The Bean From Ipanema.

Brazil, the world's largest producer of coffee, targets a lucrative niche

LATIN AMERICA'S COFFEE GROWERS ARE suffering through the worst global slump in a decade. In midst of this, however, a few select growers in Brazil, the world's largest coffee producer and exporter, are reaping the benefits of efforts that began years ago to convert the world's second-most heavily traded commodity--after oil--into a brand-name product.

One of them is Ipanema Agricola, a coffee plantation owned by financial Grupo Bozano and agro-industrial concern Triulux. Prompted into action by low prices in the early nineties and the removal of government export restrictions, Ipanema and a dozen farms like it decided to follow the path of specialty coffees, shifting from bulk, blended beans to coffee of a single origin, superior quality and limited production, much like Bordeaux wines and Swiss watches.

That's because specialty coffees command hefty prices on world markets. Blue Mountain from Jamaica and Sidamo from Ethiopia sell for up to US$900 and $100 per bag, respectively Brazilian bulk coffees sell for about $50 a bag.

Brazil has traditionally been known for quantity, not quality. Since most beans are sold in balk, 22% of the world's consumers drink Brazilian coffee without knowing it, according to Brazil's coffee industry association, the Asociacao Brasileira da Industria de Cafe.

The challenge for Ipanema was to convince consumers there was something special about the brew from its farms in Minas Gerais, Brazil's principal growing region. Ipanema defines its geographic origin as individual estates or farms. It also uses special preparation methods, such as washed, semi-washed and natural beans, Much of the added value comes from an image created in the consumer's mind through marketing.

Ipanema turned to established distributors to get its product to the world. The first deals were closed with Barnie's coffee shops in the United States in 1993, Mitsubishi and Coca-Cola of Japan in 1995 and Scandinavian coffee cooperative NAF in 1996.

Starbucks sell-out. A major breakthrough came in April 1999 when Starbucks, the U.S. coffee chain, put 1,000 bags of Ipanema Bourbon in its shops on a trial basis. Since then, "each year we sell out of the entire offering in a matter of a few months," says Scott McMartin, director of green coffee quality with Starbucks.

At $12.95 a pound, Starbuck's over-the-counter price is more than three times what a Brazilian consumer pays for similar coffee. Exactly how much of that surplus comes back to Ipanema neither side will reveal, but Washington Rodrigues, Ipanema's head of marketing, says he gets roughly twice the New York spot price. "They are very fair because they base their price on our production costs, not the market value," he says.

The success was followed up earlier this year when German coffee distributor Tchibo, which had been buying bulk coffee from Ipanema for years, sold one of the "estate" coffees. The 2,000 bags sold out in only four weeks, half the anticipated time. "It was a great success. We were very happy with the quality and the sales," says Jan Wagenfeld, a purchaser with Tchibo. "I'm sure we'll have Ipanema again."

Along with the Ipanema and its seal of origin, Tchibo displayed fliers explaining the origin and processing of the coffee in each of its stores.

Ipanema coffee's supporters insist it is more than just marketing that makes their java sell. For one, Brazilian coffee benefits from the popularity of espresso in the United States and Europe. It is also generally sweeter and more full-bodied than Colombian or Central American coffee, albeit less aromatic, says Lauro Jose Bastos, commercial director in Sao Paulo for Italian coffee group Illy.

Ipanema says specialty coffees require heavy research investments, special maintenance and hand picking. Washing and polishing beans, which Ipanema did for Tchibo in order to enhance the aroma, is virtually unheard of in Brazil. Ipanema is also one of the few plantations to grow Bourbon variety of coffee, once one of the most commonly grown in Brazil but now largely replaced by more productive but less aromatic types.

For nearly a decade, strict quality requirements by Brazil's association of specialty coffee growers, coupled with insufficient capital among many growers, limited its membership to just more than a dozen producers.

Encouraged by the success of Ipanema and other specialty growers, the government and industry association are urging more farmers to follow suit. They also have launched a joint marketing program to promote Brazilian coffee abroad.

Critics wonder if Brazilian specialty coffee might swamp the market, undermining the allure of rare coffees. David Nahum Neto, head of Brazil's coffee industry association, argues that Brazil is still a long way from overproducing specialty coffees. The industry estimates that only 350,000 to 450,000 60-kilogram bags of specialty coffee are exported per year, compared to more than 20 million bags of regular coffee. "In the long-run, the premium may narrow, but the demand for specialty coffee will grow for some time to come."