Latin CEO / June 2001
By Larry Luxner
Nicaragua's Café Soluble S.A., founded in 1959, has survived earthquakes, hurricanes, corporate takeovers and Marxist revolutions -- and still manages to turn a profit.
Gerardo Baltodano is general manager of the company, which sits along the main highway linking downtown Managua with the country's international airport. In 2000, he said, Café Soluble reported sales of $27.3 million and profits of $2.6 million, up slightly from 1999 figures.
"We are doing well because this company is somewhat different from other Central American companies," says the 41-year-old executive. "Globalization is good for us. Other companies sell to the local market only. In the last three years, since we've started to export, we have learned a lot from our buyers, who told us we had to improve quality control. When we made a mistake, they quickly found out and we had to fix it. They tell us exactly what they want."
For example, he says, "we didn't know that Europe has established many quality controls not required in Central America or even the United States. When the Europeans ask us to control a certain kind of bacteria, you have to control it for all your coffee, not just that part which goes to Europe."
Café Soluble's original partners were a group of Nicaraguan investors and California-based MJB, which produces ground and roasted coffee. At that time, the company exported instant coffee to the United States under the MJB label and instant coffee in bulk to Germany and Japan. Later on, MJB was bought by Hills Bros., which in turn was bought by Nestlé, which sold the Nicaraguan operations back to the local investors. Since the mid-1980s, Café Soluble has been considered a 100% Nicaraguan company.
Under the Sandinista regime, which ruled Nicaragua from 1979 to 1990, coffee producers could only sell to the government, which paid growers a fixed price and controlled exports. That began changing with the 1990 election of Violeta Chamorro, who immediately began implementing free-market reforms.
In the ensuing decade, Nicaragua has seen its coffee production jump from around 400,000 quintales (hundredweights) a year to a record 1.7 million quintales. Despite low world prices and some damage to plantations caused by Hurricane Mitch in 1998, coffee last year brought Nicaragua $160 million in foreign exchange -- a big chunk of change for a country with a per-capita income of only $400, the lowest in Latin America.
Dania B. Alvarez, general manager of Cisa Exportadora and vice-president of the Nicaraguan Coffee Exporters Association, says the five biggest companies now control about 80% of all coffee exports.
"It's a very competitive market," she said. "The producers have lots of alternatives where they can sell their coffee, and they're able to compare conditions and prices. Volume-wise, Nicaragua's coffee industry has increased substantially."
At Café Soluble, which has 450 employees, roughly 55% of the company's production is exported. Café Soluble, which originally exported instant coffee to the United States under the MJB label and instant coffee in bulk to Germany and Japan, now considers its top markets to be El Salvador and Guatemala, with shipments also going to Great Britain, Germany, Austria, Taiwan, Bolivia, Trinidad and Syria.
At the moment, only two companies in Central America produce instant coffee besides Café Soluble: Guatemala's Incasa, which doesn't export, and the El Salvador operations of Nestlé.
"In our business, what we buy in raw material is not coffee that you export as prime quality. What we use for instant coffee is coffee that has good flavor but has imperfections," said Baltodano, who graduated from American University in 1981 with a degree in economics. "We always needed to have better quality control than did other Nicaraguan companies. This created a culture of quality, and moreover, a culture of exporting. These proved very valuable in these times of globalization."
Even though things are better than in the bad old days of the Sandinistas, Baltodano says he still has to contend with the Nicaraguan government's arbitraridad -- a Spanish word meaning "arbitrariness."
"You don't know if tomorrow a law will be changed. You make an investment, but then the law changes, and government officials are arbitrary in implementing the law," he complains. "Sometimes they're very strict with one company, and very lenient with another. You don't know if you're competing on an equal basis."