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Colombia plans to boost exports to Far East.

Colombia plans to boost exports to Far East

The Coffee Growers' Federation is planning a major export drive in the Far East where it hopes to boost Milds sales to Japan, the Chinas, South Korea and other nations. By 1990, if the program bears fruit, Colombia could be shipping out as many as a million bags of coffee a year to Japan alone.

The Federation's export offensive has multiple aims. Inter alia, the Colombians want to increase coffee sales in Japan because they have a perennial trade deficit with the Japanese. The trade gap last year amounted to nearly $2000 million. So any hike in coffee exports that will narrow the deficit will be welcome.

Another motive for the planned export drive is that increased Milds shipments to the Far East will reduce Colombia's coffee stockpiles (some 9.5 M bags in spring) and their attendant warehousing costs.

Finally, Colombians are nervously aware that the ICA International Coffee Agreement could collapse this year because of continuing disputes between exporting and importing nations. Should the ICA flounder, the world coffee market would be thrown wide open and, in the absence of export quotas, countries would be free to ship out their production in unlimited quantity.

In such circumstances, consumer nations might, short-term at least, be inundated by excess supplies, and prices would accordingly diminish in the new free-for-all marketing situation. Hence it would be every producer-country for itself, and Colombia, like its rivals, would have to try to step up the volume of its coffee exports to compensate for lower prices.

Thus, while the ICA is still in effect, it makes good sense to search out new potential markets now. If the Colombians at this stage can augment their coffee sales to coutnries such as Japan and the Chinas, they will subsequently be in a stronger position to hold their own on a free world market, should the ICA pact be scrapped.

Alternatively, even if the ICA survives, it will in any event be to Colombia's advantage to secure a greater share of the coffee market in Far Eastern non-ICA nations.

With or without the ICA, the export-growth potential in North America and Western Europe is likely to remain limited because of market saturation. By contrast, coffee export possibilities in Japan and mainland China are more promising because at present only a relatively small proportion of people there are coffee drinkers.

But in Japan the coffee market is now growing significantly, year by year. In what was once a predominantly tea-consuming region, coffee is becoming increasingly popular, particularly with the younger generation.

In mainland China, by comparison, the market for choice imported coffee is barely beginning to develop. The potential there for a high-quality Milds exporter such as Colombia, then, could be distinctly bullish long-term. Short-term, however, the Colombians first have to secure a foothold in the marketing doorway to mainland China and, to do so, they will have to overcome a number of problems.

Notable among them is that China has only limited foreign exchange available for purchase of commodities such as coffee. So Bogota, if it is to penetrate the Chinese market, will have to examine the possibility of barter trade deals or similar accords with Beijing.

The Chinese are unlikely to import Andean Milds in quantity unless, in return, they are assured of market outlets for their industrial products in Colombia. This year, for example, they signed a two-way commercial deal with the Soviet Union which is to ship generating equipment to Colombia in return for the purchase of 15,000 tons of agricultural exports--including 2,000 tons of coffee.

Against this background, it may not be unduly difficult to reach similar accords with the Chinese. Another possibility, now being examined, is that the Growers' Federation may invest in a joint venture to establish a coffee roasting plant in Shanghai. If this plan materializes, Colombia would win more than a foothold in China. It would also be well-placed to hold off competition from other coffee-producing nations which, in time, may also try to open up sales to the Chinese.

Despite China's size and population, though, its immediate coffee sales potential is thought to be limited. Coffee drinking is at present largely restricted to major cities such as Shanghai. Elsewhere the mini-purchasing power of the population remains a barrier to sales.

Against this, however, the Chinese are developing their tourism industry. Last year some two million foreigners visited China, and dozens of new Chinese hotel projects are now under construction. Thus the Colombians, if they aim initially at no more than the tourism sector and major cities, should find a ready outlet for their Milds exports.

Over the longer haul, as living standards rise in China, marketing possibilities should steadily improve. Currently China's domestic coffee output meets less than 10 percent of demand which, it is predicted, could grow by as much as 20 percent annually within a decade.

At relatively low cost, it is hoped to launch publicity campaigns to promote Chinese sales of 100-percent Colombian Milds. Already a start has been made. Colombian coffee is now being served on at least one Chinese airline.

But to open up Far Eastern markets generally, the Colombians will have to improve delivery terms. At present, because of shipping problems, Andean coffee consignments can take up to three months to reach their destinations in the Orient. As a solution, it has been suggested that warehousing facilities could be acquired in Hong Kong or Singapore, where a coffee stockpile could be permanently maintained to ensure rapid delivery to customers in the region.

Another problem is high shipping costs. Without reasonable freight rates, Colomiban coffee could be priced out of mass markets in the Far East.

In Japan, however, high supermarket prices are not necessarily an obstacle to coffee sales. Rather the difficulty as far as Colombia is concerned is that its Milds are frequently marketed in Japan as run-of-the-mill--as opposed to prestige-products. Now, to remedy the situation, efforts are being made to enhance the image of Colombian coffee in Japan. In the gourmet market, for example, three Japanese firms are currently planning to promote high-grade Andean brands.

Colombia today has a 16 percent participation in the Japanese coffee market and since the early 80s, sales there have improved, if not dramatically. In 1984, Milds exports to Japan totalled 631,000 bags and by 1987 they had risen to nearly 800,000. Last year, though, they dropped to 696,000.

But the Growers' Federation is hopeful that sales to the Japanese will top a million bags a year by the early 90s. This target may well be achieved, both because of expanding market demand and because Tokyo, for political reasons, is now going out of its way to augment its purchases of Colombian imports generally in order to reduce its embarrassingly large trade surplus with Bogota.

Meanwhile, Colombia is to increase its coffee extract exports to Japan this year by at least 80 percent as a result of a two-year contract signed recently with Mitsubishi, which is to import 185 tons of the product monthly, as from July. To meet the order, the Growers' Federation is to amplify the capacity of its China processing plant from 1,200 tons to 2,200 tons annually.

In another development, the Federation's research laboratory has all but perfected a new coffee-based, 100 percent natural soft drink, "Cafe-Cola."

The new drink took more than a year to develop, and some 200 different formulas were researched before a laboratory team discovered the final recipe for the cafe-cola. The drink may be marketed in time by either a Colombian or foreign company under an accord with the Federation.

Peter Nares has been reporting on the Colombian coffee industry for over 20 years. He is also a correspondent for the BBC, CBS, Mutual Radio, and the Wall Street Journal.
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Title Annotation:coffee
Author:Nares, Peter
Publication:Tea & Coffee Trade Journal
Date:Dec 1, 1989
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