The Coffee Nation

By Kelly Stein

While celebrating a record harvest of 61.7 million bags last year, Brazil was crowned the biggest consuming market in the world. Domestic coffee drinkers emptied 21 million 60-kilo bags of coffee in 2018, an increase of 3%.

Setting production records year after year kept the coffee world watching for the day when Brazil’s domestic market became the world’s largest coffee consuming nation by volume. In 2018, during a biennial harvest, that prediction came to pass. The combined arabica and robusta harvest increased 37.1% compared to the previous harvest year, setting a record, according to the National Supply Company (Conab).

Arabica accounted for 47.5 million bags (growing 38.6%) while robusta/conilon production topped 14.2 million bags (an increase of 32.2%). Favorable climatic conditions in 2018 played a big part but science and technological innovations in harvest and post-harvest, and more productive varieties boosted Brazil to the highest reaches of the coffee supply chain.

Despite the huge volume, coffee expert Eduardo Carvalhaes says there is no need to be worried about oversupply. “The world needs Brazil to export an average of 35 million bags. The surplus of this production was absorbed by the domestic market, which grew exponentially last year,” explains Carvalhaes, director at Carvalhaes Coffee Brokers and president of the Coffee Sector Chamber.

Brazil’s coffee drinkers surpassed those in the US despite decades of political turmoil and economic distress. Market research provider Euromonitor International reports that “the Brazilian coffee category remains resilient, registering a 3.2% increase in total volume sales in 2017.” Coffee has 98% penetration in Brazilian households where per capita consumption is growing. The local industry was able to meet the demand, especially related to specialty coffee clients. As a result, Brazil dominates as both the biggest coffee producer and the biggest consuming market in the world.

Will Brazil stockpile or ship its crop?

The short answer is: Ship. The Council of Coffee Exporters of Brazil (Cecafé) reports coffee exports increased 14% in 2018. Exports totaled 35.2 million bags, [a tally that includes green coffee, instant coffee, roasted and ground] valued at $5.1 billion.

“Statistics show that Brazil maintained its leading position worldwide and everything indicates that in 2019 the results will be even better. Brazil has, in the structure of its coffee chain, conditions to sustain this performance, since global consumption grows at an average of 2% per year, reaching 170 million bags by 2020,” explains Cecafé’s president, Nelson Carvalhaes.

At such terribly low prices, why would producers sell their coffee? All this Brazilian bounty with record-breaking harvests hides the reality that 80% of farms are small properties (2-7 hectares).

Few people are aware that the days of the coffee barons are past. In the early 1900s, these barons controlled the nation’s wealth and heavily influenced national policy. To prevent a collapse in prices coffee-growing states, state governments at the urging of wealthy coffee dynasties, agreed to buy and stockpile coffee. Surpluses got out of hand.

“In the period 1921 to 1944, Brazil burned a total of 78 million bags of coffee in an apparent attempt to function as the dominant country in a price-leadership contest,” writes Vernon Yorgason, in The International Coffee Agreement: Prospect and Retrospect.

Carlos Brando, director and partner of coffee consulting, marketing and trading company P&A International Marketing says that today, “I don’t believe that Brazil would hold coffee because these small producers need to pay bills.”

Commodity vs. specialty exports

While the futures markets establish prices for the great volume of lower quality commodity coffee—national competitions, exotic varietals, and online auctions of unique sensorial lots enable growers to achieve a diverse and more lucrative portfolio of specialty coffee at prices many multiples higher than paid in the New York or London exchanges.

Once producers and producing countries demonstrate to the international market that great coffees are produced in their terroir, the deal is made. The big challenge for Brazilian producers and traders, however, was to prove that Brazil can produce coffee for all types of buyers: from large-scale industrial to small volume fancy coffee shop.

“It requires daily work serving buyers on both sides of the chain. We have a training program for producers who want to invest in quality and a special visit/touring schedule during harvest in order to show precious lots and terroir to our international clients,” explains Bourbon Specialty Coffee trader, Thiago Trovo in Pocos de Caldas.

Historically, Brazil was a pioneer investing in quality contests. The Alliance for Coffee Excellence-sponsored Cup of Excellence is one example of how Brazilian producers proved via blind cuppings that great lots of natural and pulped natural coffees could be found in different regions. More recently, the Brazilian Specialty Coffee Association (BSCA), partnered with ApexBrasil (Brazilian Trade and Investment Promotion Agency) to establish BSCA Micro-Region Show Case that features late-harvest lots.

According to BSCA director, Vanusia Nogueira, early entry deadlines prevented late-harvest producers from participating in many competitions. “BSCA and ApexBrasil are working to discover and introduce the world unique lots, this was a good solution to engage producers who start harvesting in mid-October here in Brazil,” she explains.

BSCA developed very different set of rules for both producer and buyers. Entries are limited to arábica and growers can submit only late-harvest lots grown at altitudes of at least 1,200 meters. These small-batch coffees must achieve a minimum of 88 point cupping score (using SCA scale).

APEX covers the cost of transportation and guided tours in Caparaó (Espirito Santo state) and Rio de Janeiro city for qualified international buyers during the seven-day event. Buyers bid in a live auction with producers’ present.

“We believe that this kind of approach will help Brazilian producers to better tell their own stories and show the world that we can produce ‘boutique’ coffees with the highest global standards of quality. This is also a way to show the world the beauty of our terroirs,” explains Felipe Croce at Fazenda Ambiental Fortaleza.

This is one of the several initiatives under the slogan ‘Brazil – The Coffee Nation’, that BSCA promotes during the year that offer professional cupping sessions and journeys to farms producing exceptional coffees.

Exports are responding positively. Cecafé announced a growth of 21.3% of higher quality coffees and/or with any special certificate of sustainable practices. A total of $1.12 billion was earned on exports of 6.2 million bags.

Coffee Surplus

The International Coffee Organization (ICO) predicts stockpiles off coffee will be short-lived. Huge crops in several producing nations made 2018/19 a bumper year for green coffee, stimulating exports and replenishing stocks at roasteries worldwide. The bounty is likely to depress prices, already at 13-year lows. Consumption is expected to soon rise to the rescue. ICO predicts demand will top the 161.9 million 60-kilo bags of 2017/18 crop due largely to increases in domestic markets where coffee is grown. Brazil, which now consumes 15% of global coffee by volume, is an example of how quickly local markets can expand, according to Euromonitor International. The market research firm lists Brazil among the five most promising coffee markets. The other four are the US, Indonesia, Germany, and Japan.