Of course, I also wanted to catch up with our very good friends Bourbon Specialty Coffee (BSC) in Poços de Caldas and also Raymond Rebetez from Astro Lambari, another estate group with whom we have been working for many years.
The size of next Brazil crop is very much in the news – perhaps of more importance to the commodity market but, nevertheless, very important to the pricing of coffee overall – both specialty and commodity prices will be governed in part by the supply/demand equation of which Brazil production forms such a key part.
It might be useful to re-visit an important but overlooked feature of Brazil, still widely misunderstood by many coffee roasters. Historically, the more traditional coffee importers (or ‘brokers’) would offer coffee roasters so-called ‘Santos’ coffee, a catch-all commodity phrase describing basic common-quality Brazil. This product is cheap, abundant, and something of a benchmark for the industrial coffee industry. The irony is that many small and medium-sized coffee roasters buy this common commodity grade ‘Santos’ mimicking the habits of the commodity industry, while affordable quality alternatives are easily available, if you know where to look (www.coffeehunter.com is a good place to start!)
But what is ‘Santos’? And what else does Brazil produce that is much better? Why is some Brazil coffee the cheapest Arabica coffee available, while other lots are amongst the most expensive?
The majority of Brazil’s coffee grows at or below 1000m, so for a start we can say the bulk of Brazil’s coffee is not particularly high-grown (altitude being one of many important attributes for fine coffee production). Yet all of the Brazil Specialty Coffee Association (BSCA) farms that Mercanta works with produce coffee at some of the highest altitudes in Brazil (in fact, up to 1300m). The key difference, however, is harvest, sorting and processing protocols.
Coffee is a fruit, it grows on bushes and it certainly does not typically all ripen at the same time. Each tree and branch contains fruit which is ripe, over-ripe, and green/under-ripe. However, unlike Central America, Colombia, Peru, Bolivia and many other coffee-producing origins, coffee in Brazil is invariably strip-picked (where all the fruit along a branch is picked at once) then put on simple concrete or earth patios to dry in the sun (hence the ‘natural’ description). This sun-dried fruit (known in Brazil as ‘coco’) is all mixed together (ripe, over-ripe and under-ripe) then sold to local middlemen who blend together many such lots bought from all over Brazil. These middlemen then have the coffee milled for export. The moniker ‘Santos’ was adopted as this is the port than exports much of this common grade of coffee.
So, simply put, ‘Santos’ is a commercial/industrial poorly-sorted mix of ripe, under-ripe and over-ripe cherries and accounts for the vast majority of Brazil’s exports by volume. This cheap industrial blender became the benchmark for Brazil ‘quality’.
However, by the early 1990’s, organisations like the Brazil Specialty Coffee Association (BSCA) drew together some of the finest farms in Brazil, and amongst these farms the process is entirely different. The farms are subject to a quality, ethics and environment audit unequalled anywhere in the coffee-producing world. Please visit www.bsca.com.br for more details.
At these high-quality Brazil farms, after strip-picking, beans are sorted by density to separate out over-ripes (sent to the patios for sun drying), perfectly ripe (often processed using the ‘pulped’ method) and under-ripes (green) also sun dried for sale on the internal market. All this selection and processing takes time, money, expertise and a lot of investment and this means that very few growers are prepared to expend the time and energy to prepare the coffee to ‘specialty grade’ standards. And even if the grower were to make this extra effort and investment, it could only be rewarded by offering the coffee at a premium prices and supposing that there were access to a market to potential buyers.
So our best advice remains ‘buy what you like, but know what you are buying’.
Brazil produces about 40 million bags of coffee each year (more on this later) so, even if only 2-3% is processed to ‘specialty’ standards, that’s still a lot of coffee! Demand and discernment amongst roasters is certainly growing and Brazil has no lack of potential to produce much more specialty grade coffee if premium prices and demand is forthcoming.
Since buying one lot of Brazil Cup of Excellence® in the very first auction in 1999, Mercanta’s business in Brazil has boomed, including an arrangement with the Brazil Specialty Coffee Association (BSCA) in the early 2000’s to represent this pre-eminent growers’ organisation in Europe. We now count more than 25 product lines of specialty grade Brazil in our product range (including more than six 100% Bourbon varietals).
Mercanta will continually expand our offering to include new farms discovered on this recent trip in the very best Coffeehunter traditions. Our friends at the Lambari Group (comprising Lambari, Breijoes, Irarema, Rancho Grande farms) have joined forces with Ipanema Group to mill, market and export from one facility (namely, Ipanema) creating a brand of a host of superb farms – very much in the same style as the Bourbon Specialty Coffees (BSC) group which offers a stable of more than 25 farms and which also holds the title of the biggest exporter of organic certified coffees in Brazil.
So, why is the size of the Brazil crop so important?
Brazil is the world’s biggest producer of coffee and the size of the crop varies considerably each year. This season (June07-May08), the Brazil crop was very small leading to higher prices for Brazil coffees and also higher commodity market prices as global supply and demand remained closely balanced. The new crop (June08-May09) is the big question. Following a severe lack of rainfall in key growing areas in August and September 2007, many doubts were cast about the size of the 2008 crop. However, my personal on-site view of 15 farms around Poços de Caldas would indicate an abundant crop for 2008 if the farms that I saw prove representative of the (enormous) Brazil growing areas as a whole. The lack of rainfall certainly damaged young and immature trees and new plantings, but older established plants have bounced back and the trees that I saw were positively laden with fruit.
My field research is not scientific, of course, and my crude estimations based on only a small sample of geographically close farms. But between my own observations and plenty of discussions with local experts I will hazard an estimate that the 2008/09 crop is much closer to 50m bags than the 44-45m bags widely touted.
This essentially means that the global supply / demand balance for the next crop cycle is in excess supply by more than is widely assumed, in my personal opinion. I really don’t know what this means for the commodity price other than to say I feel that, on balance of probabilities, the commodity coffee price may fall. The commodity price of coffee is about much more than simple supply and demand and is affected by many other factors (speculators, climatic disasters, local disasters, consuming country inventories, etc.) but there is enough supply for the foreseeable future. For some time now, the price of specialty beans has been de-coupled from the commodity market, and here we see steadily rising demand and steadily rising prices. Many of the better farms (such as Fazenda Cachoeira da Grama) have become brands in their own right, fetching prices at substantial premiums to the commodity price.
Some roaster customers have been alarmed at the rise in prices of their favourite farms, but if the commodity price underneath the market is rising (there has been a commodity coffee price increase of 35% in the past few months) and the premium gained for the best specialty grade coffees is rising on top of that price, then the result is an explosive mixture. Only our good long-term relationships with many farms has allowed Mercanta continued ‘first refusal’ at many top farms. The simple fact is that the top Asian roasters will often pay far more for the best lots than roasters in Europe and North America (Cup of Excellence® is a public example of the proof of this phenomenon).
Also, if fine quality coffees (rating 84+ on a comparative scale) regularly trade at $6-$10/lb at auction, why should fine quality non-Cup of Excellence® lots (also rating 84+) be so much cheaper? The definition of ‘expensive’ will have to be re-examined in future years, as we are certain that the price of the best farms products will continue to increase.
On the other side of lower prices, we have to consider many relatively new phenomenon which work to support prices.
- The US$ is so weak that sales revenue (usually priced in US$) yield very little local currency. Thus, the production cost in Brazil (even at efficient farms) is very high. I saw a news report while I was in Brazil that (legal and illegal) immigrants to the USA were coming home since their remittances from working in the USA were simply proving too little.
- Coffee growers in Brazil are generally well-financed so there is no urgency for many to sell their crops. Strangely (for people in the specialty coffee industry), it is commonplace that many Brazil growers and millers retain coffee in parchment often for years as a sort of investment, speculating that the price will rise and/or the currency will change.
- Internal consumption in Brazil is increasing dramatically and may even have reached around 17m bags last year. As I have been saying for years, Brazil will overtake the USA as the world’s biggest coffee consumer in the near future.
- Crop diversion into sugar for bio-fuels – I did not hear much evidence of this happening with existing coffee farms but it will probably apply to new plantations where owners will opt for sugarcane or other bio-fuels instead of new coffee plantings. Note that the price of sugar alcohol (used to power many vehicles) at petrol stations in Brazil is 50% of the price of petrol.
- Mercanta, in partnership with Bourbon Specialty Coffee (BSC), has started some experimental shipments of vacuum packed cartons (4×7.5kg = 30kg per carton). Initial results are very promising. We hope to offer a wide range of coffee in vacuum packed cartons in future, wherever this is possible.
The new crop season in Brazil will begin to be harvested in May followed by the first shipments in Sept/Oct. We will start to see the first new crop arrivals in Oct/Nov.
I also had the chance to catch up with Henrique Sloper from the extraordinary Camocim organic and biodynamic farm in Espírito Santo. Henrique reported another new phenomenon. This might be as a result of climate change and/or the unique biodynamic practices at Camocim. What is happening is that Camocim harvesting is taking place for half of the entire year from April right through to November. This cycle is more similar to coffee-producing origins located close to the equator such as Colombia, Kenya, Rwanda and Sumatra.
But besides the overdue opportunity to catch up with my many friends and business partners in Brazil, this trip yielded an important insight into the next crop for many of the key farms with whom Mercanta has now been working for more than a decade in some cases.
Here is a brief summary…
The crop in South Minas looks bountiful and the trees are in superb condition. All things being equal, we will be in for a treat of quality for the new 2008/2009 crop.
The Brazil Specialty Coffee Association (BSCA) remains the pre-eminent producer organisation for fine quality coffee not just in Brazil, but in the coffee-producing world.
While speculators and weekly news issues will mean that the commodity coffee price remains volatile, there is ‘enough’ coffee in the next crop cycle to supply growing demand and prices will eventually reflect this fact.
Coffee consumption in Brazil is booming. Many of our suppliers are also roasters in the local Brazil market, where this increasing demand means that many are roasting much more specialty grade coffee than many of our own customers. In other words, local demand is also a feature in the supply/demand equation for the top lots.
Quality and consistency continues to improve at Brazil’s best farms, many of whom are Brazil Specialty Coffee Association members.
Mercanta will continue to be ‘first stop’ for specialty roasters seeking an extensive selection of the best beans from the best farms in Brazil, including increasing numbers of single estate single varietal products as well as innovations such as vacuum packing carton shipments.