The Tea & Coffee Trade Journal / January 2002
By Larry Luxner
SÃO PAULO -- The Brazilian soluble coffee industry could get a healthy boost this year, as long-standing European trade barriers start to crumble and new export markets such as China begin opening up.
Mauro Malta, executive director of the Associação Brasileira das Indústrias de Café Soluvel (ABICS), says Brazil's soluble coffee exports last year came to $200 million, around a tenth of total Brazilian coffee exports of $2 billion.
"Over the last 10 years, we've had a problem with the European Union, which put a 9% tariff on Brazilian soluble coffee. They said they had to help Colombia, Bolivia and other countries that produce coca," he explained. "So all those countries enjoyed zero tariffs, and since Brazil does not produce coca, we were not included."
After several years of negotiations, said Malta, an agreement was reached between the Brazilian government and Pascal Lamy, the EU's commissioner of commerce. The deal sets up a quota system for Brazilian soluble coffee exports which took effect Jan. 1, 2002.
In the first year, 2002, the EU will import up to 10,000 metric tons of soluble coffee worldwide, of which Brazil will have a quota of 8,740 tons. In 2003, the global quota rises to 12,000 tons, and Brazil's share of that goes up to 10,480 tons. In 2004, the worldwide quota rises again to 14,000 tons, of which Brazil's share will be 12,236 tons.
"After that, we must examine the market and see if Brazil is achieving the quota," says Malta. "Then we can change or maintain these figures."
Malta, whose Rio de Janeiro-based association lobbies the Brazilian government on behalf of the country's nine soluble coffee manufacturers, says his industry's biggest challenge is tapping into new export markets.
"Vietnam is full of coffee, and the price has come down so low that everyone is now losing money," he said. "The only way to change this pattern is to conquer new markets. China has joined the World Trade Organization, so now we must conquer the Chinese market."
He continued: "Soluble coffee is a way to change the consumption of tea in China, as we have done in Russia and Japan. All these countries were big consumers of tea, and now they're among the world's biggest consumers of coffee, because the way of preparing the drinks is the same. You just put up hot water, and add tea or coffee. The only thing that changes is the taste of the final product. We conquered the Japanese market with instant coffee. Now we are waiting to do the same thing in China."
Here's a look at what's happening at three of Brazil's most important soluble coffee manufacturers -- Cacique, Iguaçu and Cocam:
In 2000, according to industry statistics, Cacique ranked first in roasted and soluble coffee, with R$242.8 million (about $120 million) in sales, and profits of R$13.6 million (about $7 million). But this figure includes Banco Cacique S.A., Cacique Agricola S.A., Cacique Fomento Comercial Ltda. and other non-coffee subsidiaries. Iguaçu reported sales of R$94.9 million ($48 million) and profits of R$9.2 million ($4.6 million), while Cocam had revenues of R$49.3 million ($25 million) and losses of R$3 million ($1.5 million).
Haroldo Bonfá, export manager for Café Cacique, says his company employs 1,089 people and is the world's largest instant coffee exporter.
"We have achieved this status by adapting the flavor and aroma of the coffee to the quality standards of each country," said Bonfá, estimating that Cacique produces and markets around 30 varieties of instant, agglomerated and spray coffees.
The company was founded by Horácio Sabino Coimbra on Oct. 17, 1959. In April 1966, Cacique's soluble coffee factory was inaugurated in Londrina -- in the southern Brazilian state of Paraná -- and in June of that year, the first shipment of coffee left the port of Paranaguá for the United States. The Coimbra family still owns a minority share of the company, with the balance publicly traded on the São Paulo Stock Exchange.
Bonfá, interviewed at his office in São Paulo, says Cacique exports 98% of its total production, and that its two soluble coffee brands, Café Pelé and Café Cacique, are present in 41 countries.
In 1995, Cacique exported $113.5 million worth of soluble coffee, representing 23% of Brazil's total soluble coffee exports of $489.7 million. In 2000, the company sold $63.9 million (or 30%) of total soluble coffee exports of $215.9 million.
Interestingly, the Londrina factory is the world's largest instant coffee plant under one roof, with a production capacity of up to 70 tons per day. Cacique's export structure includes its own transportation fleet, administrative support, logistics and distribution teams -- assuring that coffee will arrive as ordered and on time anywhere in the world. The company's manufacturing process is certified according to ISO 9001 standards.
"Specification checks and process uniformity, from the selection of the coffee beans to the delivery of the final product, ensure the quality of the instant coffee and the approval of our clients," says Bonfá, who is from Riberão Prêto in São Paulo state and has been with the company for 13 years.
Cacique's packaging division specializes in the production of sacks, big bags, fabrics and ribbons made from synthetic strands of polypropylene. Its industrial unit in Londrina serves various market segmenets including grains, instant coffee, flour, bran, seeds and livestock.
"Our capacity is around 70 tons a day of soluble coffee, both in spray-dried (powder) form and agglomerated," said Bonfá. "In 2000, we inaugurated a freeze-dried plant, which uses Atlas technology from Denmark. The freeze-drying process preserves the original characteristics of the green coffee beans, yielding a final product with an excellent flavor and aroma."
Bonfá says the new freeze-dried plant represents a $28 million investment, that it covers over 32,000 square feet, that it boasts an annual production capacity of 2,100 tons, and that "we are fully booked through the end of the year."
Cacique exports 45% of its total soluble coffee in bulk form, while another 45% is exported as Café Péle, and the remaining 10% is frozen coffee extract and private labels.
"We bought the brand name Café Péle over 20 years ago," said Bonfá, noting that Brazil's soccer superstar "has been a very good friend of Cacique. Sometimes we hire Péle to appear on our promotional campaign. Now we've hired him to use his image sometimes. MasterCard does the same, and so does Nokia. He's like an ambassador here. He knows how to present himself and Brazil."
The company also takes credit for opening Russia -- the world's most important soluble coffee market -- to Brazilian coffee producers.
In 2000, Cacique accounted for 77% of Brazil's 7.2 million kilograms of soluble coffee exports to Russia. Those exports are down dramatically from previous years, however; in 1995, sales to Russia came to 25.4 million kilograms, of which Cacique accounted for 33%. Over the past 12 years, on average, Cacique has accounted for 55% of Brazilian soluble coffee exports to Russia by volume.
In 1995, Russia surpassed the United States to become the largest buyer of Brazilian soluble coffee, representing 41.6% of total Brazilian soluble coffee exports.
"It's important to remember that the image of coffee today in Russia is intimately linked with the image of Brazil," says Bonfá. "Currently, over 100 brands of Brazilian soluble coffee are being sold in Russia. Some of those are imitators, using non-Brazilian coffee but benefitting from the good image Brazilian coffee enjoys with Russian consumers."
Bonfá adds: "This year, Brazil will be extremely competitive due to the exchange rate between reais and dollars, and also due to the price for the raw material in the internal market. We think we'll have a very good position in the international market as a recognizable supplier of extremely good instant coffee, and also as a private-label institution. We think it's very important for us to work in that direction."
That optimism is shared by Lewis George Collard, export manager at Cocam Companhia de Café Solúvel e Derivados.
"Compared to the same period the year before, our volume was up 20% in 2000," he said. "In this sense, Cocam has maintained its market share over the last two years, which is about 15%."
Collard, who's 38 and has been with Cocam for six years, was born in the port city of Santos and neither looks nor sounds Brazilian (his very English name is thanks to having a British father and an Austrian mother). He estimates total company sales at $30 million and insists that Cocam is profitable, but won't say by how much. The company is 100% owned by Ursa, a Dutch company which bought it in 1990 from Grupo Matarazzo.
Cocam's production facilities are located in Catanduva, about 400 kilometers from São Paulo near the city of São José do Rio Prêto.
"Our factory was built in 1970," said Collard, interviewed at the company's São Paulo office on shady Rua Atlantica. "At that time, this area was the biggest producer of coffee. But over the course of the years, production of coffee moved up to Minas Gerais, and the region now is mainly sugar cane and oranges, with some coffee plantations remaining." He said the green coffee beans used as raw material for all of Cocam's products come mainly from southern Minas Gerais and Espirito Santo states.
In 1971, the year after inaugurating its factory, Cocam began producing liquid coffee extract, and soon after, freeze-dried and spray-dried soluble coffees. In 1975, Cocam started to decaffeinate green coffee beans and in 1976 introduced the production of caffeine as a byproduct.
In 1990, the company installed a new freeze concentrator and in 1993 started selling coffee extract. Then in 1995, it launched production of coffee preparation, a mixture of spray-dried coffee and granulated sugar.
"We produce all types of soluble coffee -- both spray-dried and freeze-dried -- so it's a complete operation. We are also the only producer of decaf coffee in Brazil," said Collard. "I don't know why our competitors haven't gotten into this. It's a niche market."
The company's two plants are located in Catanduva, one decaffeinating green coffee and purifying caffeine, and the other one producing freeze-dried as well as spray-dried instant coffee, coffee extract and coffee preparation, from both regular and decaffeinated green coffee beans. Together the factories employ about 400 workers.
Cocam says it is the only Brazilian manufacturer of both types of coffees, and the only company that decaffeinates green coffee beans. Cocam employs modern technology, basically supplied by Leybold AG for the freeze-drying system, and U.S. and Danish equipment for the spray-dried system.
Today, says Collard, Cocam enjoys a 15% share of Brazilian instant coffee exports, ranking behind only Cacique and Iguaçu. Japan alone accounts for about 35% of total sales; other important export markets are the United States, Argentina, Singapore, Germany and Canada.
Some 99% of Cocam's production of frozen coffee extract goes to Japan, which also buys most of Cocam's coffee preparation ( a mixture of 20% spray-dried coffee and 80% sugar). Japanese companies make the mix and sell it in cartons to consumers.
In fact, most of Cocam's production is aimed at overseas markets; only caffeine is sold exclusively on the domestic market, since Brazil is a net importer of caffeine.
The domestic market for soluble coffee is estimated at 9,600 tons, or 4% of total internal coffee consumption. For the internal market, Cocam sells mainly freeze-dried regular and decaffeinated coffee to Café do Ponto, the No. 2 roaster in Brazil. It also sells decaffeinated green coffee beans to Grupo Melitta and Café do Ponto, and finally it markets spray-dried regular and decaf to dietetic companies and cappuccino producers. The caffeine produced as a byproduct of green decaf coffee is sold to Brazilian soft-drink companies.
In 1995, Cocam spent $5 million to complely renovate its freeze-dried line. Collard says the company "will soon be investing in a new final packing line for private labels."
At rival Companhia Iguaçu de Café Solúvel, the potential for huge sales to Western Europe excites the company's commercial director, Edivaldo Barrancos.
"Effective Jan. 1, 2002, the EU has eliminated its 9% import duty on soluble coffee from Brazil," he said. "We are expecting to recover the volumes we have lost to other countries like Ecuador and Colombia."
Barrancos, whose office is on the 8th floor of a bank building along Avenida Paulista, in the heart of São Paulo's financial district, says that low coffee prices are helping his company to be more competitive internationally.
"We are one of the biggest soluble manufacturers in Brazil, together with Cacique and Nestlé," said Barrancos, 43, whose company is also a private-label supplier. "We are doing reasonably well. Brazil's competitiveness has improved in terms of coffee, and the devaluation of the real has helped our exports a lot. So we're expecting 2002 to be a good year for us."
Iguaçu, founded in 1967, is part of a larger conglomerate of seven companies that reported $66 million in revenues for the first nine months of 2001, and profits of $7.3 million over the same period. Iguaçu's main shareholder is Japan's Marubeni Group, which in 1972 purchased 54% of the company. The balance is owned by private investors.
In addition to Café Iguaçu, other companies under the Iguaçu umbrella include Transportadora Cafeguassu, established in 1971 to transport raw material and finished soluble coffee to the port of Santos. Another is Iguaçumec Eletromecânica Ltda., established in 1981 to maintain the factory; it now produces low and medium-tension electrical panel boards, as well as pressurized containers, heat-exchange equipment and garbage recycling equipment.
Still another is Iguaçu Comercial e Industrial de Café Ltda., which sells soluble coffee on the domestic market, as well as Exportadora e Importadora Marubeni Colorado Ltda., which focuses on green coffee exports. Finally, there's Macsol, the result of a joint venture between Iguaçu and Coca-Cola which manufacturers freeze-dried soluble coffee, and Panfoods, founded in 1986, which promotes Iguaçu sales in Great Britain.
Japan and Western Europe are Iguaçu's biggest markets, each taking 30% of total exports. Other important markets are the United States (10%) and Eastern Europe (10%).
"The Brazilian soluble coffee industry has 100,000 tons of installed capacity," says Barrancos. "In 2001, we are expecting 57,000 tons to be exported, worth $180 million. Iguaçu will account for 18% of that. Historically, Brazil has exported around 60,000 tons a year, though some years had dropped to as low as 43,000 tons."
Iguaçu's factory is located in Cornelio Procopio, about 70 kilometers from Londrina in the state of Paraná. Some 70% of the company's exports are in the form of bulk products, with packaged products comprising the other 30%.
Among the factory's many products is coffee oil, the aromatic oil extracted by pressure-expelling from coffee beans. The product is used in instant coffee powder, cappuccino products, iced coffee preparations, puddings and other confectionary products, and is available in plastic containers of 10 and 20 kilograms. Iguaçu also offers spray-dried powder in eight types of packaging ranging from 50-gram glass jars to 800-pound cardboard cartons. Other Iguaçu products include concentrated coffee extract (available in stainless-steel drums of 100 kilograms), as well as green coffee, agglomerated instant coffee and coffee-and-sugar preparation, available in 30-kilogram kraft bags.
"Our objective is to increase the volume of our own brand products," says Barrancos. "The coffee oil industry is just starting. It's still very modest, but we are expecting this business to grow. At least we are working in this direction."