Journal of Commerce / February 25, 1999
By Larry Luxner
SANTOS, Brazil -- Ask anyone in Brazil's biggest port to name the city's most beautiful building, and the answer will almost certainly be the Bolsa Official de Cafe -- Brazil's antique coffee exchange.
Inaugurated in 1922 on the 100th anniversary of Brazilian independence, the bolsa was a testament to the power and wealth of Brazil's coffee barons. Within its interior marble halls, coffee brokers would buy and sell the precious beans, while outside, the building's eclectic architectural style and ornate clock tower made it stand out along the Santos waterfront.
For the last 45 years, however, the building has gradually fallen into disrepair. These days, with most commodities trading done via computer, there's no longer any need for a physical Bolsa de Cafe. But there is a need to preserve history, and within a few months, Santos municipal authorities plan to inaugurate the bolsa as Brazil's first official coffee museum.
Like the structure built to honor it, the Brazilian coffee industry -- braving freezes, droughts, hyperinflation and occasional political chaos -- has seen its share of ups and downs.
Now, as much of the nation struggles with high interest rates, climbing prices and rising unemployment in the aftermath of President Fernando Henrique Cardoso's recent currency devaluation, coffee exporters are flying high. The devaluation actually helps them since they buy coffee in the local currency, reales, but sell in dollars.
In addition, coffee prices are expected to rise in the wake of the recent earthquake in Colombia, and the lingering effects of Hurricane Mitch, which last year wiped out coffee production in Honduras, Nicaragua, El Salvador and Guatemala.
In January 1999, Brazil exported around 1.4 million 60-kilogram sacks of coffee beans -- a record high. Revenues came to $175 million, the highest level in a decade. That happened despite the fact that in January 1998, coffee prices were 65% higher, at $203.25 per sack. But that month, reports the Brazilian Association of Coffee Exporters (FEBEC), only 790,000 sacks were exported due to low yields -- a lingering effect of the 1994 freeze.
Brazil's total 1998-99 coffee harvest is expected to weigh in at 34.5 million 60-kg bags, a 23% increase over the previous season's harvest of 28 million sacks. However, exports will be worth only $2.1 billion, down 9.1% from the $2.4 billion generated in the 1997-98 season, said Jose Botafogo Goncalves, Brazil's minister of industry and commerce. He predicted that the 1999-2000 harvest would tumble 33% to just over 23 million bags, due to high temperatures and a drought in Espirito Santo and Bahia states.
At the moment, over three million Brazilians are involved in the coffee industry, which accounts for 5% of all exports by volume.
"Brazil is the world's largest producer and exporter," said Oswaldo Aranha Neto, a Sao Paulo businessman who has been active in FEBEC for many years. "The tendency is to assume that when you're big, you don't produce quality. But in our case, it's definitely not true. We have exporters that are comparable to any in the world. In fact, the Cerrado region (of western Minas Gerais state) is becoming very famous for production."
Asked why Brazil does so little to promote its coffees around the world, he replied that "until now, there was no reason to invest in promotion, because Brazil didn't have its own labels. However, that is changing, and I think it's time to invest in the future."
One company, Ipanema Agro-Industria S.A. of Alfenas, in the state of Minas Gerais, is doing just that. Already one of the world's largest growers of arabica, the com-pany is expanding its coffee plantations from 14 million to 20 million plants. Ipanema processes its own coffee under the Fazenda de Minas brand.
Meanwhile, Brazil's largest producer of soluble coffee, Cacique, is building a new plant to make "freeze dry" coffee, which sells for 20% more than the common "spray dry" because it cools rather than heats the product -- preserving more of the aroma. Cacique plans to sell 2,200 metric tons a year of this new product to Japanese, European and eventually U.S. customers.
In the state of Bahia, farmers will produce 250,000 60-kg bags of robusta coffee on land previously used to grow cocoa. And that number could rise to a million bags within five years, say industry sources who estimate yields in Bahia at 25 bags per hectare. That compares favorably to Espirito Santo -- Brazil's leading robusta producer -- where yields hover around 15 bags per hectare.
The United States used to be Brazil's top customer for robusta coffee, but with the recent U.S. shift to lower-cost Asian producers, Argentina has replaced it as Brazil's most important robusta buyer.
Further south, in Santa Luzia -- just outside the metropolis of Belo Horizonte -- a little-known coffee company that got its start 30 years ago has in the last few years become Brazil's No. 1 capucchino producer. Cafe Tres Coracoes Ltda. boasts 250 employees and annual sales of around $130 million.
Kleber Delton Malta, national sales manager at Tres Coracoes, says ground coffee constitutes 85% of his business, and capucchino the remaining 15%. "Our company is all over Brazil," he says. "We have 53 distributors throughout the country."
In Portuguese, Tres Coracoes means "three hearts," and was given that name upon its establishment in 1970 by the company's founder, in honor of his three children. Today, says Mr. Delton, Tres Coracoes has 3.4% of Brazil's $3 billion domestic coffee market, buying 70% of its beans from small producers in the surrounding state of Minas Gerais rather than growing its own coffee.
Roughly half of the revenues of Tres Coracoes derive from Brazilian sales, and half from exports. Although the capucchino business is only 15% of what the company does, Tres Coracoes is Brazil's undisputed leader in capucchino, with a 50% share of the market.
"Brazilian people like capucchino strong in a small cup, with more sugar and cinnamon than in the United States, where capucchino is served in a big glass," says Delton Malta. "It's a breakfast drink for Brazilians, though it's frequently drunk after lunch and dinner too."
Being Brazil's capucchino king isn't enough for Tres Coracoes, however. Rodrigo Lapertosa, the company's new product manager, says "we'll soon start to sell powdered milk and a kind of coffee candy, and Cafe do Cerrado, considered the best coffee of Brazil, because the green beans are from the best region of Minas Gerais. Another new product is coffee in little sacks, known as Medida Certa."
"We're also thinking about getting into the tea business," says Mr. Lapertosa. "Maybe we'll do a partnership with another U.S. or foreign company. We're studying the market now."