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Decaffeination plants: adding value or entombing it.

For a while there building a decaffeination plant certainly looked like it was the answer to a lot of the problems in the coffee business. It gave producing countries the ever-popular ability to add value to the ever-decreasing value of their raw product. It gave green dealers some hope of building equity in a business where you are only as good as your last sale. Finally, it gave roasters a way of cutting the two aforementioned parties out of the fun.

Like others sectors of the coffee business, however, the decaf business has had a lot to lose sleep over these days.

First of all, according to last year's Winter Drinking Survey, consumption of decaffeinated coffee in the U.S. edged off slightly. (Continued growth of this market was a premise upon which many of the newer decaffeination plants were built.) Whether this dropoff in consumption was because of the one, unconfirmed study linking decaf to higher levels of serum cholesterol or whether people are just getting less concerned about caffeine consumption is a matter of some debate, but decaffeinators around the world agree: business is down.

Of course, the past 12 months are not the only time decaf consumption slid. During the four years, 1986 through 1989, decaf drinkers slacked off two years and decreased their overall consumption during that period by almost 4%.

If you believe the rumors you hear that many roasters are now using less Robustas in their blends, it many explain why people are less avidly drinking decaf. Arabicas contain about two-thirds the caffeine of their hardier cousins. Perhaps today's coffee is making people less jittery. Further, as coffee consumption has leveled off at lower levels people may be switching back to regular coffee for the few cups a day that they now drink. Specialty coffee drinkers, too, may find decaffeinated coffees unsatisfying compared to regular (and this righteousness may revolve more around ideology than esthetics). Finally, with so many vices becoming either fatal, debilitating to expensive or know to cause cancer, caffeine consumption may be the last refuge of the morally corrupt.

Whatever the reasons, the bottom line looks very bad for decaffeinators worldwide. The only ray of hope seems to be the smaller plants which have focussed on better quality coffees, those firms report that they are either holding their own or growing slightly. This can't be completely true, however, since most green specialty dealers have reported either a leveling off or decrease in sales of of decaffeinated coffees.

Current worldwide decaffeination capacity is conservatively estimated to be near half a million tons annually. Conservative is the key word here because, as any decaffeinator will tell you, any approximation of capacity they ascribe to their plant will be a lowball figure. It is possible that worldwide capabilities for annual decaffeination may actually run as high as three quarters of a million pounds annually. With existing capacity, therefore, approximately 20% of the world's usage can be decaffeinated each year. Is the world looking for this much decaf? Not hardly, if you assume tht the 12% decaf consumption in the U.S., Canada's 9% and Japan's 1% is representative of most industrialized countries that decaf consumption in less developed countries is certainly no greater than in Europe or the U.S. This may explain why many plants are partially idle or completely closed.

To make matters worse, many existing plants were built with the possibility of expansion in mind and can quickly he converted to larger plants should the need ever arise. This means that any estimate of world capacity and quickly increase their production. In addition, sales figures for decaf coffee in the U.S. are generally measured in dollars so estimates based on dollar sales include the added expense of the decaffeination process and overstate the market share that decaf coffees have.

The history of the decaffeination process explains a lot about the current worldwide capacity got where it is. Once a relatively complex piece of technical work, decaffeinating coffee used to be based primarily in a few European countries. As the technology became more accessible, however, as patents expired, plants began springing up in producing countries where it, was felt, the coffee could be decaffeinated more cheaply and with lower freight costs. Roasters, anxious over paying third parties to decaffeinate their coffees also jumped into the fray by building their own plants. This led, logically enough, to at least the doubling of capacity relative to the world's demand for decaffeinated coffee.

It is not without good reason, however, that most decaffeination plants were built. Each plant was built, in fact, with the grim knowledge that someone else's plant would have to close. The problems have been, however, that like a bunch of tired, nearly broken poker players, everyone has stayed at the table waiting for someone else to fold their hand. In addition, several players with patented processes, tremendous good will and reputations, as ideal location or captive market, have continued in the game convinced that they have the best hand.

Many people have been convinced for some time, for instance, that the methylene chloride plants would eventually fallout of favor or simply be prohibited from operating. Yet this has not happened; if anything, these plants have gotten a second wind from governments reluctant to slow down a lagging economy with additional regulations. A couple of years ago there were rumors about that plants in Germany would be switching over to ethyl acetate or closing altogether. It was also whispered (and written about, unfortunately) that some governing body of the EC might ban the use of methylene chloride altogether. These rumors turned out to be just that, rumors.

Other plants, in producing countries were built with the conviction that they could better compete by reducing freight and labor costs. This reasoning did not take into account the coffee market's increasing interest in quality that many of the plants in producing countries are incapable of producing.

Nonetheless there are several projects afoot to build additional decaffeination facilities throughout various parts of the world. No doubt each project is moving forward on the premise that method, location, economics or some other unique attribute will make it successful while so many others are currently running at only partial capacity. Perhaps the only rationale for building another plant is a captive market which cannot utilize any other facility than the one being considered. A roaster, therefore might build a plant if it can be justified in terms of the company's business. That roaster might be better off, though, not investing the capital and instead going to an existing facility and negotiating lower toll charges overall based on today's slack market.

The next Nobel prize in economics might go, in fact, to the person who can explain why there seems to be a greater market for decaffeination plants than there is for the product they produce.

This is not to say there will be a shakeout any time soon among the existing players. The decaffeination business is nothing if it isn't steady, and while few may be getting rich at it, many plants are getting by. It also seems that those companies and individuals well off enough to get into this capital intensive business seem to be substantial enough to weather the storms that may beleaguer the decaffeination industry over the next several years. If you're already in the race it's easy to see why you'd want to continue. For those considering a later entry into this fray the reasoning isn't nearly so clear.
COPYRIGHT 1992 Lockwood Trade Journal Co., Inc.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:coffee decaffeination industry
Author:Castle, Tim
Publication:Tea & Coffee Trade Journal
Date:Feb 1, 1992
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