Biggest Instant-Coffee Exporter Shuns New Sales as Drought Bites

(Bloomberg) -- Brazil's drought has gotten so bad that the country's instant-coffee makers, the world's top suppliers, are no longer entering into new export contracts amid a shortage of the robusta beans needed to make the quick brew.

Producers have stopped entering into sales commitments since September because of depleted stockpiles of the beans, according to a Abics, a group representing the nation's soluble coffee industry. Brazil is the world's No. 1 maker and exporter of instant coffee.

“Industries can only sell to clients if they're sure that they can deliver,” Aguinaldo Jose de Lima, director of institutional relations at Abics, said by telephone from Sao Paulo. “So, it means they are losing clients.”

Coffee prices have soared this year as Brazil's dry weather shrank its robusta crop to the smallest in more than a decade. The South American woes followed drought in Asian growers including Vietnam, the top producer of the bean variety. With robusta getting harder to find, more coffee roasters are using arabica beans, the smoother type favored by Starbucks Corp., tightening supplies and pushing up prices for that variety as well.

‘Being Asphyxiated'

The “soluble industry can't replace robusta with arabica as roasters do,” Lima said. “We are being asphyxiated.”

The scarcity of robusta is threatening Brazil's competitiveness in the instant industry as exports could be hampered into next year, Lima said. Adding to producers' struggles is a government rule that doesn't allow for imports of green, or unroasted, coffee.

"Our competitors in soluble, such as Colombia, Mexico, are not having trouble buying robusta from Vietnam,” said Pedro Guimaraes, the commercial director at Cia. Cacique de Cafe Soluvel, the Sao Paulo-based maker of instant coffee and other beverages. Producers in other countries are able to buy the beans for about 30 percent cheaper than what the commodity is trading for in Brazil, he said by telephone.

Brazil's domestic prices for robusta beans surged about 44 percent this year, reaching all-time highs. That nation's crop will drop to an 11-year low of 9.4 million metric tons, the government's crop agency estimates. Benchmark robusta futures traded in London have climbed in eight of the past nine months.

Reluctant Farmers

In the Brazilian countryside, farmers are reluctant to sell coffee. Their inventory levels are so low that they're worried about being able to make money through the start of next year's harvest in May, Edimilson Calegari, the general manager of grower cooperative Cooabriel, said by telephone from Sao Gabriel da Palha in Espirito Santo state.

At the instant-coffee maker Cia. Cacique, Guimaraes estimates that the company only has enough supply to fulfill the contracts it's already signed that run through December. The producer isn't entering into any new contracts to sell starting from January, he said.

“Even agreeing to pay expensive prices, the industry can't purchase a reasonable volume of beans,” Guimaraes said. “We will probably extend the mandatory vacation of employees, usually in the last 10 days of December, until January 20”

To contact the reporter on this story: Fabiana Batista in Sao Paulo at fbatista6@bloomberg.net. To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Millie Munshi