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The Coffee Market in Brazil: challenges and policy guidelines

Article · July 2019

DOI: 10.5380/re.v39i69.67891

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Carlos Eduardo Caldarelli Leandro Gilio

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 The Coffee Market in Brazil: challenges and policy guidelines1

Carlos Eduardo Caldarelli

Leandro Gilio*
David Zilberman**

Resumo: Este estudo tem por objetivo analisar o mercado de café no Brasil pós-
1990 (desregulamentação), destacando os principais desafios que essa cadeia
produtiva tem enfrentado. Avalia-se a posição competitiva brasileira no mercado
global de café frente a seus principais concorrentes e destacam-se algumas
políticas que podem contribuir para o avanço desse mercado, tais como
tecnologia, certificação, controle geográfico e melhorias de qualidade e
marketing do produto.
Palavras-chave: Coffee; Value chains; Brazil

Abstract: This paper aims to analyze the coffee market in Brazil post-1990
(deregulation) highlighting the main challenges in this agrichain. We’ve
evaluated the Brazilian competitiveness position of this crop towards the most
important competitors in the global market and then we’ve drafted some policy
guidelines to enhance the Brazilian competitiveness, such as technology,
certification, geographical indication, traceability and Brazilian coffee quality
and marketing strengthen.
Keywords: Café; Cadeias de valor; Brasil
JEL Code: Q02; L11; Q11; Q13

1. Introduction
Currently, Brazil is the most important player in the coffee market
worldwide with the world’s largest production of coffee and controlling more
than 30% of the international production (USDA, 2018). According to the
Brazilian National Supply Company (CONAB, 2017) the coffee production in
the harvest of 2016 was 3,082 Mt – about 2,602.8 Mt of arabica coffee and
479.22 Mt of robusta coffee. This was an increase of 18.8% compared to the
previous cycle, which was a historical record and affirmed Brazil as a top player
1 This research was supported by Fundação Araucária de Apoio ao Desenvolvimento Científico do Paraná
– Brazil and the U.C Berkeley’s Department of Agricultural and Resource Economics. We thank Ryan
Olver for his advices and Austin Gregory Olah for the review of the paper.

Universidade Estadual de Londrina - UEL

Universidade de São Paulo, Escola Superior de Agricultura “Luiz de Queiroz” – USP/ESALQ.

Universidade da Califórnia, Berkeley – UC Berkeley.

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in the global coffee market; coffee production has grown 100% in volume over
the past 30 years in the world.
The foreign trade figure corroborates the importance of the Brazilian
coffee industry for the world. The data from International Coffee Organization –
ICO (2018), shows that the country's share in total exports of all exporting
countries was about 29% for the year of 2016, affirming Brazil as the largest
exporter in the world.
Another important aspect is the regional distribution of the coffee industry
in Brazil, which comprises fifteen Brazilian states. The production is spatially
spread throughout 2.2 million of hectares, 287 thousands of growers, in 1,900
municipalities in Brazil, mainly in mini and small farms. Minas Gerais, Espírito
Santo, São Paulo, Paraná and Rio de Janeiro states are the largest and
approximately 85.86% of the total production in the country. The product
remains as one of the most valuable commodities of the country, and the
competitiveness is primarily due to low production costs of labor, land, and water
(CONAB, 2017; MAPA, 2018).
Several changes have impacted the global agricultural value chain over the
last decades, such as the increasing importance of retail and its effects on
developing countries, in addition to the liberalization of some markets. These
changes have had large effects on the structure of the global coffee value chain
and its actors (MINTEN et al., 2019). Indeed, due to the influence of
international competition and the growth of the demand of special coffees
worldwide, the coffee industry in Brazil is undergoing a rapid transformation.
The consumption expanded not only in such traditional markets as the US,
Germany and France, but also in tea-driven markets, such as Japan, South Korea
and China. However, despite the Brazil’s importance in the world coffee market
and its competitive position, the industry is still based on high quantitative
targets, and therefore the country’s production is labeled as bad quality coffee
(ALMEIDA; ZILBERSZTAJN, 2017; ICO, 2018).
In Brazil, the population is much resistant to leaving their day-to-day
black coffee behind. Even the machine coffee finds some resistance from
Brazilians, and the massive majority of domestic consumers do not care about the
type of coffee that they are drinking as long as it’s strong and black. The
domestic market absorbs about 40% of the total production, and the niche market
of expensive high-quality coffees is growing in some parts of the country, which

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is revealing a potentially promising area for growth where several companies are
already investing and succeeding (ABIC, 2017).
The gourmet/special coffee market is concentrated in the largest cities of
the country, and it is mainly fed by multinational franchise coffee machine sellers
that managed to well-advertise their products to the point of creating a new
culture of coffee in Brazil, but still with restricted range to a specific consumer
profile (ABIC, 2017; CECAFE, 2017). Furthermore, the area of certified coffee,
which has strict sustainability standards worldwide, has grown in some exporting
countries like Colombia, Kenya, and Ethiopia in order to access preferential
prices among buyers and sellers, but not in Brazil (HAGGAR et al., 2017).
Therefore, it is important to better understand the dynamics of this market in
Brazil by evaluating the prevalent challenges and opportunities.
The article aims to analyze the Brazilian coffee market evolution post-
1990 (deregulation), evaluating the new dynamics of the supply chain and the
transformation of demand, specifically, the growth of the demand for special
coffees, certified and gourmet coffees discussing the transformation caused by
the expansion of the global coffee chains market and its impacts for Brazil.

2. A Brief Story of Coffee in Brazil

The coffee market expansion in Brazil was a crucial factor of the
capitalistic transformation in 19th century of the Brazilian economy, and
subsequently was an essential part of the history in the country (FURTADO,
2007; FONT, 1987).
The species coffea was introduced in Brazil around 1727 in the North
region of the country (Belém do Pará) and came from French Guiana. The
integration of coffee in Brazil accelerated economic growth around 1825 in the
Southwest, mainly Rio de Janeiro, Minas Gerais, São Paulo, and Espírito Santo
State. In the second half of 19th century, coffee became the most exported
commodity from Brazil. The money earned from coffee exports was essential
capital that has altered the country’s society, economy, and culture (FURTADO,
2007).
During the initial expansion of the crop, the coffee cultivation process
used slave labor, and in the first half of 19th century alone almost 1.5 million
slaves were imported from Africa. This process changed drastically in 1850
when the slave trade was abolished (Eusébio de Queirós) and in 1888, with

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slavery now prohibited in Brazil during the greatest expansion of the Brazilian
coffee crop, production and exports nearly collapsed. Indeed, the immigrants had
a pivotal role, primarily the Italians, Germans and Japanese, who reinforced a
capitalist transition to a market economy based on wage labor. The wage workers
had accelerated the country’s urbanization and have increased the internal
market, which led to the growth of the national industry in Brazil (PRADO JR,
2011; FONT, 1987).
Different stages have characterized the coffee crop and market in Brazil
throughout the 19th and 20th centuries. The introduction of coffee as an economic
activity in Brazil occurred between 1727 and 1800, with the first export in 1779.
During the period of 1800-1870, there was marked acceleration in the growth of
coffee production and exportation; this period comprises the apogee of the
culture in Brazil. In the last quarter of the 19th century, a production crisis and
lower price level characterized the coffee market in Brazil and the beginning of a
crisis for the production of coffee (FONT, 1987).
Figure 1 shows the evolution of the coffee production in Brazil throughout
the 20th century. In the early 1900’s, there was a slowdown that could be
described as period of crisis, overproduction, and low price levels. However,
despite the crisis period, exports of coffee have still been relevant for the
Brazilian economy. Since the early 1900’s its producers gradually lost leadership
in the Brazilian economy with the growth of other economic activities, mainly
industry. The production had remained stagnated until late the 1950’s (FONT,
1987).

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 Figure 1 – Evolution of coffee production in Brazil (Mt), 1990 to 2016

Source: Brazilian Institute of Geography and Statistics – IBGE (2017).

Coffee production had a new expansion phase from 1956 to 1965. This
rapid growth was driven by two main factors: first, the growth in cultivated lands
in west of São Paulo, north of Paraná and Goiás State, and second, the gains in
productivity and efficiency (Fig. 2). Despite the rise in coffee production in the
late 1950’s, the Brazilian economy was diversified at that moment as opposed to
the 19th century. Furthermore, the international market for commodities was
characterized as more competitive, where different players existed in the
international coffee market. Therefore, the Brazilian production was now faced
with a new competitive reality (FONT, 1987).

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 Figure 2 – Planted area (millions of hectares) and productivity (kg per
hectare) of coffee in Brazil, from 1931 to 2016

Source: Brazilian Institute of Geography and Statistics – IBGE (2017); International Coffee
Association – ICO (2018).

From 1960 to the present, the production, planted area, and productivity of
coffee in Brazil have demonstrated an erratic pattern which highlights the great
challenges of the crop (Fig. 1 and 2). Since this time, the main bottleneck of the
supply chain and coffee industry in Brazil is quality management. As the largest
producer of coffee in the world, comprising more than 30% of the international
production, its bases of competitiveness is historically the low cost of production
and quantitative parameters which gave the country the label of bad quality
coffee. Contrastly, Brazil’s competitors have invested in quality and certified
labels, such as producers in Colombia, Kenya, Ethiopia and recently Costa Rica,
Jamaica and Cuba (BARJOLLE et al., 2017; ICO, 2018; CECAFE, 2017).
After 1990, with the end of the International Coffee Agreement (ICA) and
the dissolution of the Brazilian Coffee Institute (IBC), a global movement of
coffee market liberalization ushered a period of deregulation. As part of this
movement, the coffee industry experienced a long period of crisis that drove
down the prices, the income of producers, and re-organized the global supply
chain (COULIS, 2011). With this deregulation, the Brazilian coffee sector has
been exposed to the free market. Several producing countries have improved
their institutions in order to hold their positions in the global coffee value chain,

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but this is not the case in Brazil (MEHTA; CHAVAS, 2008; RUSSELL;
MOHAN; BANERJEE, 2012).
The lessons learned from the history of coffee in Brazil should contribute
to discussions on contemporary challenges. Although this market has an
important contribution as one of the most valuable commodities in the country,
the choice to explore the low cost of production as an element of
competitiveness, instead quality, has been underestimating the potential gains of
the crop (ALMEIDA, ZYLBERSZTAJN, 2017). Countries like Colombia,
Kenya, Ethiopia, and recently Costa Rica, Jamaica and Cuba have developed
different approaches and distinct kinds of public intervention. They also continue
to explore a common strategic line, which consists of strengthening the quality
management system. Thus, given the high competition on the aforementioned
market and the performance of the large transnational companies, this industry in
Brazil still has room for improvement (MEHTA; CHAVAS, 2008; RUSSELL;
MOHAN; BANERJEE, 2012; MINTEN et al., 2019).

3. Coffee Market of Brazil and the Supply Chain

Over the past thirty years, Brazil has remained the most dominant
producer of coffee on the world market, but the country’s share of the market has
remained relatively constant despite vast increases in production. In 1990, Brazil
held approximately 29% of the world market as measured by total production,
and increased market share to approximately 36% by 2016 due to vast increases
in production (Figure 3). The market share has fluctuated yearly over this time,
primarily due to the success of the coffee harvests in Brazil and other exporting
countries, and the entry into the market by new exporting countries, especially
Vietnam (ICO, 2018).
Production has expanded relatively rapidly over this time, and especially
over the past decade as world demand for high quality coffee varieties continues
to rise (COULIS, 2011). From 2005 to 2016, for example, the Brazilian
production of coffee increased from 1,977 Mt to 3,082 Mt (CONAB, 2017). The
majority of the expansion in production is of the arabica variety, which is high
quality and in high demand by large retailers, as it increased from 1,493 Mt to
2,603 Mt. The other major variety of coffee that Brazil produces is robusta,
which is a relatively low quality variety, and production slightly decreased over
this time from 548 Mt to 479 Mt. This does not demonstrate the full story,

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however, as the production in 2015 of robusta coffee was 671 Mt (CONAB,
2017; IBGE, 2017). The approximately 29% drop in robusta production in one
year demonstrates what the taste is for low quality varieties of coffee is in high
income countries as they have been plagued by chronically low world prices.
Furthermore, it shows how Vietnamese robusta coffee has altered the global
market.

Figure 3 – Brazilian Market share – percentage of global production (%) –

1990/91 to 2015/16

Source: International Coffee Association – ICO (2018).

Despite these rapid gains in production, the demand for high quality
coffee has increased by such an amount that Brazil’s market share has not
significantly rose as mentioned before. Exporters of coffee have had to adjust to
the increasing prevalence in taste for high quality coffee by expanding
production of arabica coffee and other high quality varieties, but this has left
room for new exporters enter the market and to supply the crop at a high price
given the increasing world demand (ICO, 2016).
The market adjustment to the increases in demand has primarily been to
increased production, but some countries have entered the world stage, and none
have paralleled to the rapid ascension of Vietnam since 1990. In 1990, Vietnam
only accounted for 1% of the world’s coffee exports. However, by 2016 Vietnam
had become the second largest exporter of coffee accounting for 23% of all world

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exports, second only to Brazil at approximately 29%. However, this production
is mostly of the robusta variety which Vietnam is able to produce given
exceptionally low labor costs. To remain competitive, Brazil has continued to
expand production of arabica varieties given the comparative advantage of
established production of this variety (ICO, 2018).
We summarize the global coffee supply chain on the flowchart in
Figure 4, which is important to note that it is split in two parts. On the left side
there are the producers of coffee, mostly located in developing countries. It is
especially important to note that for most of the developing countries, coffee is a
valuable commodity and important for their economies. These markets are very
competitive and the prices are extremely volatile as the competitiveness is based
on the cost of production (PANHUSYEN; PIERNOT, 2014).
When we look on the right side of the supply chain, we can find the main
roasters and retailers represented by huge transnational companies from the
United States and Europe. These companies are responsible for roasting,
blending, and selling the final products. This industry is an especially
concentrated market and the competitiveness is based on the differentiation
strategy and establishment of brands (MINTEN et al., 2019; BARJOLLE et al.,
2017; PANHUSYEN; PIERNOT, 2014). The concentration ratio of the 3
largest companies in 2013 was 49.9% of the global market (EUROMONITOR,
2017).

Figure 4 – Global Coffee Supply Chain

Source: International Coffee Association – ICO (2018), USDA (2018) e UNCTAD (2011).

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 This structure requires efforts from the countries on the right side of the
supply chain to ensure its global position in the market by incorporating
mechanisms that ensure a high level of prices (USDA, 2018; UNCTAD, 2011).
In Brazil, on the processing side the market structure is quite concentrate, with 10
companies representing almost 75% of the volume produced (ALMEIDA;
ZYLBERSZTAJN, 2017).
Specific strategic efforts made by some countries have been very
successful, such as Geographical Indication (GI) and regional strategies of
differentiation, quality labels, traceability, environmental labels, and some fair
trade agreements. A key element that arises for coffee producing countries is to
enhance ways to differentiate their commodity by some characteristics, such as
quality, regional or geographical label/brands that target the final consumers. In
the Brazilian case the stakeholders – public and private agents – need to improve
the quality and marketing strategies to migrate from the left side of the global
supply chain to the right side (Fig. 4), ameliorating the coffee value chain.

4. Discussion and Policy Suggestion

Coffee is one of the world’s most traded products (second in value only to
oil) and its market is characterized by a high level of competition. This crop is
labor intensive, and 70% of the world production is from small coffee farmers.
Recently, a declining trend of trade and increasing price volatility have worried
coffee producers worldwide (PANHUSYEN; PIERNOT, 2014). The world
coffee supply chain is primarily controlled by three transnational companies
(Nestlé, Mondelez and D.E Master Blenders 1753; Jacob Dowe Egbert is a Joint
Venture between Mondelez and D.E Master Blenders 1753) and a few big
roasters (Smuckers, Strauss, Starbucks and Tchibo). Thus, the international
companies take advantage of their position to create their brands and to better
organize the supply chain worldwide, such as coordination and vertical
integration among different actors (BARJOLLE et al., 2017).
In general, large roasters tend to buy huge amounts of green coffee
through trade, wherein over 80% of the coffee produced in the world is traded
internationally. On the other hand, the coffee growers are not well organized, and
as a consequence they lack market information and bargaining power (ICO,
2018; PANHUSYEN; PIERNOT, 2014). Table 1 summarizes the market power

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in the global coffee retail market; the concentration ratio of the 3 largest
companies in 2013 was 49.9% of the global market.

Table 1 – Global coffee retail Market share by value, 2013

Company Country Percentage market share
by value (%)
Nestlé Switzerland 22.7%
Jacob Douwe Egberts Netherlands 16.3%
Mondeléz United States 10.9%
D.E Master Blender Netherlands 5.4%
1753
Green Mountain United States 3.4%
Tchibo United Kingdom 2.5%
J.M Smucker United States 2.3%
Lavazza Italy 1.9%
Source: Euromonitor (2017).

Global coffee retail market share by value, 2013The general deregulation of

the international coffee market post-1990 was very disastrous for its main
producers. The prices dropped by nearly 75% in the subsequent 5 years (from
US$ 177.25 per 60 kg bag in 1989 to US$ 101.85 in 1995) and harmed thousands
of small producers (COULIS, 2011). In an unregulated market, such large
corporations were able to control the price of coffee as they purchased more, and
the strategies of quality and differentiation have played a pivotal role in
aggregating value. Furthermore, asymmetric price transmission at the retail level
helps roasters and retailers benefit from upstream price (MEHTA; CHAVAS,
2008).
After the initial effects of the deregulation some countries were very
successful in their differentiation strategies, generally based on the governance of
the value chain protecting their geographical names since the origin of the coffee
matters for its total value. Colombia and Kenya, for example, have been
recognized as price leaders in the world since 1997 (BARJOLLE et al., 2017).
Other countries such as Ethiopia and Costa Rica have been improving their
markets in terms of traceability and certification, but this has mostly been by
local public initiatives. Some progress to increase welfare has been made on the
world stage, however the share of the profit to farmers relative to the final export
price is still low (MINTEN et al., 2019).

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 In the case of Brazil as the largest coffee producer, as discussed earlier,
the country specializes in low quality coffee and its base of competitiveness is
the low cost of production. The consequence of this level of production is a low
level of prices, which results in a small share of the export prices to farmers.
Nevertheless, the competition in this niche market is higher in the last few years
relative to the past as some countries such as Vietnam, Indonesia, India, and
China are competing in the market and improving its overall productivity
(MORAES et al., 2017; USDA, 2018; NISHIJIMA; SAES; POSTALI, 2012).
Figure 5 summarizes the data related to the productivity of coffee for the top 10
coffee producing countries in 2013.

Figure 5 – Coffee production countries productivity in 60kg bag per hectare,

2013

Source: Panhunsyen, Piernot (2014).

Vietnam is Brazil’s main competitor in the global coffee market. Over the
past several decades, coffee production in Vietnam has developed as a major
export-oriented industry and that country has invested in highly intensive
production of robusta to become the largest and most efficient producer in the
world (Figure 5).
A series of papers have discussed the relationship between costs and
profitability in the production of coffee worldwide. Based on these findings, we
conclude that production costs (per kg) increases with cost per hectare, so a low
input strategy can be profitable (low cost per hectare). Therefore, it is concluded
that a producer can only be profitable with high yields or high prices in intense
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competition (HAGAR, 2008, 2012; ECHAVARRÍA et al., 2015). It seems that
coffee production in Brazil is ensuring profitability by yield even if the cost per
hectare is high. Meanwhile, yield strategy is uncertain because extra yield will
not necessarily compensate for the extra cost invested to reach a higher level of
yield (MONTAGON, 2016). Nevertheless, we must also take into account that
there is a considerable difference in the cost structure and profitability among
producing regions in Brazil (ICO, 2016).
Some implications of the low input strategy were documented by (ICO,
2016, p. 1)
Prolonged periods of low prices strain liquidity at the farm level,
resulting in less than optimal input use during the following
production cycle, negatively affecting yields and quality.
The expectation of future coffee prices too low to cover full costs of
production can hamper important investments in renovation of coffee
plantations […]. Finally, low or negative profitability may lead to the
abandonment of coffee production as farmers may switch to other
more profitable agricultural crops. As a result, there is a widespread
concern in the coffee sector that a prolonged phase of low coffee
prices could negatively affect the supply of high quality coffee beans
and could have adverse effects on household incomes in coffee
growing communities.

Furthermore, as stated by Barjolle et al. (2017) and Panhunsyen and

Piernot (2014), it is important to point out that roasters and retailers
(transnational companies) hold an intermediate position in the global coffee
supply chain and are thus both sellers and buyers, establishing an oligopoly and
an oligopsony at the same time, controlling the prices.
In the context of prices dynamics, the deregulation on the global coffee
market on early 1990’s completely changed the prices pathway and for
Brazilian’s growers the impact was very substantial. According to Karp and
Perloff (1993), Brazil and Colombia been pivotal in the price determination on
the global market until 1990, these countries were competitors, but their prices
levels were close (Fig. 6); the ratio between Colombian milds and Brazilian
milds in the early 1990 was around 92% (Brazilian milds was 92% of the price of
Colombian milds). As mentioned before, the situation in the post-deregulation
period has completely changed and this market can be characterized by low-
levels of prices and price volatility, mainly for Brazilian producers.

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 Figure 6 – Brazilian coffee price ratio among diferent kinds of coffee
and International Composite Index, 1990 to 2017

Source: ICO (2018).

Currently, despite the importance of Brazilian production for world

(quantity), on the global market post-deregulation the country is a price taker.
The low quality of the Brazilian coffee and the market concentration in
roasting/grinder levels, controlled by transnational companies, has switched the
Brazilian position in the global coffee market. At this point is important to
highlight the lack of Brazilian stakeholders to rebuild the supply chain and the
institutional environment (NISHIJIMA; SAES; POSTALI, 2012). In its turn,
Colombia and Kenya have reorganized the coffee supply chain and the effort has
changed the stakeholders’ actions and those countries have organized a value
chain for their coffees (BARJOLLE et al., 2017). Fig 6 shows that price ratio
between Brazilian milds and Colombian milds decreased across time, in the last
five years (2013 to 2017) the ratio is around 51.85%.
Nishijima, Saes and Postali (2012), using a Multinomial Logit model as
approach, estimated the world green coffee demand for the period from 1988 to
2009. The study has presented the price-demand elasticity and the Brazilian
cross-price elasticity among different types of coffee. The results suggested an
increase in competition for the Brazilian coffee from the side of demand and
pointed out that Brazilian arabica green coffee has a higher rate of substitution
rate related to robusta green coffee from Vietnam; the cross-price elasticity is
0.273, higher than the values for Colombian milds and Other milds, respectively,
0.168 and 0.169. As shown in Fig 6 the Index Price ratio between Robusta and
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Brazilian milds in the last decade is 89.64% (lower than the ratio 149.55% in the
early 1990’s).
The price dynamic (Fig. 6) shows that in the context of the post-
deregulation there is a challenge for making the coffee market recognize and
reward quality of the green coffee before blending and then paying according to
quality. In this context, some countries were successful, but not Brazil. The price
ratio evolution among Brazilian milds and other kinds of coffee (origin) and the
substitution rate (cross-price elasticity) between Brazilian coffee and Vietnamese
coffee have corroborated that competition between Robusta from Vietnam and
Arabica from Brazil is a market recognition of the low quality of the Brazilian
coffee. The low level of prices for the coffee from Brazil is a kind of negative
reward revealed by the prices.
The huge amount of coffee produced in Brazil is transacted by the
aforementioned transnational companies who control the prices for the growers
by their oligopoly power. The retailers and roasters worldwide have gained high
negotiating power, with their deepening knowledge of their needs and of
different consumer preferences and the development of their own brands. In this
concentrated market the share of income to producers of final prices is low and
there is a lack of rewards for quality at the producers’ level (MORAES et al.,
2017; BARJOLLE et al., 2017; PANHUSYEN; PIERNOT, 2014).
Given the above analysis, we conclude that policy guidelines for the
Brazilian coffee market need to emphasize some main issues focusing on the
improvement of the coffee agrichain in Brazil.
First, the sector needs to emphasize the intensive use of agriculture
modern tools – drones, mechanization in flat areas, modern systems for quality
control and decisions about pest control –, management techniques, productivity
management and the use of skilled labor. We can summarize these elements as
technology and productivity package. A key element concerning to this issue is
the adoption throughout the agrichain, so the information has a central role; at
this point a multistakeholder governance model is important to support the
farmers – agents such as cooperatives, governments entities, universities and
research institutes could integrate this system improving technology process
transfer (ALMEIDA; ZYLBERSZTAJN, 2017; BARJOLLE et al., 2017;
MORAES et al., 2017).

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 Second, given the high competition on global coffee market, quality and
commercialization strategies are essential. In the case of Brazil, the processing
side and the exporting sector are quite concentrated, therefore quality
management and efficient commercialization strategies could improve
smallholder coffee growers’ potential, increasing prices providing higher income
and introducing Brazil on high quality coffee market. We can highlight some
important issues in this area, like institutional infrastructure to trace and monitor
coffee bean origin as a pre-condition for Geographical Indicator (GI) systems;
fair trade agreements associated with smallholder coffee growers’ and some
regions promoting better trading conditions for marginalized producers
professionalizing producers and cooperatives for direct trade; improvements on
quality control and intensive marketing using the quality as a label, such as
Colombia international campaign for quality reputation and; certification strategy
using marketing to promote coffee from Brazil. In this case, beyond the
technology adoption and marketing, the post-harvest processing has a pivotal role
for quality and profitability (ALMEIDA; ZYLBERSZTAJN, 2017, BARJOLLE
et al., 2017).
Related to quality and commercialization the cases of Colombia and
Kenya are emblematic and provide some lessons because their coffees are both
recognized at global level for its high quality and have been international price
leaders since 1997. The coffee agrichain of these countries are based on quality
and reputation instead quantity, associated with a heavy international marketing
strategy (BARJOLLE et al., 2017; MINTEN et al., 2019). For Brazilian case,
taking into account the complexity of coffee agrichain throughout the country
and the heterogeneity of the coffee growers, the policy suggestion is the mix
between Colombian and Kenyan model. According to Barjolle et al. (2017, p.
107) in Colombia and Kenya
[…] the governance of their value chains is completely different; in
Colombia, management is delegated to the Federacíon Nacional de
Cafeteros de Colombia, a private body in which the state also has a
say, while in Kenya, the State is the primary managing body,
operating throughout the Coffee Directorate.

Another important factor is the sustainability and social questions. About

these issues Brazilian coffee agrichain needs to consolidate new drivers of
change increasing the adoption of sustainability and social certifications on fair
trade status and the deepen of discussions about social questions in this market,

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such as slavery labor (modern slaves) and child labor. The sustainability/social
standards – such as Organic, Fairtrade, UTZ, Rainforest etc. – differ in the
aspects they emphasize, each one such to reduce or eliminate negative
environmental and social factors and could be interesting alternatives (HAGGAR
et al., 2017; ICO, 2018).
Concerning to sustainability, coffee with diverse shade trees is recognized
as conserving greater biodiversity than intensive methods and the certified farms
received better prices than non-certified, but these alternative systems are
generally less productive and the economic incentive may be required;
specialized support and incentives are strongly recommended, such as
information and special lines of credit financing to support the adoption of new
sustainable technologies (HAGGAR et al., 2017). Brazil is the world’s leading
exporter of sustainable coffees. However, most sustainable sales come from a
few highly efficient producers; the main challenge of policy is the specialized
support for adoption – financing and information (ICO, 2018). There is a
potential discussion about the use of national standards involving some key
stakeholders finding synergies in collaboration to broaden the sustainability
agenda, beyond social and environmental sustainability and to make coffee
farming an attractive business.
For social questions, mainly child labor and modern slavery, is
recommended the sector to develop a robust and comprehensive monitoring and
remediation system that covers all actors in the coffee agrichain on Brazil. The
model should be a collective effort among government, industry, cooperatives
and traders. The monitoring should include labor standards and premium
payments. Companies should map the nature of labor recruitment in coffee
supply chain. This by far will be the biggest challenge but also the one with
greatest returns. The programs and results also should be independently
externally verified. The results comprise beyond better labor conditions and
higher prices levels a better reputation for Brazilian coffee.
Finally, the better access to governmental rural credit and alternative
financing options are important issues for the coffee agrichain in Brazil. Taking
into account the Brazilian structure of coffee production, is really important to
design specific credit lines such as credit for smallholders/family agriculture
(PRONAF); for special and/or gourmet coffees; credit for sustainable initiatives
like shade coffee; alternatives to improve the credit for small exporters,

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incentivizing their participation on direct trade and; special credit for modern
technology adopters (ALMEIDA; ZYLBERSZTAJN, 2017; ICO, 2018).
As a part of efforts to explore practical measures on quality-based
competitiveness in the production of coffee in Brazil instead comparative
advantage based on low cost and economies of scale in this agrichain, the issues
and policies discussed above should be structured in a multistakeholder model
involving producers, government actors, private sector, traders, research institute
and universities working together – governance model. The policy guidelines
proposed in this paper are more efficient engaging a great number of
stakeholders. Some successful experiences in the coffee market in Brazil provide
some lessons and an optimistic perspective for the sector in spread new drivers of
change throughout the agrichain.

5. Final remarks
Some crucial issues were discussed in this paper as policy guidelines for
the development and competitiveness of the Brazilian coffee agrichain within
and outside Brazil in the long run. Our analysis reveals that coffee agrichain in
Brazil has some room to improvement and main contribution of this paper is
summarize what is significant.
One of the most important contributions of this paper is show that
Brazilian coffee agrichain is productive and the competitiveness of the Brazilian
coffee is recognized internationally and for this reason the country hold first
position among the global exporters and a large market share of global
exportations. However, the bases of the Brazilian coffee competitiveness are low
costs of labor, water and land and the economies of scale, resulting, in a context
of a deregulated and with high level of competition market, low prices and
income for smallholders. In addition, the roaster segment is quite concentrated,
which is a serious problem for small growers.
Thus, a set of policies seeking improvements in the Brazilian coffee
quality and high levels of prices as a positive reward for the quality and a good
reputation are discussed in this paper, such as adoption of modern technologies –
production and post-harvest –, more efficient quality control systems and
marketing – having good reputation both on product quality as in social and
environmental questions – and standards/certification. The issues above also
required efforts in questions related to financing – public and private – and

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specialized support both incentivizing the use of modern management tools as
better technology information and diffusion – incentive to adoption of new
technology.
Nevertheless, to enhance the effects of the set of policies proposed in this
paper a multistakeholder governance model is required with an integrated use of
these policies in which actors – growers, industry, roasters and traders – working
integrated. This paper discusses the whole agrichain coffee in Brazil with main
policy guidelines for the sector, but the specificities in this market in different
regions in Brazil are very relevant. So, for future researches we suggest analysis
for specific regions and the coffee regions comparative analysis.

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