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Costa Rican exporter specializes as industry suffers
Tea & Coffee Trade Journal / February 2003

By Larry Luxner

SAN JOSE — Costa Rica hopes to boost exports of high-quality gourmet beans in order to survive the crisis that is already driving thousands of Central American growers out of the coffee business.

In the midst of the panic, one exporter is obviously doing something right.

Fraser Pirie, president of Costa Rica's Best Coffees Inc., says he's glad he made the decision in 1998 to specialize in coffee from the country's fertile Tarrazú region.

"Lots of companies advertise over 100 types of coffee from Costa Rica. I'm a specialist. All I do is Tarrazú, because it's world-class coffee," he said, noting that nine companies are now export Tarrazú coffee, which is grown at an altitude of 1,500 meters (over 5,000 feet).

"That gives it a small berry and a delicious, highly acidic coffee, but with a pleasing aftertaste," said Pirie, a Costa Rican who is fluent in both English and Spanish, thanks to his Canadian roots.

Interviewed recently while driving from San José to his farm about an hour away by four-wheel drive, Pirie explained how his company — known locally as Beneficio Agua Caliente S.A. — was established in 1925 by his grandfather, Alexander Fraser Pirie, a doctor who graduated from Montreal's McGill University.

"He was on his way to Chile, and his boat sank off the coast here, so he traveled inland as far as the railway went. From there, it took him three weeks by mule to get to Cartago, and when he arrived, this was an absolute jungle," said Pirie, pointing to the nearby horizon. "My grandfather decided to stay, and since he was a doctor, his practice really grew. In the stock-market crash of 1929, he lost a coffee company, and during World War II he lost a second one."

Pirie, 52, got into the business in 1990. Interestingly, his wife, Rosalia, is a 15th-generation descendant of Santiago Fernández, the first exporter of Costa Rican coffee back in the early 1800s. And one of their three children, 24-year-old David, works with him in the business.

"In 1999, we changed our marketing strategy, transforming the company completely," he said. "We stopped selling coffee to Costa Rican exporting companies. We lowered the amount of coffee we bought and produced right down to the amount of coffee we could export to the United States."

At that time, he said, "prices were too low, so we decided to buy only the coffee we could export ourselves. For example, if I could sell 10,000 150-lb. bags in the States, that's what we'd produce, because we didn't want to have bags sitting in a warehouse."

Pirie's company has 10 employees and now outsources warehousing operations.

"I learned the hard way. We're an example for other coffee companies to follow," he says, noting that the three best coffee-producing countries in the world are Colombia, Guatemala and Costa Rica – in that order.

Pirie says his Tarrazú coffee fetches $1.30 a pound, compared to 50 cents for the majority of Costa Rican coffee.

"We've cut out the middleman by going directly to 15,000 coffee shops in the United States," he said. Interestingly, Starbucks isn't among those 15,000.

"The structures in Costa Rica make it very difficult for a coffee company like mine to be accepted by Starbucks. They haven't said yes to us. I'm charging the same price for my coffee in the United States, with sea freight and landing permits, as Starbucks is paying in Costa Rica for premium coffee. But I can't get that $1.30 from them, and I haven't been able to get them to buy my coffee."

In the meantime, said Pirie, "I can't sit around waiting for Starbucks, so I go to seven or eight trade shows a year. We're currently looking for companies in the U.S. to distribute our coffee."

Pirie buys 75% of his gourmet beans from 500 to 600 small growers. The remaining 25% comes from his own farm — a 20-hectare plantation called Finca del Rosario that he's had for three years — and a smaller, eight-hectare farm nearby.

Finca del Rosario has its share of trees, but it's not exactly in the middle of a forest.

"If you have coffee under deep shade, your coffee will not grow. Shade trees have to be managed and pruned at the right time," says Pirie.

One factor that has hurt the quality of Costa Rican coffee in the past has been, ironically, the country's commitment to the environment.

About seven years ago, the government's Ministry of Health and other agencies launched a program to slash the use of water in coffee mills by 75%. At that time, the coffee industry was responsible for 80% of the contamination in Costa Rican rivers. Today, that figure is down to 5%, though it came at enormous cost to the industry.

"In the last five to seven years, we've implemented a new water system," said Pirie. "Coffee mills are using less water because we've been ordered to. For example, before, we might have used 2 cubic meters of water per fanega (100 pounds of finished coffee). Now we have to go way below 1 per fanega . The mills have to use less water."

On the other hand, he says, "Costa Rica has been completely cleaned up as far as wastewater management goes. We don't throw dirty water back into the rivers anymore. Any company that does that gets closed down. Now you have to get your permit renewed every year."

Lilia Gallardo, executive director of the Specialty Coffee Association of Costa Rica, says Pirie's coffee "is the best in Tarrazú." The company's principal export market is the United States, accounting for 50% of exports.

"We also ship to Korea and Israel," said Pirie, noting that the Japanese don't care for his coffee. "We really worked that market, but they didn't like it because it's too acidic."

Last year, says Pirie, Costa Rica's Best Coffees Inc. exported nearly 4,800 150-lb. bags worth nearly $1 million.

"This year, there's a completely different equation," said Pirie. "Banks know that everyone has lost a tremendous amount of money, so Costa Rican banks have decided not to lend. We need over $1 million for our crop. Other companies need $10-20 million and there's no money for them. The banks think that if you lend money to the coffee industry, they're going to lose. So a lot of these companies are in trouble now, because they don't know where they're going to get the money to finance their crop."

The problem is even affecting multinationals.

"Big exporting companies have all the financing they need," says Pirie, but adds that even so, Volcafe recently closed two coffee mills. Many other farms have been abandoned. "We're just breaking even. We're not getting out of coffee, but we only buy what we can sell. We can't get financing from the banks, so we're creating our own financing."

As an alternative way to make money, Pirie has branched out into real-estate, and is currently developing a 350-lot project in Cartago. Homes will sell for $25,000 each, which "by Costa Rican standards is considered middle-class," he said. Pirie also grows 70 hectares of sugar cane on a nearby plantation. But his heart is obviously still in coffee.

"What we need in Costa Rica," he said, "is for the big U.S. coffee companies to buy from us and other smaller companies, so that the grease goes all the way around."

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