The Tea & Coffee Trade Journal / November 2001
By Larry Luxner
SAN JOSÉ -- Costa Rica, host of next month's annual Sintercafé gathering of world coffee exporters, hopes to boost exports of high-quality gourmet beans in order to survive the crisis that threatens to drive much of Central America out of the coffee business.
"Really, we are very worried about international prices. Our situation is no different than other coffee-exporting countries," says Juan Bautista Moya, executive director of Costa Rica's Instituto de Café (ICAFE). "Even so, Costa Rica is doing all that it can to continue producing coffee of excellent quality."
Moya says this year's coffee crop will come in at around 2.5 million 60-kilogram sacks. In previous years, that would net the country $300 million in foreign exchange; this year, because of record low coffee prices, the crop will be worth only $150 million -- far less than what Costa Rica earns from bananas, textiles or microchip exports.
"For the economy of Costa Rica, coffee exports are not very significant, but in terms of employment, it's very important. Close to 80,000 farmers depend on coffee for a living," said Ronald Peters, vice-president of Peters & Co. S.A. in San José.
"Right now we're in crisis, because the prices we're getting are under our cost of production," he explained. "However, for specialty coffee, we're getting much better prices. We expect to get at least half of this year's crop with a premium high enough to cover our cost of production. For the rest of the crop, we're going to have difficulties."
According to Peters, Costa Rican coffee has traditionally exported the bulk of its coffee to Germany and northern Europe. But in the last four or five years, trends have shifted, and the United States now gets over half the coffee crop, as well as most of the good coffee. By law, 1% of Costa Rica's crop must stay at home, though in reality local consumption accounts for 10% of total production.
Helping Costa Rican coffee producers at this difficult time is Fonecafé, a state fund that was started six or seven years ago. This year, because of record low commodity prices, coffee growers will get a government subsidy of around $15 per 46-kg bag.
"When the prices go up, we return the money to this fund," said Peters. "Naturally, this cannot go on forever, so we expect something to happen in the near future."
At present, Costa Rica's largest exporter is Café Capris S.A., which represents Switzerland's Volcafé. In second place is Compañía Continental S.A., followed by CECA, Cafinter S.A. and Peters & Co.
All are active in the 35-member Specialty Coffee Association of Costa Rica, known in Spanish as the Asociación de Cafés Finos de Costa Rica. Corporate membership in the group costs $1,000 a year, though the association also receives funds from ICAFE.
"Everybody's suffering because of the crisis," says Lilia Gallardo, executive director of the organization. "The situation is very bad, and the small producers are having a hard time, and some of them are giving up because they don't see any future. The big exporters who buy from the small producers are the only ones making money."
Gallardo, interviewed at her office in San José, says Costa Rica's main problem is one of marketing.
"ICAFE tries to market our coffee all over the world, but we think they haven't reached the proper countries," she told The Tea & Coffee Trade Journal. "Last year and this year, we did regional cuppings, bringing 10 judges -- one from Japan, another from Australia, others from the United States and Europe. It was very interesting to hear afterwards what they had to say about the coffee situation.
"Through these regional cuppings, we discovered that the Australian and Japanese guys don't like the acidity of the coffee, and we've been trying to sell acidic coffee to those countries, and it's not a success. But now, after these two regional cuppings we've had, we have to change that marketing strategy," she said. "It's not the same coffee that we'd sell in America, where they like acidic. So we've been wasting our time and efforts."
Gallardo says the main purpose of her organization is to "rescue the quality" of Costa Rican coffee exports.
"Ours was once one of the best coffees in the world, but around 10 years ago, growers started neglecting quality," she explained. "They were more interesting in selling in quantity. At that time, the market was OK, and they were doing fine. They were blending, but people got tired of that, and so the coffee has gone down."
As a result, she said, Nestlé stopped sourcing coffee from Costa Rica. Meanwhile, the quality of Guatemalan coffee was rising, and the Chinese began growing cheap robusta. "Buyers in Europe and the States would buy a little good coffee and mix it with robusta and sell it that way."
Gallardo, who's headed the Specialty Coffee Association of Costa Rica for two and a half years, has two sons in the business -- Carlos Lizano, who works for Delicafé S.A., and Juan Lizano, who works for Beneficio San Antonio S.A. She said the association had been inactive for some time because of internal disputes among member companies.
"They were not clear about the commitment to quality. They were trying to keep doing the same thing. It was an impasse, until coffee prices started dropping and they began to worry," she said. "Everybody is now sure that this is what we have to do, that quality is the future of our coffee."
Every year, the Specialty Coffee Association sponsors a booth at Sintercafé, which this year is set for Nov. 10-14 at the Hotel Herradura, just outside San José; the event is expected to attract more than 600 people from 25 countries. The organization also arranges a cupping competition to boost local coffee quality.
Heading that project is Arnoldo Leiva, general manager of The Coffee Source and vice-president of the association.
"For the past seven years, we've been promoting the annual cup competition, in which we basically invite every producer, miller and exporter to submite their best coffees from the current crop," explains Leiva. "We get the samples through ICAFE. We use their inspectors, and before they close the doors of the containers, they pull a sample of about 8 kgs, which we vacuum-pack those samples. Every year we receive between 30 and 40 samples that are representative of actual shipments; you can not pick and choose. Then, by August, we start a set of blind cuppings using local judges, people with recognized cupping abilities. We narrow them down from 30-40 to 12, and in the second round, we narrow it to seven samples, and then we present these seven samples to eight judges at Sintercafé. They blind-cup these coffees and choose the best three. These are awarded a Golden Cup, a Silver Cup and a Copper Cup. This has proven to be a great marketing tool for the winners."
In addition, the association supervises a mandatory certification program for Costa Rican coffee exports.
Says Gallardo: "The certification program is the only way to produce good coffee. If they don't do things right, they lose money, because their coffee's going to be rejected at the end of the process."
Leiva said that for most of the past 150 years that Costa Rica has been producing and exporting coffee, "we were only growers. Then we became millers, and the importing companies from Europe came and opened offices here. So traditionally, we have sold our coffee through importers and brokers. But we never knew where our coffee was going to."
Five years ago, he said, "three families got together and said there's got to be another way to market our coffee with added value, so they created The Coffee Source."
That company today ships coffee to its own subsidiary in the United States, storing it in warehouses in San Francisco, New York, New Orleans and Seattle. From there, it goes to 80 roasters.
"We have established and are able to sign more loyal and more longer-lasting relationships with roasters," he said. "They're willing to come to our farms. We're trying to get out of the C market and become a specific product, not a commodity anymore. Dealing with the C market is like playing the lottery. You never know what you're going to get.:
He adds: "We've been able to sell long-term fixed-price contracts above the cost of production. We've made efforts in quality and have succeeded."
Leiva said his company's total production from its farms in Tarazu, Tres Ríos, Naranjo and Poas comes to 20 million pounds, of which nearly 5 million pounds is specialty coffee. Revenues amount to $16 million a year, 65% of which is quality coffee.
"The sad thing is that Costa Rica has all the characteristics to produce an outstanding coffee, but for many years, we were targeting the wrong market," he said. "There's enough room for Costa Rica to sell its coffee in specific niches and survive. Yes, some areas will be affected, but in general, we can make a living out of this."
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, says Leiva.
Today, that figure is down to 5%, he says -- though it came at enormous cost to the industry.
"We went through a painful and expensive learning curve," he said. "Processing coffee with less water and with recycled water definitely impacted the quality in a negative way. It took us about five years to learn how to go back to the quality we used to produce before.We didn't know how to produce coffee using recyced water, because the major risk there is overfermentation. If you don't know how to work with that, you end up spoiling the whole batch. Water is a great cleaining agent, and using less water requires more precise machinery to produce the same cup quality."
All the kinks have since been ironed out, he says, and today, "the waste we dump into the rivers is way below the government standards. Otherwise, the government would shut down our operations."
Costa Rica's earlier efforts to boost yields also had a detrimental effect on quality.
"At some point, we were also focused in having the highest yield per hectare, as well as growing varietals that were resistant to some specific disease," said Leiva. "Those new varietals, including Catimor, accounted for 30% to 40% of the current arabicas."
He said that Catimor produced 60-65 46-kg bags of coffee beans per hectare, an unusually high yield. "But the Catimor ended up being a disaster in cup quality. We started getting strong complaints from our customers overseas, particularly from the specialty roasters. Some of them started switching from Costa Rican to Guatemalan. That, along with the problems caused by wastewater treatment, created a really bad image. So now, we're going back to the original varietals, Caturra and Catui. We're now pulling out Catimor, which at one point accounted for up to 10% of the plantations."
Yield now stands at 40 to 45 bags per hectare, which is quite enough for Leiva.
"We learned that we cannot compete in volume, ever. We cannot compete against producers like Brazil or Vietnam," he said. "Our production costs are among the highest in the world. Every worker gets social security, health benefits and a minimum wage, and that is what has brought great social stability. We're not complaining about that, but we've got to find ways to be competitive. The only way for us to survive is through quality. Producers in this country have no choice: either they choose quality, or they disappear."