For most of us, an important aspect of our morning ritual is getting a cup of coffee. So I decided to take a look at this quintessential aspect of our daily lives. About one third of all coffee in the world comes from Brazil, making this BRIC BLOC Country by far the world’s largest coffee producer and exporter. Brazil has held this position for the last 150 years. Coffee plantations, covering some 10,000 square miles, are mainly located in the southeastern states of Minas Gerais, São Paulo and Paraná where the environment and climate provide ideal growing conditions.
The crop first arrived in Brazil in the 18th century and the country had become the dominant producer by the 1840’s. Coffee is not native to the Americas and had to be planted in the country. According to historian Boris Faust in his book “A Concise History of Brazil” The first coffee bush in Brazil was planted by Francisco de Melo Palheta in the state of Pará in 1727. According to the legend, the Portuguese was looking to capitalize from the coffee market, but could not obtain seeds from bordering French Guiana due to the governor’s unwillingness to export the seeds. Palheta was sent to French Guiana on a diplomatic mission, and on his way back home, he managed to smuggle the seeds into Brazil by seducing the governor’s wife.
By the 1920’s, Brazil monopolized the international coffee market and supplied 80% of the world’s coffee. Since the 1950’s, the country’s market share steadily declined due to increased global production. Despite a falling share and attempts by the Brazilian government to decrease the export sector’s dependency on a single crop, coffee still accounted for 60% of Brazil’s total exports as late as 1960, and remains a sizable portion of Brazil exports today.
Brazil’s processing industry is divided in two distinct groups, ground/roasted coffee and instant coffee. The ground/roasted coffee market is highly competitive. In contrast, the instant coffee market is highly concentrated with four major firms accounting for 75% of the market. Brazil is the world’s largest exporter of instant coffee, with instant coffee constituting 10 – 20% of total coffee exports. Both types of coffee are mainly exported to the US.
Coffee remains an important export, although its importance has declined in the last 50 years. Coffee exports as a percentage of total exports was over 50% between the 1850’s and 1960’s, peaking in 1950 with 63.9%. The percentage began to decline in the 1960’s when other export-heavy sectors expanded. In 1980, coffee export was down to 12.3% of the total, and by 2006 accounted for only to 2.5%.
There are no taxes on coffee exports from Brazil, but importing green and roasted coffee into the country is taxed by 10% and soluble coffee by 16%. Unprocessed coffee can be exported duty-free into the three largest markets: the United States, the European Union and Japan, but processed coffee such as roasted beans, instant coffee and decaffeinated coffee is taxed 7.5% into the EU and 10% into Japan. Exports to the United States are tariff-free.
According to the Brazilian Coffee Exporters Council or Ce Cafe after a steep reduction in exports due to excessive rains in 2012, Brazilian coffee exports rose significantly in 2013. According to an article that appeared in The Wall Street Journal, Brazilian farmers exported 31.2 million 60-kilogram (132-pound) bags of the beans in 2013, an increase of 10.2% from 2012. In December, coffee exports fell 4.5% from a year earlier to 2.8 million bags.”
Brazil is the world’s largest coffee producer and exporter, and the size of its annual harvest can have a strong effect on world prices. Coffee exports generated $5.15 billion in revenue for Brazil in 2013, a decline from $6.36 billion in 2012, when the price of coffee was higher. Brazil will export between 32 million and 33 million bags of beans in 2014 as estimated by CeCafe.
Where does all these coffee go and who consumes it? Brazil itself is the second largest consumer of coffee, followed by Germany, according to the International Coffee Organization in London. A significant portion of Brazil’s coffee export will come to the US, the world largest coffee consumer. According to the National Coffee Association’s 2013 survey, about 83 percent of adults drink coffee in the U.S., up from 78 percent a year earlier.
How much longer will the US hold on to this title? Where do the prices of coffee go from here? Starbucks recently put in motion its strategy to blanket China with Starbucks shops. What will happen to the prices of coffee as the most populist country in the world slowly but surely replaces its tea consumption with coffee remains to be seen.