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In a tough market, Nicaragua's Café Soluble holds its own
The Tea & Coffee Trade Journal / March 2001

By Larry Luxner

MANAGUA -- Nicaragua's Café Soluble S.A., founded in 1959, has survived earthquakes, hurricanes, corporate takeovers and Communist revolutions -- and still manages to turn a profit.

Gerardo Baltodano is general manager of the company, which is located along the main highway linking downtown Managua with the country's international airport. In 1999, he said, Café Soluble reported sales of $27 million, and profits of $2.6 million.

"We are doing well because this company is somewhat different from other Central American companies," he told us in a recent interview. "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, says Baltodano, "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. 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 1985, Café Soluble has been considered a 100% Nicaraguan company.

Café Soluble, which originally exported instant coffee to the United States under the MJB label and instant coffee in bulk to Germany and Japan, today produces 3.4 million pounds a year, 55% of which is exported. Its most important markets are El Salvador and Guatemala, with shipments also going to Great Britain, Germany, Austria, Taiwan, Bolivia, Trinidad and Syria.

"We always needed to have better quality control than did other Nicaraguan companies," said Baltodano, who oversees 400 employees. "This created a culture of quality, and moreover, a culture of exporting. These proved very valuable in these times of globalization."

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," said the Managua-born executive. "What we use for instant coffee is coffee that has good flavor but has imperfections."

Baltodano, 40, graduated from American University in 1981 with a degree in economics. He says one of his biggest problems as a coffee exporter is 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 complained. "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."

While Café Soluble is certainly important, it's not the biggest player in the Nicaraguan coffee industry. The largest green coffee exporter is Agresami S.A., followed by Cisa Exportadora S.A. and Volcafé S.A.

Dania B. Alvarez, general manager of Cisa Exportadora and vice-president of the Nicaraguan Coffee Exporters Association -- known by its Spanish acronym, Excan -- says the top five companies 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. Volumewise, Nicaragua's coffee industry has increased substantially."

Nicaragua, whose population has more than tripled in the last quarter-century, now has 4.35 million people, yet remains the most sparsely populated country in Central America after Belize. It is also the poorest, with a per-capita income of under $500. And except for a few hotels and shopping malls going up in the suburbs, Managua still hasn't recovered from the 1972 earthquake that devastated this once-bustling city.

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. When Violeta Chamorro was elected president in 1990, free-market reforms began to be implemented.

At that time, the country was producing around 400,000 quintales (hundredweights) a year. In 2000, it produced a record 1.7 million quintales, despite lingering bureaucratic problems, allegations of corruptions at the highest levels of government and serious financing problems for the nation's 30,000 or so coffee producers.

"Overall, there's a crisis in obtaining financing. Banks would rather finance commercial businesses like shops than agriculture, where it takes longer to get a payback," she said. "A program was initiated in 1991-92 to put 30,000 manzanas of coffee into production. In 1995, Nicaragua didn't fulfill its payments to the Banco Centroamericano de Integración Economica, so this program was cancelled. Some producers didn't have any alternative but to abandon what they had started."

Nevertheless, the country exported an estimated $160 million worth of coffee in 2000, representing 85% of total production. Its biggest customers overall are Germany -- the traditional top buyer of Nicaraguan coffee -- followed surprisingly by the United States.

"This is a drastic change, because in the 1990s there was an embargo, and no coffee was going to the U.S. market," said Alvarez, adding that in the mid-80s, Nicaraguan was producing 1.2 million quintales a year, but then production dropped because of the country's civil war and the embargo declared by the Reagan administration.

After steadily climbing in the mid-90s, production fell in 1998 as a result of Hurricane Mitch, which devastated both Honduras and Nicaragua.

"We were very lucky. We lost only 5% of the crop," said Alvarez. "If it had to happen, it was the best time. If it had been only one week later, it would have been much worse, because the cherries would have been fully ripe and would have fallen off the trees. There would have been at least 40% damage."

What concerns Alvarez and her exporters' association now is an effort by some politicians to create an organization that will control export prices. The proposed regulatory agency and the law authorizing it has been discussed since 1995, but to date no concrete action has been taken -- probably because of intense lobbying against it by coffee exporters.

"I don't see any reason to have this law," she said. "What do we need this bureaucracy for? It's like going back 50 years."

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