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Europe looks to eastern markets.

Europe looks to Eastern Markets

No matter how gripping the formal discussions may be at this year's gathering of the European Coffee Federation in Berlin, the thoughts of delegates are likely to be concentrated on three main topics. Two items are pretty obvious: will the Coffee Agreement stage yet another death-bed recovery, and will the European Community really abandon its last restrictions in 1992.

But the hottest item by far is the songs that the Eastern Bloc sirens are currently singing. What all the little groups huddling confidentially in the corridors and bars will be trying to find out are the chances for turning an honest rouble, zloty, lev, crown, forint or leu in a reviving trade with the countries behind the rusting remains of the Iron Curtain.

As far as item Number One goes, the practical truth is that any revival of the Agreement is liable to depend on politics rather than straightforward trading convenience. The pure altruism which first brought the International Coffee Organization into being back in 1963 is now in pretty short supply and, to put it bluntly, few of the importing countries can see any commercial benefits in a new ICA. Years of so-called "special deals," countless evasions of the quota arrangements and still-bitter memories of the post-1975 price explosion have had their baleful effect.

Moreover, and to be fair, the producers themselves have not exactly spoken with a single voice recently. Brazil, which in more restful times would have been leading the pro-Agreement campaign, now has other and knottier problems to unravel back home. Colombia, too, has been distracted by domestic troubles from its usual intermediary role. Indonesia is still learning the rules of the international game and the African group, although politically aware and active, lacks the knockout punch which Brazil used to wield.

This means, in effect, that the consumer nations are going to play exceedingly hard to get before they agree to kiss and make up. And that, in turn, means that the producers will have to put a lot more passion into their wooing than they've been inclined to do so far. Most of all, they will have to give up all thoughts of reviving their illicit romance with the twotier market. Any sign of a return to the arms of that painted temptress and the divorce attorneys would be back on the ICO's London doorstep before you could say "quota."

With green prices now reviving, however, the question is whether the producers still want to give up some of their old carefree ways in favor of a safer, but duller, relationship.

In the circumstances, it's hardly surprising that Europe's roasters and traders will be concentrating on housekeeping matters in Berlin. With the unitary market of 1992 just over the horizon, the buzz-word is "harmonization," and two of the Federation's committees will be laboring to establish a set of basic rules for the 12 nations of the Community. The roasters will need to reconcile attitudes to such issues as labelling, shelf-life and other marketing matters, and the trade will be involved in the all-embracing topics of technical development, health considerations and similar problems.

In between times, though, they may find their attention straying in the general direction of where the Berlin Wall used to be.

The possibility of either ruining traditional markets in the Eastern Bloc, or of creating a new generation of happy coffee consumers, tends to arouse complex emotions among the Western trade and industry. On the one hand, most operators would welcome the chance to dip a tentative toe in Eastern Bloc waters; on the other, they are fearful that unsuspected sharks might chew their foot off at the ankle.

However, the boldest spirits are already swimming strongly and, typically, the West Germans have been the first to take the plunge. Given Berlin's geographical position they are ideally placed to trade with neighboring Poland, Hungary, Czechoslovakia and, of course, an increasingly homogenous East German market.

As Hans von Gimborn of Probat reported at the PCCA's Silverado conference in May, three or possibly four of the seven big state roasteries in East Germany have made deals with leading West German roasters like Tschibo and Eduscho. It's not surprising: even under socialist rule, the 16.5 million East Germans drank about 1.1 million bags of coffee in 1988 and consumption is forecast to soar by up to 30 percent in 1990/1991.

Against that, the Soviet Union's 278 million people drank roughly the same amount, and much of that was probably accounted for by the coffee drinkers in the three Baltic states of Latvia, Lithuania and Estonia, and that area of the southern Ukraine which acquired the coffee habit when it was under Turkish influence. As everyone knows, Russia is essentially the land of the samovar, but even so there could be a new and sinister threat to its tea culture: Von Gimborn also reported that in Southern Georgia, where the good Gruzian tea is grown, had been affected by fallout from the Chernobyl disaster in 1986, and tea for the tourist trade was now actually having to be imported from Britain.

On top of this, the economic structure of the Soviet Union is currently under considerable strain as that two-edged sword, the Perestroika reconstruction program, impartially wounds both the quick and the bureaucratic brain-dead. European newspapers have recently reported, uneasily, that certain Soviet state organizations have been unable to pay their accounts on time, largely because of official inertia and general bungling.

Czechoslovakia, Hungary, Bulgaria and even poor, battered Romania, all managed to keep the coffee habit alive, even though the coffee itself was seldom the best. India, Angola and to some extent Ethiopia supplied most of the green coffees to the Eastern grouping via barter deals, and Brazil supplied over half the solubles. It would be surprising if, like Cuba, they had not reserved their best qualities for hard currency customers.

Even so, Hungary used 700,000 bags in 1988, Czechoslovakia 543,000, Romania 250,000 and Bulgaria 100,000. In fact, both Eduscho Austria and Alvorado are making approaches to State roasteries. What all these markets have in common, however, is that while the bean quality might have been poor, the roasteries themselves are technically surprisingly advanced. Whereas the U.S. and some Western consumer countries can offset technical shortcomings by buying a better grade of bean, the Eastern Bloc roasters concentrated all their skills on improving the quality of their raw material.

Parts of Poland also share a taste for coffee with their Scandinavian neighbors and the presently beleagured Baltic states. Poland imported half a million bags in 1988 and a certain, "informal" trade in good coffee is developing. In fact, Porbat has just appointed a full-time agent in Warsaw.

In the Baltic states there have also been clear signs that the populations yearn to re-establish their coffee trade, and there are reports that - even during the present, perilously unsettled times - a few bold spirits are setting up small, specialist roaster operations. This may be encouraging for the rest of the coffee world, but it also spotlights another area of uncertainty.

How do they, and their newly liberated neighbors, begin to pay for the coffee they want? Again, East Germany is likely to have fewest problems. Moves towards a reunion with West Germany are well under way and, as a helpful beginning, the enfeebled Ostmark is to be given parity with the enduringly vigorous Dmark. Hungary and Czechoslovakia, which both had well-developed industrial and commercial systems before the war are confidently reorganizing their entire political and economic structures. Bulgaria, by a freak of chance, kept its agricultural sector more or less intact so that it can at least feed its own people - unlike Romania, the most pitiful of all cases.

In the short term, the U.S. and the European Community will probably introduce aid programs and provide training in business and technical skills to prevent the region from slipping back into the dark ages. In the longer term, many of the countries are casting wistful glances at the ECC, hoping eventually to be admitted to that exclusive and expensive club.

As far as coffee is cocnerned, however, it seems likely that the present levels of demand can only increase: for the older generation, the taste and aroma of good coffee is a heartening reminder of a more settled life, and for the younger groups it could also become a potent symbol of a brighter future and of the break with the past.

Western coffee enterprises could well benefit from either joint ventures with privatized state concerns, by exporting and promoting ready-roasted brands and a range of solubles, or by actually setting up commercial operations in the new territories. All three options carry their own risks - but then, fortune has always favored the brave.
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Title Annotation:Western Europe may export more coffee to the East
Author:Clark, Richard
Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1990
Words:1470
Previous Article:Coffee market in East Germany.
Next Article:Tea & coffee in France.
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