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from the Front Lines

Cargill Inc., the largest North American exporter of cereals announced their decision to close their worldwide Coffee Division. In a press statement the company advised that after a thorough analysis of their coffee business it was concluded that the resources involved should be directed to more profitable areas of operations.

Cargill has been active in the coffee market for over 17 years with commercial operations in all the major producing countries including Brazil, Colombia, Guatemala, Mexico, and India. Trading operations were controlled through their headquarters in Switzerland with representatives and sales offices in all the principal consuming markets. It was reported that the Brazil company had an average annual coffee movement or about 1.2 million bags and total sales (all commodities of about US$2.9 billion or about 5% of Cargill sales worldwide).

It was also announced that ECOM Agroindustrial Corporation, the Swiss/Spanish holding company of the commodity branches of Esteve S.A. had negotiated the acquisition of the Coffee Division of Cargill Inc., as well as their unshipped coffee commitments. Esteve and Cargill in recent years have been among the top ten exporters of Brazilian green coffee. With the Cargill purchase, ECOM will become the third largest coffee trading firm after the Neumann Gruppe AG of Germany and Volcafe S.A. of Switzerland.

Like Cargill, Pully, Switzerland-based ECOM, is one of the largest closed capital companies. - Harry C. Jones

Vietnam is ready to take Colombia’s place as the world's second largest coffee producer, as reported by London’s The Financial Times recently. Latest estimates suggest output for the 1999/2000 season, ending in September, could total 9.8m 60kg bags or 590,000 tons, according to Commodityexpert, the online coffee research group. Colombia's production for 1999/2000 is projected at 9m bags, but some estimates have put it at 10m bags.

"One of the problems in assessing Vietnam is that it doesn't have a central body that publishes statistics. But the four of five bodies that release figures keep revising their estimates upwards," said Andrea Thompson at Commodityexpert. Even lower estimates from the Vietnam Coffee and Cocoa Association puts exports between October and May at 490,000 tons, and the country is likely to export at least another 15, 000 tons a month for the rest of the coffee year, added Thompson.

Vietnam's coffee farmers have upped up production sharply during the past few years, and it has already overtaken Indonesia as the world's third largest producer and biggest Robusta grower. Falling Robusta prices have cut farmers’ incomes in the past 18 months, but their production costs are still low, averaging 32 cents a kilogram against $2.86 in Colombia. Early estimates for next year's crop suggest Vietnam will set another domestic record.

Meanwhile, the U.S. Department of Agriculture has released its latest estimate of world coffee production for 2000/2001. USDA puts total world production at a record 108.7m bags, almost 2% higher than the 1999/2000 season and slightly up on the previous record set in 1998/1999.

Copersucar and Sara Lee Under Negotiations
US-based Sara Lee is negotiating with Copersucar-Uniao for roasted and ground coffee operations of its Cafe Pilao and Caboclo brands reported Gazeta Mercantil recently. The Cafe Uniao coffee brand was also leased to Sara Lee for a period of 10 years.

Copersucar-Uniao and Sara Lee also signed an operational accord, in which the former will focus on distribution and the latter, on retail sales. If the deal is finalized, Sara Lee, which already owns the Cafe do Ponto and Cafe Seleto brands, will hold approximately 21% of the Brazilian market, which generates some R$2.8 billion per year. The value of the deal has not yet been revealed.

Coopersucar-Uniao’s transaction with Sara Lee only includes Cafe Pilao-Caboclo Ltda., which represents 16% of the former’s R$3 billion in total revenue.

SYRACUSE, NEW YORK - Freedom of Expresso is a coffee shop who recently got caught up in a lawsuit with Federal Express. First it was known as Federal Espresso, then Ex-Federal Espresso, but the owners had to change the name a third time to satisfy shipping giant Federal Express' copyright infringement claims.

In 1997, the Memphis, Tennessee-based FedEx filed a lawsuit against the coffee bar's owners in U.S. District Court in Syracuse. Co-owner Anna Dobbs and business partner David Ruston have left a sign that reads "Formerly know as Ex-Federal Espresso." Under the settlement agreement, the shop can keep that sign up for 60 days said the shop's lawyer, Joseph Heath.

Dobbs and Ruston are bound by the settlement not to discuss the terms. A FedEx lawyer also would not discuss the terms.

Pakistan Pays Price for Good Cup of Tea
Pakistan, officially a country of teetotallers with an Islamic ban on alcohol, has become one of the highest per capita consumers of tea in south Asia reported The Financial Times recently. ocal tea importers speculate that this is due to a limited choice of beverages. On average, each Pakistani consumes about a kilo of tea a year, making approximately 140m kg of tea for a population of about 140m.

For years, leading parties have highlighted the importance of becoming self-sufficient in growing and manufacturing tea to reduce the annual tea import bill, which this year could be more than $200m. But those efforts have failed, as Pakistan not only relies largely on imported tea but consumers increasingly want better quality.

There is also a time-delay between finding the right type of environment conditions suited to growing tea, such as in northern Pakistan where most experiments have been carried out, and finding entrepreneurs willing to invest in tea- processing facilities.

Pakistan's agricultural research scientists believe the country's first tea-processing plant may go into operation by the middle of next year. But its annual capacity to process about 365,000 kg, or 1,000 kg a day. of tea would be a fraction of the country's demand.

Entrepreneurs in the tea business are skeptical about making the country self- sufficient in the production and processing of tea in the next five years, which is understood to be the target given to agricultural officials.

Hanif Janoo, president of Pakistan's Tea Association, which represents tea importers, says: " We need investments of Rs15bn- Rs20bn ($287m- $383m) in the next 10 years to go into large- scale production and for that we need private investors.

"The experiments to grow tea in the northern Pakistan have been very successful, but growing tea as an experiment and turning it into a viable commercial proposition are different issues."

Mr. Janoo says new investors would need to see an improvement in Pakistan's present uncertain environment, driven by its political and economic problems.

Large-scale investment in tea processing would require assurances of continuity in economic policies for the next five to ten years to make such an investment viable for an investor.

The one consolation for regular tea importers has been a substantial fall in the quantity of tea smuggled into Pakistan since 1998, when the government cut by almost half the import duty on tea.

The Pakistan Tea Association says that roughly 10-15 per cent of the tea consumed annually in Pakistan is smuggled, down from about 25 per cent three years ago.

Meanwhile, Mr. Janoo does not hide his concern that Pakistani consumers have shown an increasing tendency over the years to choose better quality tea that is more expensive and adds to a higher import bill.

KNA Farooqui, a leading tea importer, adds: " Drinking tea has become more sophisticated, Pakistanis used to like third- class tea, but now they want first- class tea."

Mr. Farooqui says that while the changing trend could bode well for high- grade international tea exports to Pakistan, the country must brace itself to continue to pay more for its choice.

That is especially an issue as consumption of other drinks remains either prohibited, such as alcohol, or prohibitive due to cost, such as cold drinks.

Brazil will question the European Union (EU) at the World Trade Organization (WTO), due to discrimination against Brazilian instant coffee exports, reported The Gazeta Mercantil recently. The EU charges a 9% tax on the Brazilian product, while coffee-producing nations, such as Colombia, Bolivia, and Ecuador receive a total exemption as an incentive to combat drug trafficking.

A team of lawyers for the law firm O'Melveny & Meyers in Washington D.C., hired by the Brazilian Instant Coffee association (ABICS), arrived in Geneva last week for talks, but the final decision to reopen the WTO dispute will be taken by the federal government.

Brazilian instant coffee exports have declined 37% from 1991 through 1998 while foreign sales jumped 79%. Brazilian instant coffee exports reached $224 million in 1999, but only $28.7 million went to the EU.

Exporters Warn Over Coffee Plan Delay
Brazil’s coffee exporters have warned that the delays and uncertainties in the implementation of the country’s coffee retention program could damage relations with consumers, reported London’s The Financial Times recently.

“We are concerned about the delays. Shipments are paralyzed here,” said Jorge Esteve, head of the Brazil Coffee Exporters Association. As of June it was not clear when the government would make available the R$300m ($165m) earmarked to finance retention.

The government has not granted export licenses since June 15 and brokers are complaining that they risk losing foreign customers. “ I have to explain to them that I am not allowed to sell right now,” one broker said.

In order to obtain export licenses, producers have to deposit 20% of the shipment in one of 13 government warehouses. Yet with financing delayed, they have been unable to do so, Mr. Esteve said, adding that the government had also rejected making additional warehouses available.

Some exporters rushed to dispatch their shipment before an on the licenses. This means exports could increase in June to about 1.3m 60kg bags (from 1.1m to 1.2m in recent months). Analysts say is still lower than the usual 1.5 or 1.6 bags shipped a month at this time of year.

Discontent among exporters comes on top of wider skepticism in Brazil’s coffee industry over the success of the programme.

Other observers said the delays were “normal” in any new progamme.

Tea & Coffee - August/September 2000

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