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HomeArchiveCafé Producers Eye Huge Prize – China

Café Producers Eye Huge Prize – China

As Costa Rica prepares to negotiate a free-trade treaty with Beijing, Tico coffee producers are eyeing China’s swelling urban middle class.

Representatives from six coffee companies visited China during the past year to display their products at fairs organized by the Foreign Trade Promotion Office (PROCOMER).

At least three are now negotiating with Chinese buyers.

“It’s a new market, and it’s a relatively small market, but it has enormous potential,” said Adrián Hernández, who sits on the board of directors at the state-run Coffee Institute of Costa Rica (ICAFE).

Negotiations on a free-trade agreement will begin Jan. 19 and may not end until late 2010, but public agencies that promote Costa Rican products are already calling attention to the potentially huge market.

“Gourmet coffee could play a starring role in the Chinese market,” said Alvaro Piedra, head of international marketing at PROCOMER.

Advocates say the numbers are in Costa Rica’s favor. If just a tiny fraction of China’s 1.3 billion consumers warm to Costa Rican coffee, exporters will reap big profits. Still, as a slowing economy squeezes China’s middle class, consumers may hesitate to spring for pricey, gourmet Tico joe.

“It would be really risky right now to make a big investment,” said Pablo Vargas, general manager of Café Britt, Costa Rica’s biggest exporter of roasted coffee.

Coffee is Costa Rica’s seventh-biggest export, but just 0.1 percent of coffee exports, or 66 tons, went to China last year. China now slaps a 15 percent tariff on roasted Tico coffee and an 8 percent tariff on green, although a free-trade agreement could reduce the barriers.

Encouraged by the state, some producers and exporters are cautiously forging ahead. PROCOMER’s most recent fair, titled Costa Rica Dorada, was designed to promote Tico coffee, and four of the six featured firms were manned by coffee cooperatives or marketers.

Sigrid Guth, who has partnered with the coffee production company Don Mayo, is now sending price estimates to the Chinese buyers she met at Costa Rica Dorada.

Natalia Jiménez, president of the year-old coffee firm In Depth, said she expects to sign a contract in the coming months with the Chinese restaurant business Catering Services Ltd.

The coffee company Navcafé met with 500 interested buyers at a PROCOMER fair in May, and trading manager Francisco Castro is now talking prices and volumes with a roaster and two distributors.

These managers say they understand the risks the Chinese market presents. While coffee sales have surged over the past decade, they still pale in comparison to Western nations. Per-person spending on coffee was just 20 cents in China last year, compared to $22.70 in the United States, according to a PROCOMER report. Tea represented nearly 94 percent of China’s hot drink market in 2006, while coffee represented just 5 percent.

For those eager to sell to China, Café Britt offers a cautionary tale. In 2004, Café Britt partnered with a Chinese businessman to open a coffee shop in Beijing. The company published a catalog in Chinese and sold roasted coffee to hotels and supermarkets.

“We made the push, and we were pretty serious,” said Steve Aronson, Café Britt founder and president. “Then we saw that it wasn’t working, and we had other priorities.”

Aronson said his business partner owes him money. He does not know if the coffee shop is still open, or if the catalog is still being distributed, he said. Café Britt still exports about 15 tons of coffee to China a year, but the company is not looking to expand there now, said general manager Pablo Vargas.

“The Chinese market is a price market. It buys the cheapest stuff, and Costa Rica needs specialty markets,” Aronson said. “We need people to buy coffee because it’s cool, because it’s organic, because it’s gourmet.” A 12 oz bag of Britt Coffee goes for $10 in China, compared to $4 to $6 here, Aronson said.

When Jorge Luis Vindas, sales manager at the coffee cooperative Coope El Dos, visited China in October, he was bombarded with questions. How do we market an organic product? buyers asked. What is fair trade?

Even consumers who appreciate such labels may be unlikely to splurge for Tico coffee as an economic slowdown pinches pockets, said Judy Ganes, a coffee industry consultant based in New York. China’s economic growth is expected to be 7.5 percent next year, down from 9.4 percent this year, according to the World Bank.

The greatest challenge, coffee producers say, is to convince Chinese consumers that Tico coffee is worth the extra yuan.

In late October, the National Coffee Institute organized a two-week trip to China to promote Tico coffee. Ricardo Azofeifa, the institute’s barista, held tasting sessions at two coffee shops in downtown Beijing. Using winners of the annual “Cup of Excellence” coffee competition, he whipped up espressos, cappuccinos and chilled drinks for customers at Oueben Coffee and Green Grin Coffee.

The ICAFE team also visited coffee plantations in Yunnan Province and gave a workshop on Tico coffee at a new center for baristas in Hunan Province.

Foreign Trade Minister Marco Vinicio Ruiz said Costa Rica would “give coffee a starring role” at Expo 2010 Shanghai, a presentation of products from around the world.

While green coffee now represents nearly 99 percent of Tico coffee exports, producers are looking to sell roasted coffee to China to make a heftier profit. A kilogram of roasted coffee from the U.S. sold in China for nearly five times as much as green coffee from Vietnam last year, according to the PROCOMER report.

Losses in the Chinese market could reach thousands or even millions of dollars, said Aronson, who sunk $150,000 into China before turning his attention to other markets. But the profits could be great, too.

If 25 million consumers – less than 2 percent of China’s population – began drinking coffee at one-third the level of the average Tico, the demand would eat up Costa Rica’s entire coffee crop, Aronson said.

“If you hit a niche in China, you hit the jackpot,” he said.



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