Coffee buffs from Amazon to Rio Poise Brazil to top U.S.

By Lucia Kassai

Bloomberg News

March 13, 2012

Diogo Ribeiro da Luz, visiting a missionary friend in the heart of the Amazon three years ago, stepped into a banana-leaf tent to be greeted by a tribesman covered in red body paint asking if he wanted a cup of coffee.

The surprise offer from the remote rainforest tribe, where the drink was never traditionally consumed, reflects rising demand across the country, said Luz, who runs Sao Paulo-based coffee roaster Cafes Bom Retiro Ltda. Brazil may overtake the U.S. as the world’s largest consumer of the bean in two to three years, according to Marcos Pinta Gama, Brazil’s permanent representative to international organizations in London.

Accelerating economic growth has made espressos and premium-blend coffee drinks from companies such as Starbucks Corp. (SBUX) more affordable to the country’s expanding middle class. The number of coffee shops in Sao Paulo, the country’s largest city, doubled in 15 years to 25,000, Luz said, boosted by a Brazilian economy that is now the world’s sixth largest.

“Suddenly more Brazilians have access to good coffee,” Luz, 53, said in a March 5 telephone interview from company headquarters in the city of 10.4 million people. “Once you experience a good cup, it’s hard to go back to the old thing.”

Coffee futures have jumped 42 percent in the past two years as demand grows. Global consumption, which increased 2.5 percent a year on average in the last decade, will rise 1.5 percent in 2012, Roberio Silva, executive director of the International Coffee Organization, said Jan. 18.

Rising Demand

Brazil stepped back from the verge of default in 2002 to double its four-year average annual growth rates and become the sixth-largest economy in the world, pulling more than 35 million people out of poverty.

Brazilian coffee demand has doubled since 1995 and is expected to increase 3.5 percent to 20.4 million bags in the year ending Oct. 31, according to roasters association Abic. Brazilians consumed 18.9 million bags in 2010, compared with 21.8 million bags in the U.S., the London-based International Coffee Association (ICOEBRAR) said in its latest report, released March 1. A bag of coffee weighs 60 kilograms (132 pounds).

U.S. per capita consumption has declined in past decades since peaking in 1946, falling to 4.1 kilograms (9 pounds) in 2009 from a record 8.9 kilograms then, according to the latest U.S. Department of Agriculture data. In Brazil, consumption reached a record 6 kilograms per capita in 2010, up from 4.9 kilograms in 2001, the USDA said in a Nov. 10 report.

Four Generations

Luz, whose family has grown coffee for four generations in mountains north of Sao Paulo and supplies roasters such as Italy’s Illycaffe SpA, created the Bravocafe gourmet brand in 2001 to take advantage of growing consumption in cafes, bookstores, restaurants and hotels. His blend is served in about 800 venues in Sao Paulo, Rio and other cities, he said.

“I was drinking an Illy espresso in a restaurant one day and it dawned on me that if I supplied them with the beans, why not make the espresso myself,” Luz said.

Illycaffe, Italy’s second-biggest espresso blend maker, has doubled sales in Brazil in the past five years following 45 percent growth last year, Federico Di Franco, general manager for South America, said by e-mail. The company buys half of the coffee it processes from Brazil. A Sao Paulo-based outside firm representing Lavazza SpA, Italy’s top coffee company, declined to provide data about their sales.

Nestle SA (NESN), the world’s biggest food company, expects sales of its coffee products in Brazil to jump 40 percent this year, repeating 2011 growth, Ivan Zurita, chief executive officer of the company’s unit in the country, said in a March 9 interview in Sao Paulo.

‘Increasing Confidence’

Starbucks, which opened its first Brazilian store in 2006, plans to end this year with 38, up from 28 in 2010.

“We have increasing confidence in the potential for Starbucks in Brazil,” Chief Financial Officer Troy Alstead said on a Jan. 26 conference call. “We have bold ambitions.”

A drive to fight fraud at Brazilian roasters, which used to mix ground corn and coffee-bean skin into blends to boost profitability, has helped ensure quality and increase domestic consumption, Nathan Herszkowicz, executive director at Abic, said in a March 5 telephone interview from Sao Paulo.

“Fraud fighting was the engine of growth,” he said. “Brazilians are serious about their coffee.”

Tests in the 1980s showed that about 30 percent of Brazilian ground coffee contained impurities such as barley, corn, soybeans and sugar, Herszkowicz said.

Brazilian coffee output will jump to as much as a record 52.3 million bags this year as trees enter the higher-yielding half of a two-year cycle, the Ministry of Agriculture said Jan. 10. Last year, Brazil harvested 43.5 million bags. The country produces about a third of world exports.

New Trend

Before the boom in Brazilian consumption of premium coffee, all high-grade beans were exported and the remainder destined for the domestic market, said Sergio Hazan, chief executive officer of Santos, Brazil-based coffee exporter Comexim Ltda. The trend has been changing over the past 15 years as the number of coffee lovers grows in the country, he said.

“If a tribesman whose only other possessions are a hammock and a cooking pan owns a Thermos bottle for his coffee, I have no doubt this market will keep growing in Brazil,” said Luz.

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To contact the reporter on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net