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Coffee market in East Germany.

Coffee market in East Germany

Due to an extremely poor image in the eyes of the population in East Germany and a fear of leaving the well-trodden path and to set out for new ways, the coffee industry in East Germany is in a desolate situation. It has very little chance to survive as such if not heavily supported and protected. On one hand, the plants are old and badly kept and on the other hand, the western capacity can be extended without too many problems. On top, the treaty of May 18, 1990 establishes liberty of settlement for West Germany companies. A final answer to what will happen with the 2,000-2,500 people - including the administration - working in the coffee industry cannot be given yet but many people will probably have to look for a new job.

Before November 1989, the East German coffee industry consisted of seven roasting plants in Berlin, Halle, Radebeul (Dresden), Magdeburg, Rostock, Nordhausen and Frankfurt/Oder. Halle, Berlin and Magdeburg held the biggest shares, with approximately 55%, 15% and 10% respectively. For intermediate and small companies, it was impossible to survive. The import of green coffee and its distribution was effected exclusively through the VEB (Volkseigener Benhandefshchieb) GenuBmittel Im- und Export in Berlin. Importers and agents did not, and do not exist. The roasting plants are old and in need of improvements, but it is not even definite that modernization is economically useful for those rundown factories.

Even though prices are high and coffee has always been sent from the west, consumption of eastern brands can slowly be increased. Accordingly, imports of green coffee rose from 400,000 bags in the beginning to more than a million bags in 1988 after some difficult years of high prices.

Import of green coffee in tons 1980 1981 1982 1983 1984 1985

1986 1987

54,280 55,525 88,500 59,863 74,225 53,104 70,000 74,635

Resource: European Coffee Reports

Supply of roasted coffee
1970 1980 1985 1988
37,650t 47,216t 58,278t 61,819t

Resource:statistical yearbook of the GDR

Several qualities, ranging from brands like "Rondo" or "Mocca Fix" to qualities like "first class" sold in Intershops, were produced. Altogether about ten brands were sold such as "Feinster Hochlandkaffe," "Milde Auslese," "Melange Mocca," "Mona," "Mocca Exquisit" etc. In general all roasting plants produced all brands, after the same recipe as the green coffee was bought and distributed by the VEB GenuBmittle Im- und Export in Berlin.

The cheapest qualities were sold for 70 mark/kilo. For better qualities up to 90 mark had to be paid - a lot, considering the average income of about 800 mark per month of a laborer. This explains why quantities of 50g and 125g, which are of no considerable importance in the EC, are very common in the GDR. Comparative studies show that a laborer in the GDR has to work more than 10 times as long to be able to afford the same quantity of coffee as a colleague in West Germany, who needed 15 minutes in 1988 to earn enough money to buy 250g roasted coffee. At the end of 1989 he needed even only 22 minutes for a whole pound. It is of very little comfort that prices have been kept stable in the GDR since 1970 (before the border opened). An excise of 30 mark/kilo assured a nice income for the national budget.

However, the total consumption never reached the level of West Germany. While the West German citizens consume, on average, 7.9 kg coffee on a green coffee basis per year, in East Germany ony 4.2 kg are consumed. If East Germans adopt West German consumption habits, a potential additional cake of 1.2 million bags at 60 kg awaits cutting.

Preparations for the cake-cut-battle are in progress and it looks as if the local industry will lose in the battle of redistribution of the GDR territory. The plant near Dresden already gave up its coffee production of about 3000 tons per year, equalling approximately three percent of the national production. The situation is confounded. Two different systems offering two heavily unequal starting points bounce against each other. Equal competition is impossible although all parties involved obey the rules.

In a desperate attempt to assure the public revenue and a kind of fair competition, the government reacted with protection and put a tax of 50 percent of the retail price on "imported" coffee. This had to be taken back to 10 percent after heavy protests of western companies and retailers in East Germany selling western coffees. The latest attempt stipulated in the draft of the treaty between the two countries gives an impression about how severe the situation is: It is planned to restrict the "import" of roasted coffee to 800 tons between July and September and to another 1000 tons for the rest of the year.

That alone won't solve the problem. It is not easy to produce in East Germany. The plants are so outdated that the taste the consumer is used to in accordance to western standards cannot be reached. Most roasting plants cooperate with West Germany, and at least two produce in East Germany, but most are produced in West Germany.

How will two coffees compete with histories as different as these?

One coffee has been produced in the GDR. The green coffee is still distributed centrally. Foreign currency is not available for independent purchases. The old blend and label are still used, although it has a poor reputation. The price is lower as before but still too high. There is no peace of free calculation. The excise must be paid.

The other coffee has been produced in West Germany according to western standards. Western products have a good reputation as such and West Germany coffee is already known. The package is more pleasant and it is sold cheaper, thanks to higher productivity and lower duties.

When it was noticed that the East German coffee did not sell satisfactorily any more and the stock was overflowing, the government liberated the selling of coffee and allowed all retail shops, kiosks etc. to sell coffee. That opened the opportunity to structure the market as in West Germany. After a short time, it was noticed that the liberation did not help eastern coffees much. Many visitors bought their coffee in West Germany and the western companies explored the ground and finally sold their coffees at the face.

Eventually, in April, the prices for eastern coffees had to be reduced. About 250 g "Mocca Fix" are presently sold for 12 mark instead of 17.50 mark. "Mocca Exquisit" now costs 16 mark instead of 25 mark, and "Milde Auslese" costs 16 mark instead of 23 mark. A glass of soluble coffee costs less than 8 mark instead of more than 13 mark as before. To judge the efficiency of those measures it only has to be mentioned that the price for well known western brands figure between 12 mark and 13.60 mark per 250 g.

Those companies which have their own retail system have an advantage compared to those depending on a working independent wholesale. Only very few "wholesalers" - more comparable with a big retailer in West Germany - survived the last 40 years. The public distribution system has not been restructured yet.

Still, most people are paralyzed worrying about their future. Realizing the consequences of the current events, nobody seems to be able to turn the wheel around and to take over responsibility for the urgently necessary changes. Every day is precious. Either the limping runner gets a wheelchair via political decision or nobody shall cry out later that several hundred people lost their jobs. Closing the border only postpones the problems. Either the politicians decide to rescue the East German coffee industry directly or by supporting joint ventures or they leave it. In the first case it is not enough to keep the competitors beyond the border, in the second case protection is unnecessary.
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Author:Kuhrt, Cornel
Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1990
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