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Cachaça Pushes To Increase Exports While Seeking Branded Growth At Home
Impact International / December 15, 2001

By Larry Luxner

SÃO PAULO, Brazil -- Cachaça has long been Brazil's most popular distilled spirit, with a domestic market so huge that few producers ever thought much about the drink's export potential.

No more, says the Brazilian Beverage Association (known by its Portuguese acronym ABRABE). The São Paulo-based lobby has joined forces with the private sector and government to help cachaça producers compete in the global market -- adopting measures ranging from boosting product quality to enacting legislation that encourages exports.

Maria das Vitórias Carneiro Cavalcanti is president of ABRABE's Cachaça Development Program, comprised of 28 companies representing 85% of Brazilian cachaça production. She's also export manager at Engarrafamento Pitú Ltda., one of Brazil's largest cachaça distillers.

"In 1998, the government started supporting several products through Agencias de Promoção Exportação (APEX)," she said. "Cachaça was one of 58 products chosen, along with juice, furniture, flowers and others. For the first time, we've managed to bring together competing companies, cooperatives and associations to discuss a common project to value and qualify a genuinely local product with enormous export potential."

Cachaça is a $500 million industry, employing over 400,000 people directly and indirectly. Many brasileiros say cachaça represents one of the three pillars of their society, along with soccer and Carnaval. Known as a drink of the middle and lower classes, cachaça is a key ingredient in the famous caipirinha -- which contains cachaça, lime, sugar and crushed ice. A one-liter bottle of cachaça retails for $1 or less, putting it within reach of even the poorest Brazilians.

Total production stands at around 144 million nine-liter cass, of which only about 900,000 cases were exported last year, generating around $8.5 million. There are over 5,000 cachaça brands, though a significant portion of the industry -- around 30% -- is considered "informal."

In 1998, the most recent year for which figures are available, informal production totaled about 40 million cases. The largest producer by far is Companhia Müller de Bebidas Ltda., whose brand, Pirassununga 51, has by far the largest market share (23.5%). In second place is Pitú (7.1%), followed by Velho Barreiro (6.0%). Pirassununga 51, known as Cachaça 51 in export markets, now ranks as the world's fifth-largest distilled spirit. Yet Armstrong says Pitú exports more volume than Cachaça 51, because they have an agreement with Underberg in Germany. In 2000, Pitú exported 220,000 cases, with nearly all those exports going to Western Europe.

"Cachaça has not exploited all of its potential in the export markets. We have a high-quality product with a high acceptability whenever one has a chance to taste it," says Cavalcanti. "We want to quadruple our exports before the end of this decade." ABRABE predicts that cachaça exports will reach $11.2 million in 2003, $22.5 million in 2008, and $30 million in 2010.

In 2000, Brazil's leading buyer of cachaça was Paraguay, which bought $2.3 million or 28.2% of total exports. Most of that is destined not for the tiny Paraguayan market, but for other countries. Next was Germany (23.3% of total), followed by Italy (6.1%), Uruguay (5.8%), Portugal (5.7%), Bolivia (4.3%) and the US (4.1%).

"Cachaça exports to the US have increased by double digits in the past few years, but from a very small base," said Armstrong. "The US is importing perhaps 20 container loads. The challenge in the US is to take advantage of the fact that Tequila has become more expensive and harder to get. There's an opportunity for cachaça to grow with the caipirinha and easy-to-produce cocktails."

Yet Brazil must first convince bureaucrats in Washington that cachaça is not, in fact, a rum. Cavalcanti says her organization has sent representatives to negotiate with the Bureau of Alcohol, Tobacco and Firearms, which oversees the issue. "In November 2000, they reclassified our product as rum, based upon some chemical elements in the drink. But they didn't consider other characteristics of cachaça. So we went to the US and proved that the taste and smell of cachaça is completely different, because it is a different product," she said.

Under current regulations that classify cachaça as rum, Brazilian exporters must pay a duty of 19 US cents per liter -- a result of legislation that protects rum producers in Puerto Rico and the US Virgin Islands, both US possessions. Otherwise, cachaça would pay no duty at all, since there are no US producers of cachaça to protect.

"Provided we come forwards with things the ATF required, they will eventually allow us to use the word cachaça instead of rum on the label," says Armstrong. "Those brands already in the US aren't described as rums, and will continue to be allowed." He adds that one of the things ATF is asking Brazil to do is pass legislation that would "make the distinction between rum and cachaça quite clear."

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