering opinions among the owners and customers. When asked about the results, Herszkowicz was euphoric in stating that the promotions were better than expected success and many owners were impressed that, unlike their usual coffee service, the majority of diners asked for a second cup.

The size and potential of the Brazilian domestic market, second in the world next to the U.S., has attracted in recent years investments by foreign roasters. The biggest stake was taken by the Sara Lee group who entered the market in 1998 with the purchase of the Sao Paulo roaster, Cafe do Ponto. They later increased their operations with the purchase o Cafe Seleto and the national brands of Cia. Cafe Uniao. The latest A/C Nielsen report gives their total participation at 22% of the market. The German coffee roaster, Melitta, which was the first multinational to enter the Brazil picture in 1968, presently participates with 4.7% followed by the brand Tres Coracoes, recently purchased by the Israeli group Strausse-Elite, with 4.5%. The Italian firms Segafredo and Illy have also made their presence through purchase of a regional roaster or private label arrangements. ABIC expects that the growth potential of the local roasting market will continue to attract the attention of foreign firms to the Brazilian scene .

On the export side, the government has launched a program called, "Cafes do Brasil," largely planned and organized by Carlos Brando of P & A Marketing International. Funds have been allocated to participate with thematic stands and qualified personnel and all publicity material, in the principal international coffee events including the annual convention of the Specialty Coffee Association of America (SCAA). The objective is to display and divulge all the various qualities of Brazilian coffees available for foreign buyers with special emphasis given to the growing market for gourmet coffees.

The program also includes annual internet auctions of specialty coffees, which have been successful in revealing Brazil's capacity to produce exceptional quality coffees and obtaining well above market prices. In an interview, Carlos Brando mentioned that another phase of the "Cafes do Brasil" program is to identify the Brazilian coffee regions and their qualities similar to the promotion developed by ANACAFE, the Guatemalan Coffee Association. Classifying and identifying the characteristics of the various origins with a certification system will be useful to importers and should create more interest and demand with better prices for the growers.

Another area of importance in the supermarket of coffee qualities offered by Brazil is the marketing of soluble coffees. The industry recently gained a big victory with the decision by the European Common Market to concede yearly increasing quota exemptions from a 9% tax on Brazil soluble imports. This was the result of a diplomatic dispute lasting almost 10 years with the World Trade Organization. During this time, Brazil lost markets as soluble exports from Colombia, Ecuador and other countries were favored with tax exemption due to a controversial drug aid program.

From a peak volume of 62.2 thousand tons in 1994 exports declined to a low of 38.6 thousand tons in 1998 but since have increased yearly to 47.7 thousand tons in 2000.

According to Carlos Alberto Muniz of Cia. Iguacu de Cafe Soluvel and president of the Soluble Coffee Department of the Santos Commercial Association, the picture for exports now looks much brighter with WTO decision, plus the more competitive basis of internal raw material prices with international markets.

Muniz stated that projections of ABICS, the Brazilian Association of the Soluble Coffee Industry, predict soluble exports to reach 54-56 thousand tons in 2002, the equivalent of 2.3-2.4 million bags of green coffee.

It is interesting to note that Cia. Cacique de Cafe Soluvel, the leading exporter with 42% of the export market, in a show of optimism for the industry, inaugurated last year a $28 million investment in a new "freeze dry" factory in Londrina, Parana.

Considering the facts, it would appear that the Brazilian soluble trade might also soon be enjoying a more cheerful cup.