Market Reports

Coffee Consumption in Brazil: A thirst for Cafezinho

Brazil is set to take over from the United States as the world's largest coffee consumer. Maja Wallengren looks at how this shift came about and the implications on global supply.','none',' In a 2001 report on the upcoming decade of coffee in Brazil, Promar International (PI) consultancy described as “overly ambitious” the Brazilian Coffee Industry Association’s (ABIC) goal to push the country’s total domestic consumption to 15 million 60-kilogram bags by 2003. “We think it will be the end of the decade before that level of consumption is reached,” the consultancy wrote. Contrary to Brazilians’ known flair for being “alegra” in life – happy and upbeat – the Promar report has already been proven uncharacteristically pessimistic. By 2010 Brazilians were gulping down close to a whopping 19 million bags of coffee. And, industry officials agree that the rapid rise is far from reaching its peak. “Every day we are seeing the number of cups consumed increasing. The ‘café da manha’, or morning coffee, is still very important to Brazilians, but today people are also drinking coffee outside the home, in bars and restaurants, at all other times of the day,” says Nathan Herszkowicz, the Executive Director of ABIC. ABIC has forecast domestic demand to surge to as much as 21 million bags as early as 2012, which would make it close in on the United States’ annual consumption, which is predicted to reach 22 million bags the same year, based on current average growth rates. “Brazilians continue to drink more coffee and a conservative estimate is that consumption in Brazil will grow at least 5 per cent per year over the next few years,” Herszkowicz tells GCR. Brazilians have historically loved their coffee. Although there are no known statistics as to how early on coffee began to be enjoyed, and how much was consumed at the time, in the South American country, what is known is that the first coffee seedlings were likely smuggled into Brazil from French Guiana in 1727 by Portuguese Naval Officer, Francisco de Melo Palheta. As the story goes, Palheta charmed his way into the bedroom of the first lady of French Guiana and left with a bouquet that included a number of coffee seedlings. After years of colonial coffee dominance in the hands of the Dutch and the French, the Portuguese were finally in the game. It wouldn’t be too long before the Brazilians dominated most parts of what makes up the coffee business. The world’s top producer, Brazil has seen average annual production steadily increase to an estimated 45 million bags this year, from around 35 million at the beginning of the millennium, up from around 25 million bags in the early 1990s. While global economic monitors have traditionally focused on how many bags are being produced in Brazil, few noticed the rise in consumption until the last five years, when growing supply problems and strong consumer demand started negatively affecting the supply-demand balance. As the 2011/12 crop year is getting started, the International Coffee Organisation (ICO) has forecast that the world market will see another year of deficit. Most of the growth in demand, that has prevented producers from catching up with rising consumption, is due to the massive growth in Brazil’s domestic consumption. “We are in a situation of shortage today because Brazil needs 20 million bags for its domestic market alone and another 30 million bags for its export obligations,” says Joaquim Libanio Leite, Export Director for the Cooxupe cooperative in Minas Gerais state, the world’s largest coffee cooperative which accounts for close to 15 per cent of the country’s total coffee crop. Consumption in Brazil reached just under 19 million bags in 2010, up 4.4 per cent from the consumption in 2009 of 18.2 million bags, according to the ICO. During the last 10 years, internal demand in Brazil has been rising at between 500,000 bags and 1 million bags a year, or an average 3.8 per cent annually. The 2010 figure compares to consumption of 13.1 million bags in 2000, while the number in 2011 is expected to end at 20.3 million bags, according to ABIC. “There has been continued growth in the local consumption and even if the share of Robusta coffee in the roasted coffee sold to the local market is higher than the ratio used in most importing countries, we can’t just use Robusta coffee alone, we need to supply at least 50 per cent of the local demand with Arabica coffee,” says Libanio, during a recent visit to the Cooxupe headquarters in the Southern Minas town of Guaxupe. After years of sustained growth, Brazil is now rapidly closing in on the US as the world’s largest consumer in overall volumes. US consumption is growing at 1.6 per cent a year, while Brazil’s is growing at 4.1 per cent a year. At that rate, Brazil will take over as the world’s largest coffee consumer in the 2015/16 crop cycle, when domestic demand is expected to reach 24 million bags compared to 23.6 million bags in the US. This would require an additional world output of over 7.3 million bags, just to satisfy demand in the two top coffee drinking nations, without including increased demand from emerging markets such as China, Russia and the former Eastern European countries. As these estimates are based on stagnant growth rates, Herszkowicz, along with many others in Brazil’s coffee industry, believes the country could surpass the US as the world’s largest coffee drinker as early as 2013. “The Brazilian economy is only starting to improve and with the timely positive expectation of the coming years of economic growth due to the vast internal markets potential, as well as the coming 2014 World Cup and 2016 Olympics, that should keep the kettle blowing,” says veteran Coffee Trader, John Wolthers. Brazil’s economic growth has been strong, measuring at 7.5 per cent in 2010 and forecast at 4 per cent for 2011. Together with the social revolution initiated by Brazil’s former President Luiz Inacio da Lula Silva, millions of Brazilians have moved up to the middle class and are in a better position to be buying cups of coffee. “Undoubtedly, the main fact is that today the population has grown considerably to 190 million inhabitants and the other important factor is that the income of Brazilians has increased significantly,” says Wolthers. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) wrote in a recent report that from 1990 to 2007 a total of 128 million people from 10 Latin American countries had moved up to the economic level categorised as middle class. “The number of middle class households and their average income grew thanks to three factors: higher GDP of countries, falling poverty and slight improvement in income distribution,” the ECLAC reported. “The aspiration of the people is to participate in this new consumer space at a level that allows them to be identified as being part of the middle class.” In Brazil, from 1990 to 2007, 28 million people reportedly moved up, allowing coffee roasters to find one of these “new consumer spaces” where the latest additions to the Brazilian middle class have shown up in force. According to the ABIC industry report for 2010, around 42 per cent of coffee consumption in 2009 was attributed to the middle class, up from 37 per cent in 2003. This represents growth of almost 14 per cent compared to the average national growth in the last 10 years of 3.8 per cent. And, thanks to the new rapidly expanding middle class, consumption outside the home rose an impressive 170 per cent between 2003 and 2008. The biggest growth sectors were in the consumption of non-traditional coffee products in Brazil such as cappuccinos up 127 per cent and espressos up by 30 per cent. Brazil’s leading consumer trend expert, Carlos Brando, who runs P&A Marketing in Brazil, says that according to the respected Sao Paulo-based Getulio Vargas Foundation, an average middle class family in Brazil today has a monthly income between US$650 and US$2700. This new middle class accounts for almost half the population, the equivalent of a potential 95 million Brazilians with enough buying power to enjoy coffee outside their homes  and buy better quality beans. “We have better quality and Brazilians have higher income today. A lot of coffee houses have opened up offering specialty coffees and coffee is still cheap compared to so many other products,” says Luiz Hafers, a veteran analyst and the current Director of the Brazilian Rural Society’s Coffee Department. The quality issue is a big thing to Brazilians, as for years the country was branded as only producing inferior beans. The introduction of the ABIC “100 per cent pure coffee” seal in 1989 helped changed perceptions, as did a US$10 million investment into consumer campaigns. “The reaction could already be felt in 1995 and 1996, when the industry started to produce higher quality, roast and ground coffee. And, when the better quality products started reaching supermarkets in 2000, that’s when we really saw the boom in consumption starting to take off,” says ABIC’s Herszkowicz. According to industry estimates, local demand in Brazil is made up of between 40 per cent and 50 per cent Robusta coffee, with Arabica making up the balance. This is actually a higher share of Robusta than the country’s roasters previously preferred, however the overall quality of the beans are far superior today. “The share of Conillon (Robusta) actually has increased in the last decade, from between 20 and 30 per cent 10 years ago to between 40 and 50 per cent today. But in the past, lower qualities were blended into the final coffee, like black and green beans,” says Wolthers. “Conillon, or Robusta coffee, can be much more neutral than, for example, fermented beans,” he says. In Italy, Wolthers points out that 50 per cent of blends is typically made up of Robusta, but Italians are still drinking what is considered good quality coffee. Another important fact is that many of the new coffee drinkers from the emerging Brazilian middle class are between 21 and 29 years of age. “School age [coffee] drinking programs have encouraged younger and younger kids to drink more coffee,” says Commodities Analyst Judith Ganes-Chase, who runs her own J. Ganes Consulting out of New York. Ganes says that efforts launched about a decade ago, such as the official government program known as “Coffee with milk at school breakfast”, have helped create a whole new generation of coffee drinkers who just now are starting to enter the statistics of those aged 15 years and above. “There have been educational programs, rising incomes, better availability of better tasting coffee and domestic roasters now competing with international roasters for better grades,” she says.
And so it would seem, that the upbeat mood in Brazil is coming from more than their daily shots of cafezinho. Robust economic growth is bringing with it an increasing number of coffee drinkers looking for the best cup of coffee their money can buy. Or, as Luiz Hafers says, consumption will continue to grow “simply because it’s a pleasure to drink good Brazilian coffee.” 

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