Brazil deals with all that coffee.

Participants of the 14th International Santos Coffee Seminar were treated to a glimmer of optimism by most of the invited speakers. Most predicted that the grim outlook would be changing and that the year 2003 should possibly bring some measure of equilibrium to the supply/demand picture.

The Seminar was held at the traditional and beautiful site of the Casa Grande Hotel Resort & Spa in Guaruja, Sao Paulo during May 21 - 24. The attendance reached close to 300 participants including 121 visitors from 21 countries, with the largest contingents from the U.S. and Germany. It was estimated that 70% of the European roasting community and nearly all of the dealer trade were present.

The Santos Seminar has a history dating back to 1972 when the Sanros Commercial Association sponsored the first Coffee Meeting at the newly inaugurated Casa Grande Hotel in Guaruja. This year's Seminar was organized by a committee presided over by Santos Commercial Association president Jose Moreira da Silva and coordinated by Bruno Angst, coffee trader with Comexin S/A. This year's seminar also received the collaboration of the Federal Ministry of Agriculture and BM&E the Brazilian Mercantile & Futures Exchange.

The key-note speaker of the Official Opening Session was Joao Carlos de Souza Meirelles, Secretary of Agriculture of the State of Sao Paulo. Meirelles presented a knowledgeable analysis of the current Brazilian and world coffee situation and suggested that the trade should accept the challenge to sell coffee at the best possible prices by upgrading quality and certification of the origin and quality differentials of the roasted and. green product.

Working Sessions began with the theme "Production: Present Situation and Prospects." The situation in Brazil was presented by Luiz Moricochi, Secretary of Agriculture of the State of Sao Paulo. He estimates that Brazil currently has a production potential, with favorable marker and climate, above 40 million bags, representing 40% of world Arabica production and 20% of Robustas, second only to Vietnam.

The majority of plantings are now in areas Free from frost in Minas Gerais, Espirito Santos, l3ahia and Rondonia. On the other hand, these areas are more subject to drought and require irrigation to reach economic yields, which increases production costs. He noted that since the early 1990's productivity has been increasing yearly to the present average of 18 bags per hectare. However, in some regions such as the Cerrado Mineira and West Sahia, new cultivation techniques (density plantings and fertilized, defensive irrigation) have produced yields of over 50 bags per hectare. Production costs, he added, were difficult to calculate due to the variable parameters of yields and inputs, but he believes the costs range from $50 - $150 per bag, with the greater frequency around $72 per bag.

Moricochi noted that the recent introduction of "peeled cherry" or semi-washed preparation process has revolutionized Brazilian coffee cultivation. The method improves the type, appearance and drink qualities of coffees from poor and Rio drinking zones. The process has also been adopted to Conillon (Robusta) coffees from Espirito Santo with attractive price differentials above conventional preparation. He also noted that Brazilian "peeled cherry" qualities have been successful as substitutes for Central American Mild coffees where production has declined due to the market crisis.

With reference to the controversial issue of crop estimates which range from 39 to 50 million bags for the current crop, Moricoche only mentioned the official government (CONAB) estimate of 40 million bags. However, he added that to attend expected exports of green and soluble of about 25 million bags and the growing internal market of about 13.5 million bags, Brazil needs annual crops of about 38 to 40 million bags.

Morocochi believes the expected smaller Brazil crop next year (2003/04), due to cyclical and eradication factors plus lower production of Arabicas from Central America and Robusras from Vietnam (due to the price crisis), will create more stability in world markets. In the second half of 2003, he predicts. there should be the beginning of a new cycle of favorable prices.

Federico de Almeida Daher of the Center of Coffee Commerce of Victoria, Espirito Santo cold the audience that Espirito Santo is second only to Minas Gerais in bags produced. The official estimate for the 2002/03 crop is 10.7 million bags with about 80% of the Conillon/Robusta variety.

Daher noted that Arabica production from the State suffered in the past with an inferior connotation but the "peeled coffee" process has increased quality to the point that coffees from the State have been awarded prizes in the "Coffees of Excellence" program and the lily Espresso contest.

The situation in Central America and Mexico was presented by Eduardo A. Esteve of Agroindustrias Unidos de Mexico. Esteve began his talk with a comparison of the different elements affecting competition between the CAM area and Brazil. These included exchange rates, inflation, labor, yields and financing. On all points Brazil won, except for labor where only Costa Rica was higher. The Social Security laws that exist in Brazil are practically non-existent in the CAM countries due to producers' lobbying.

Esteve advised that the current decline in CAM production is due to an estimated 10% abandonment of acreage, the on and off cycle, drought in some areas and reduction of inputs. He believes to continue with a fair share of the Arabica market, producers will have to follow Brazil's example and technify their farms to increase yields and reduce production costs.

The situation in Vietnam was overviewed by Thomas Weiske of the Newmann Gruppe from Ho Chi Minh City. He began by explaining that Vietnam has a population of approximately 78 million with 55 million living in rural areas and depending mainly on agriculture. An estimated 2 million Vietnamese depend on coffee growing and marketing and the coffee economy is one of the priorities of the government. Coffee growing was introduced by the French in 1857 with a limited production of mainly Arabica qualities. After the war and during the period 1975 to 1990, Vietnam began to develop State coffee farms in the Central Highlands with altitude, soil conditions and temperatures perfect for coffee cultivation. The exploding coffee prices in 1994 along with privatization gave farmers a previously unknown margin of profits. This produced a continuous increase in coffee plantings and a fast improvement in yields with surplus funds to invest in irrigation and inputs. The planting surge reached a peak after 1995 when there was ju st one strategy -- maximum inputs, maximum yields, maximum income. The result was a production in crop year 2000/01 of close to 15 million bags -- more than Colombia and second only to Brazil. With falling prices and economic uncertainties, financing to farmers was minimized and the government targeted a reduction in acreage of up to 180,000 hectares and a crop limit of 10 million bags, realizing that uncontrolled production increases were destabilizing the world coffee market. Under the circumstances, Vietnamese production is expected to decline during the next two seasons but Weiske is skeptical about the success of the production targets. He gave many reas ons for his opinion but believes the most important is that coffee cultivation is driven by the private sector and by the personal interest of the small farmers to improve their own living conditions. They love their product and have no disposition to diversify to alternative crops, and when coffee prices begin to rise they will again increase production .

Weiske also touched on the government's plans to increase export income by stimulating production of Arabica coffees in areas suitable for the quality. The program began in 1987 and has increased from about 17,000 bags to about 150,000 bags last year. With increasing price levels he expects more and higher quality Arabicas will be produced, but that volume will be limited by natural conditions.

Weiske said average yields per hectare were 33.3 bags, well above levels of most producing countries. With this yield, the average production cost of coffees delivered to the buying stations would be about $422 per ton.

The next day, the working sessions began with a talk by Sergio da Costa Marie, Santos Port Consultant and ex-President of the Sao Paulo Dock Company who demonstrated the importance of the Port of Santos to the Brazilian economy in general and to the coffee trade in particular. During the calendar year 2001, Brazil exports of green coffee (Arabica and Conillon) amounted to 20,929,995 bags of which 10,561,704 bags, or 50.45%, were shipped from Santos. During the same year exports of soluble coffee amounted to 2,070,753 bags of which 86.85%, or 1,798,322 bags, were exported from Santos. Sergio Matte also mentioned the recent modernization of port facilities with objectives of reducing costs and bureaucracy. In this respect he cited the Federal law passed last year which decrees the regionalization of the port and transfer from State to private Port Authorities.

The highlight address of the day, and for many participants probably of the Seminar, was given next by Professor Antonio Delfim Netto, ex-Finance and Agriculture Minister during various administrations. His topic was the state of the Brazilian economy in this Presidential election year with Federal, State and Municipal elections scheduled for October. Delfim Netto began his talk by saying that the program of the presidential candidate should be, "How to Get Out of the Trap." He was referring to the state of the nation created by the present administration, which in his opinion will need someone to de-activate the time bomb that could implode the Brazilian economy.

Delfim Netto commented on the recent sharp devaluation of the "Real" and increase of the "Brazil Risk" investment factor due to uncertainties about the October elections. The latest polls indicate a large lead for the leftish labor candidate, but he minimizes the effects of any change and believes there is much exaggeration in the media from political and speculative sources.

The main point of his analysis was that in order to get "out of the trap," the new administration must concentrate on increasing exports in the same rate and style of other developing countries. He added that Brazil should stop blaming other countries for their low export performance and create their own programs to promote export trade.

The situation for specialty coffees was the subject of the next speaker on the program Christian Wolthers, vice president of the Specialty Coffee Association of America and Blaser & Wolthers Specialty Coffee Trading, Florida. He said that specialty coffees in the USA profits are surprising, as specialty sales represent 46% of total coffee sales. Interest in Brazil's specialty coffees began as a result of a visit arranged by Wolrhers of a group of 12 interested growers from Sao Paulo and Minas Gerais to a Specialty Coffee Convention in Florida. The group saw the possibilities for specialized qualities and formed the Specialty Coffee Association of Brazil which now has 50 members, including some of the Cooperatives. Through the work and promotions of BSCA and the government's "Cafes do Brasil" program, export of specialty Brazils has grown to about 500 thousand bags in 2001, but is still only a small percentage of total green exports. Christian noted that Specialty Brazils arc increasingly more important in the world of Specialty Coffees with a greater growth potential than from other sources. He also noted that the popularity of espresso coffee beginning in Italy and rapidly spreading to other markers has greatly increased the demand for specialty quality coffees.

The theme of the last day of the Seminar Working Sessions was: "Consumption-Present Situation and Prospects".

The Brazil situation was presented by a panel representing some of the leading roasting companies: Murilio Lobo Filho of Sara Lee, Sidney Leone of Cafe Bom Dia and Aroldo Cardoso of Cafe Jardim. Murilio Lobo, president of the Sara Lee Brazil group who entered the Brazilian market in the 1990's and through acquisitions now shares about 25% of the domestic market, opened proceedings by affirming that internal consumption has been stable over the last three years and is presently estimated to correspond to 11.2 million bags or to 1.3.8 million bags according to two qualified research sources. Soluble consumption is estimated at around 800,000 bags. He noted that with the drop of about 30% over the last three years in green coffee costs, roasted prices were reduced accordingly but without any significant consumption increase.

The panelists agreed that the reason for the stagnation in consumption can be attributed to the aggressive promotions, especially among youth markets of other beverages and the irregularity of quality.

Aroldo Cardoso, president of Cafe Jardim pointed out that the "Seal of Purity" introduced some years ago by the Brazilian Roasters Association helped to reduce consumption declines by eliminating impurities in blends, but what is needed now is an identification of quality differences to assure consumer confidence in the uniformity of the taste of the brand they are buying. The panelists also agreed that increases can be achieved through promotion of consumer friendly "ready-to-drink" coffee products and in the growing espresso market and the training of operators in the preparation and maintenance of the coffee equipment.

The next speaker was Massimo Zanetti, president of the Italian Segafredo Zanetti group who was invited to give a talk on "Espresso Coffee in the World." He began by saying that in these difficult times in the coffee world with prices at record low levels it should be remembered that the espresso product is one that produces the highest level of profits.

Zanetti estimates that espresso coffee represents 20% of world consumption and has been one of the principle factors in up-grading coffee quality in the major markers. He stated that Brazil has all the conditions from population, economy and availability to become, like Italy, a major consuming market for espresso coffee. Segafredo Zanetti's interests in Brazil began some 15 years ago with an export office in Santos, Nossa Sengora da Guia. Later they invested in large coffee farms in Minas Gerais and a roasting firm in Belo Horizonte for distribution on the Segafredo product in Brazil and exports to Argentina and Chile.

The situation for consumption in China was presented by Gordon S. Gillett of Nestle, Switzerland. Gordon Gillett is a career executive of the Nestle group with specialty covering the Asian markers. Gillett believes that all the economic and social data point to an explosion of coffee consumption in China in the medium term.

Gillett believes that China, with its lack of a coffee culture, is in a situation similar to the predominately tea cultures of the U.K. and Japan in the 1950's when soluble was introduced and coffee became popular. Gillett demonstrated the large marketing investments being made by Nestle in China.

Consumption in Russia was the last subject of the working sessions which was presented by Mauro Moitinho Malta, director of ABICS, the Brazilian Soluble Coffee Association. Cia. Cacique entered the market in 1966 and today Brazil is synonymous with coffee in Russia. Exports of Brazil soluble increased through the years to reach a peak equal to 440,383 bags in 1995. The Russian crisis of 1998 and subsequent market developments drastically reduced imports but recently sales have begun to increase and in the calendar year 2001 reached 170,791 bags. Total Russian consumption by best sources is estimated to be about 1 million bags with 85% estimated to be soluble coffee. Malta was optimistic about future consumption increases due to the popularity of western trends among the growing youth market and the climatic conditions that favor hot beverages.

The Official Closing Ceremony featured the presence of the Interim Minister of Agriculture, Marcio Fortes de Almeida, who announced the liberation of Federal funds for growers opting to finance and retain part of their production for marketing only during the period of the expected smaller crop next year.

Social events during the days of the Seminar included a Ladies Tea and Fashion Show, a Vernissage of paintings on coffee themes by four local artists and a typical Brazilian barbecue luncheon. Most participants agreed that the highlight of the social activities was the "Farewell Night" Dinner Dance accompanied by violins in the beautiful and tropically decorated Imperial Room. When the orchestra stopped playing in the early hours, many wished the patty would continue but left with the consolation among new and old friends that there would be more in 2004.

Harry C. Jones is a Canadian retired in Brazil after 47 years in the coffee trade as export manager for Standart Brands do Brasil and McFadden & Cia. Ltda. and more recently as consultant for Cafe Fazenda Serra Ltda.