BY TIMOTHY J. CASTLE
The decaffeination business is a quiet, steady business, it seems. Not one likely to set investors’ hearts soaring, but not one, either, to give them heart attacks. Demand seems to grow and steadily, maybe within the next 10 years, the world’s current over capacity will be absorbed - that is, if no one decides to build another plant. In the meantime, decaffeinators are not looking to set any fires but rather to provide as good a decaffeinated coffee as their process technology will allow with service good enough to draw customers back.
Growth in worldwide decaf capacity will occur, almost certainly, at origin, where the costs of building decaf facilities is lower and where decaffeinators can essentially skip a step in the transportation daisy chain that makes some decaffeinators less competitive. Of course plants located on the consumption side are well poised to compete in their own backyard, or continent for that matter, but not on a worldwide basis. A plant in Colombia, on the other hand, can send its coffee anywhere Colombian coffee goes. Given the drive on the part of many nations to build plant and infrastructure which can be argued to represent development (whether it does or not), one can envision a time when each origin will have at least one of its own decaffeination facilities.
European decaffeinators, for their part, are talking, at least, about promoting their product category and perhaps increasing the demand for decaffeinated coffee on the part of consumers. This talk is occurring under the umbrella of a nascent trade organization they formed a few years ago. In North America, on the other hand, a similar group may still yet form, but no activity is as yet discernible.
At least one decaffeinator is looking at ways of using their plants to modify coffee in other ways besides just decaffeinating it. Using the same plant and equipment, in other words, to produce a different product.
Weighing on decaffeinators world wide is, of course, the record setting lows of the coffee market in general. This makes it tough for a “value-added” processor because the cost of processing, the cost of decaffeination has not gone down while the cost of green coffee has. This has made decaffeination, in many cases, more expensive than the coffee itself. Naturally this has driven roasters to ask for price concessions - a tough break for processors since the actual costs of processing, if anything, have gone up.
Decaffeination is an energy intensive process and the cost of that energy for many decaffeinators is inexorably increasing. In addition, the added costs of shipping to and from decaffeination facilities makes the decaffeinator’s cost structure vulnerable to increases in transportation costs. Further, delays in custom’s entries, exacerbated by the tragic events of 9/11, have increased the costs of financing and made the costs of “pipeline fill” for roasters vis-a-vis decaf coffee somewhat greater. All of this adds up to more pressure on the decaffeinator than is in the tank of a supercritical carbon dioxide processor, and that’s a lot.
Dr. Max Fabian, of Demus, SpA. in Trieste, Italy, had this to say about the current decaf scene, particularly in Italy, but also generalizing for the Western European and North American markets, “Here in Italy, the decaf market is slowly rising. We have started at the very low level and right now we should be around 3-4% of the total market for coffee. And it’s slightly growing, but constantly. It’s something that goes slowly upwards, but not so fast. It’s not something that you can define. It’s constantly growing, but not in a revolutionary way. We are quite satisfied with our results. Last year was our best year in our forty year history. We are now investing to renovate and raise our production and also to get better results in efficiency in our plant to reach the best product that is reachable.”
Dr. Fabian describes his efforts to broaden his offerings and better understand the chemistry of his raw material, “We did some research that was also published in the last ASIC conference proceedings. The work we are doing is on the effects we can have in the process that leads to decaffeinated coffee, but not only in decaffeination but generally in extraction of coffee to see what we can obtain and how we can get a better coffee after the process no matter if it’s decaffeinated it or not. We are studying what results we can have with our type of technology.”
Dr. Fabian summarized his view, “The basic message is that all of decaffeinated coffee is absolutely a great coffee and even might be better than the regular coffee. For example, if you have particular defects, you can extract them from the coffee and there’s no doubt on the absolute safeness on all types of decaffeinated coffee no matter how they are done. I think that consumers are getting more and more conscious (of their caffeine intake), and they are drinking decaf more and more heavily. They are both drinking decaf for health reasons and also just to drink more coffee.” Dr. Fabian sees a link to the quality of the decaffeinated product and the subsequent demand for it, “Most of the target consumer group is the segment that wants to drink more coffee but has no more capacity for caffeine.” In other words, Dr. Fabian infers, many consumers drink decaf for the good taste of a cup of coffee. If that good taste isn’t there, there really isn’t any point to the beverage. Dr. Fabian continued, “For demand to increase, for that group to consume more decaf, then you have to give them a good quality product. This is something that every producer has to keep in mind.” Dr. Fabian concluded this line of reason with Pavlovian simplicity, “If something is good they will repeat the consumption.”
Finally, Dr. Fabian laments, as any thoughtful person in the industry must, the woeful state of prices. “I think that the present moment of the market… it’s not really positive because the prices are really down and even if it doesn’t involve directly our type of activity, it’s in any case a problem for the whole coffee world and makes the coffee a poorer commodity.” Dr. Fabian concludes with a comment worthy of emphasis, “And it never was, it was always a rich commodity.” Coffee, even at this low ebb in the world market is still a rich commodity, rich in flavor, rich in appeal and rich in potential.
Jens Eckhoff, export manager for Coffein Compagnie Dr. Erich Scheele Gmbh & Co. of Bremen, Germany notes that his business is focusing more on marketing and has developed a new web site so that customers world wide can access information about Coffein Compagnie. “We are now on the Internet. We have a new web page, it’s been up for three months.” While it’s important for Eckhoff to know that world wide access is possible he is currently most focused on the U.S. market, “We are still very busy and have quite a bit of work right now to do on the export side, especially to the U.S.” Eckhoff concluded that his operation in Colombia would continue to prosper and that changes are underway there, “Our company in Colombia, DesCafeCol is undergoing some enlargement of their decaffeination capacity.”
Brent Fleming who owns Qusac Decaf, Inc. based in Montreal, Canada cites his company’s efforts to pick up some of the demand for a ‘natural’ decaf, “We are working on what would be considered a natural method,” although Fleming did not elaborate as to what, exactly, that would entail, perhaps not wanting to tip his hand. Demand must be increasing, however as he also noted that he was, “Just finishing an expansion of our facility. We’ve seen a growth for our company, although the general market is pretty level.” This does confirm what other decaffeinators suspect - that growth for one processor often does not mean that the whole pie is increasing but rather that the size of the slice for each may be shifting. “If you look at statistics the market is pretty level.” Fleming noted and then alluded to a vexing problem for all decaffeinators, an overall lack of good consumer data, “I’ve always felt it’s going to rise, but I think the numbers are slightly skewed.”
The decaffeination industry is not at an epochal point in its evolution. It is growing, slowly, according to its participants and providing a steady stream of revenue; it is healthy but not robust. In such an environment many decaffeinators are tending toward a very cautious and conservative approach to their businesses. They are looking for growth and diversification, certainly, but have been at the game long enough to know that what goes around comes around and that the category can stand only so much competition or the market for decaf itself might conceivably suffer. Decaffeinators can take heart: a conservative, steady-as-she-goes outlook, unfortunately, is something that many in the coffee industry today can only wish for. 7
Timothy J. Castle is the president of Castle Communications, a company specializing in marketing and public relations for the coffee and tea industries. He is also the co-author (with Joan Nielsen) of The Great Coffee Book, recently published by Ten Speed Press, and the author of The Perfect Cup (Perseus Books). He may be reached at (310) 479-7370 or via e-mail at: email@example.com.
Tea & Coffee - March/April 2002
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