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As arabica buyers flee Brazil, China offers opportunities
The Tea & Coffee Trade Journal / July 1996

By Larry Luxner

RIO DE JANEIRO -- Brazil, which has never sold coffee to China, nevertheless is trying to crack open that market of 1.1 billion people. But to do that means overcoming two chief obstacles: a 40% import tax on coffee beans, and a 67% import tax on instant coffee.

The issue was brought up by Edmundo Ayres, director of São Paulo-based Companhia Cacique de Café Soluvel S.A., during a recent meeting between the FEBEC board of directors and visiting Chinese internal trade minister Chen Bangzhu.

"Unlike Colombian coffee, Brazilian coffee is not known in the People's Republic of China," Chen told the São Paulo newspaper Gazeta Mercantil, suggesting that Brazilian businessmen should advertise coffee to Chinese consumers. He said there is "potential interest" and spoke of future joint ventures between Brazilian and Chinese firms to produce instant coffee in China, pointing out that Nestle already has a processing plant in China.

Here's one reason Brazil could be so eager to sell its coffee to the Chinese: as prices for Brazil's arabica beans rise, many traditional big buyers of arabica have dramatically scaled back their purchases of Brazilian coffee in recent months.

According to FEBEC statistics, some European countries are buying up to 60% less arabic from Brazil on a monthly basis than in years past. Germany, which had purchased 40,000 bags of arabic every month during the latter part of 1994, reduced its imports to 17,000 bags monthly in 1995 and only 10,000 bags a month so far this year. Likewise, the United States is buying only half the amount of arabica it did in late 1994 and 1995, while Belgium, Holland, Luxembourg and -- to a lesser extent -- Italy are also buying less arabica than before.bought much less Brazilian arabica.

On the other hand, Japan, Greece and Argentina not only have maintained their level of Brazilian arabica purchases but in some cases have actually increased their imports.

Meanwhile, the São Paulo State Department of Agriculture is carrying out a $1.25 million study into the viability of producing up to 2.3 million bags of robusta coffee in Brazil's most populous state. The study -- initiated at the request of a São Paulo coffee growers' association -- has concluded that the state has large areas with a climate ideal for growing robusta (which requires temperatures of 12-22 degrees Celsius and altitudes above 800 meters), but not arabica (which needs warmer temperatures of 21-26 degrees Celsius).

São Paulo state, home to about 35 million of Brazil's 160 million people, is already the center of Brazil's soluble coffee industry. It also manufactures over a third of the roast and ground coffee consumed in Brazil, though São Paulo's processing plants must now bring the 1.7 million bags of robusta they need annually from the states of Espirito Santo and Rondonia, raising prices unnecessarily.

Currently, it costs only $28 a bag to produce robusta in Espirito Santo, given yields of 10-15 bags per hectare. On the other hand, says the study, São Paulo's plantations -- despite the higher labor costs involved -- would be more productive, yielding an average 20 bags per hectare.

To test its theories, the state's agriculture department will plant a 100-hectare trial plot this year, increasing the size by 200 hectares in 1997 and another 200 hectares in 1998 -- though officials say they'd need 115,000 hectares in order to produce the desired 2.3 million bags. Eventually, they say, São Paulo state alone could produce a monthly surplus of 50,000 bags for export.

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