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The soluble solution.

"Soluble is expanding dramatically, especially in demand from the former Eastern block countries," said Joseph Massoud, commercial director for Ultramares/ Geneca, Ecuador's leading coffee exporters and soluble manufacturers. But he warned that unless green coffee prices improve, Ecuador's soluble industry is threatened. The industry needs an active, viable green coffee exporting industry to meet local demands in the soluble industry. According to Massoud, "This is becoming more and more difficult."

"Exporters and growers are on their own," said Massoud. Unlike the coffee business in Colombia and Brazil, Ecuador's government sets up no minimum prices; there is no coffee imagery; no Juan Valdez. "The government would not give a penny to promoting the coffee industry," said Susanna Arosemena of SICA, S.A., another soluble coffee exporter.

Even though the government earns a lot of money from coffee, the main exports are now oil, bananas, shrimp, and then probably coffee and cocoa.

Massoud believes there are a few ways to keep the green coffee industry viable, the first of which is higher world prices. "In 1994 to 1995 prices will go higher because there will be less coffee in stocks around the world."

Another way is to improve quality. Unfortunately, much of Ecuador's coffee comes from Manabi, not the most productive area for coffee. Yet, the country grows all three major types -- Arabica, Washed Arabica, and Robusta, even though Ecuador is a low altitude, high humidity country.

Due to the opening of the Eastern European and the C.I.S., Massoud said, "The limits are not potential customers, but the limitations of the customer's cash." He expects at least three to five years solid growth for Ecuador's soluble exports.

By February, most Ecuadorian soluble manufacturers had sold out their entire lines of production through the end of the year.

The problem with these new markets is inconsistency. "First there are big orders, and then no orders," said Massoud, and his company must make sure to service their traditional customers in the U.S. first. Geneca exports in bulk mostly to traditional customers, but also packages branded coffee for Russian and Eastern European markets.

Soluble coffee runs in the bloodline of Susanna Arosemena's family. Her father Jorge Salcedo -- originally a cocoa exporter and considered a business visionary -- introduced the soluble industry to Ecuador. Her son, Guillermo, is currently her right hand man managing the company's 34-year-old soluble business.

At first SICA produced only spray dried on one line. Then SICA introduced a freeze dried line in the late 1970's, and today it remains the only such line in Ecuador.

"There has been a power shift in the industry away from the cooperatives toward the soluble industry," said Arosemena. Before, commercial groups representing a large number of exporters and the cooperatives ruled the industry. Most of the cooperatives have since faded into obscurity. "Most of these groups were just taking advantage of the situation in Ecuador ... when the quota went, so did the co-ops."

"They had a very destructive power on the industry," she said.

Due to shortage in raw materials and price hikes, SICA takes a more conservative view of the soluble business. "The new demand is not a solid demand," said Arosemena.

Instead SICA has had the same soluble capacity since 1979, and all exports go to traditional customers -- including roughly about 40% to Japan, 22% to Western Europe, and 12% to the U.S. SICA concentrates on the higher end of the soluble business, with 80% of production spray dried, and 20% freeze dried.

Since 1985, SICA has only been in the export business when they sold their local market brand name. Recently the company re-entered the market with Don Cafe -- a full export quality soluble coffee. Don Cafe, with 8% of the market, is in third place behind Nestle and El Cafe.

Ramiro Ontaneda, general director of Solubles Ecuatorianos CA (SOLUBLES) listed several advantages of Ecuadorian soluble. These include: quality of coffee (Robusta and Arabica, from middle to high altitude); various kinds of weather and climates; different soils; ability to produce blends; and the possibility of chemical- and fertilizer-free coffee.

He also said a benefit of Ecuador is that instant coffee has been produced here for many years. "We are very well known for quality and service, we have cultivated that reputation," said Ontaneda. He sees the instant coffee business as a long term business.

Ontaneda is in the expansion mode. Solubles' first line began production in 1991 Since then the company has added one line per year, including this year. Each of the four lines has a 200 ton-per-month capacity.

His goal is to try to create the "best quality possible at the most competitive prices," for Solubles' mix of new and traditional markets. In addition to bulk soluble exports, Ontaneda also produces private label for customers.

"In Eastern Europe, there are no coffee packers, so we are selling directly to our customers, mainly foodstuffs importers," said Ontaneda. For the largest orders the company can produce private label brands -- from the coffee all the way through to packed product and packaging design. "We do everything," said Ontaneda.

The company is no stranger to Eastern Europe. A sister company, Exportadora Ontaneda, Ecuador's leading green coffee exporter with traditional markets in the U.S. and Europe, long ago developed an Eastern European business. "We used to travel there a lot, dealing with the former governmental trading agencies," said Ontaneda.

"We have taken the East European contacts to develop a soluble business."

"We have also diversified our business to different markets such as China and Korea," he said. "We see good potential in Asia for soluble coffee."

Exporters Get Into the Production Game

Most of Ecuador's coffee exporters realize that falling coffee production is a problem, for their business, and also for the growing soluble business. Therefore, several are beginning to produce coffee themselves.

This is natural because, as one exporters put," (The exporters) know what kind of coffee should be produced, what qualities the market is looking for."

Expogranos SA, which owns a farm in Jipijapa, will begin production there in a few years, hoping that prices will be back up by them. Freddy Bustamente started the company 14 years ago in Jipijapa where his grandfather also produced coffee. Depending on the variety, he may begin harvesting coffee in 2.5 to 3 years on two farms.

Bustamente said the reputation of Eduadorian coffee is down. "There should be changes in technology and the areas in which coffee is grown." Also the government needs to be a little more supportive. He said at least favorable loans should be given to support expanding the coffee area, because "this will be a big investment cost for the exporters."

Expigo Ltda. used to just buy coffee, but now they too are producing. Their first project is 200 ha. of bourbon coffee in the Galapagos Islands.

Bustamante sums up Ecuadorian coffee: "The principal driving force of the industry today is quality."

Over 60-70% of green coffee exports is handled by 5 companies including Exportadora Ontaneda, Ultramares, Expigo, Cafedor (a new company) and Exprogranos. Lots of smaller companies dropped out recently.

Over the past five years, coffee exports have averaged around 1.5 million bags. But in 1993, exports were only 1.2 million -- about 30% less. What is needed -- and expected -- for the 1994-95 crop is 1.8 million bags produced, with 300,000 for domestic consumption and 1.5 million available for the export market.
Ecuador. Exports of green
coffee (in 1,000 60-kilo bags)
 Year Exports
1988/89 1,934
1989/90 1,724
1990/91 1,485
1991/92 1,217
1992/93 1,207
COPYRIGHT 1994 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:includes article on coffee bean exporters' production efforts; instant coffee industry in Ecuador
Author:John, Glenn A.
Publication:Tea & Coffee Trade Journal
Date:Jul 1, 1994
Previous Article:Japan coasts to Costa Rica.
Next Article:Coffee farmer speaks out.

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