Coffee merchandising

How green coffee is bought and sold in the countries of origin.

Buying coffee in the producing countries and shipping it to the consuming countries is an important branch of the coffee industry and one for which many years of constant study and application are required in order to achieve success.

Consider Brazil,—here is a country where a knowledge of Portuguese is the first essential for a foreigner seeking to do business in coffee. Many English, German, French, and American houses have branch offices in Rio and Santos, with resident buyers who have had long experience in the coffee business, an intimate knowledge of Brazil manners and customs, and are, moreover, able to converse fluently in the native tongue.

Buying coffee in Aden or Harar requires a knowledge of 10 different languages or dialects. Buyers in Java and Sumatra must understand Dutch and be able to speak the Sudanese tongues. One must have a good acquaintance with Spanish if he is to buy coffee successfully in Mexico and Central America.

The marketing begins when the dried coffee beans are swept up from the drying grounds or collected from the grading machines on the coffee estates and started on the way to the port of shipment.

In Brazil

In Brazil, the fazendeiro (grower) usually sends his crop to his commissario (commission merchant) at Santos, Rio, Victoria, Bahia, etc. Here the coffee is cleaned and stored in private and public warehouses. At these warehouses samples of each bag are taken; the tester or sampler, standing at the door with a sharp tool, resembling a cheese tester, which he thrusts into the center of the bag as the men pass him with the bags of coffee on their heads, removing a double handful of the contents. The samples are divided into two parts; one for the seller, and one that the commissario retains until he has sold the consignment of coffee covered by that particular lot of samples.

The commissario puts his samples on the Street, one set at a time. He names his “asking” price, known locally as the pedido, which is the maximum rate he expects to get, but seldom receives. A set of samples may be shown to 25 or 30 exporting houses in a day, one at a time. When the sample is in the hands of a firm for consideration, no other exporter has the right to buy the lot even at the pedido price, and the commissario cannot accept other offers until he has refused the bid. On the other hand, if a house refuses to give up the samples, it is understood that it is willing to pay the pedido price. The firm first offering a price acceptable to the commissario’s broker gets the lot, even though other houses have offered the same price.

Having bought a lot of coffee, the Brazil buyer grades and tests it and ships it overseas. Where the exporter is Brazilian, he collects his money by drawing a draft against his American or European customer on deposit of bill of lading, cashing the draft through an exchange broker. The exporter must obtain a consular invoice, a shipping permit from both federal and state authorities, and pay several state and export taxes before the coffee is permitted to be sent aboard the ship. This process is known as “dispatching,” while the dock company’s charges are known as capitazias.

In practically all coffee-growing sections the small planter is helped financially by the owners of processing plants or by the exporting firms. The larger planters may even obtain advances on their crops from the importing houses in New York, Havre, Hamburg, or other foreign centers.

In Santos, there is a coffee exchange known as the Bolsa de Café, to which coffee brokers of Brazilian citizenship may belong, but they must be indorsed by three reputable commission men or exporters, and may not themselves be a partner in any mercantile firm nor deal for their own account in spot or future coffees. Street transactions are permitted here, unlike the New York Exchange, and, as a matter of fact, the bulk of the business is done in the street, but the exchange must be informed of all transactions. Spot coffee is actual coffee in the warehouse; future coffee may still be on the trees. Rio also has an exchange, the Centro do Commercio de Café, which serves the Rio trade in similar fashion.

Under the Brazil government’s recent plan of permanent valorization, the regulation of coffee shipments in the state of São Paulo includes 10 government armazems, or storage warehouses, at strategic points throughout the coffee-growing districts. There is also one in the state of Rio. All coffee produced in the interior must pass through these warehouses. In this way the government regulates the arrival of coffee at ports of shipment. The fazendeiros are given negotiable warehouse receipts. These warehouses can handle a crop of 11,500,000 bags a year; Santos entries are restricted to 35,000 bags a day; Rio, to 12,000 bags daily.

In Arabia and Abyssinia

In Abyssinia, coffee is grown by small farmers, who mostly finance themselves and sell the crop to native brokers, who in turn sell it to representatives of foreign houses in the larger trading centers. Trading methods between farmer and broker are not much more than the old system of barter. In the southwestern section, where Abyssinian coffee grows wild, transport to the nearest trading center is by mule train, and not infrequently by camel back. In the Harar district, the women of the farmers living near Harar, the market center, carry the coffee in long shallow baskets on their heads to the native brokers. In the more remote places the coffee farmer waits for the broker to call upon him. From the town of Harar the coffee is transported by mule or camel train to Dire-Daoua, whence it is shipped by rail to Jibuti, to be sent by direct steamers to Europe, or across the Gulf of Aden to Aden in Arabia.

In Harar, the native dealer takes the coffee to the custom house; whence, after the government has been paid its tax, he sells it through brokers to European merchants. It may be cleaned at Harar or at Aden.

Most of the coffee in Arabia is grown in almost inaccessible mountain valleys by native Arabs, and is transported by camel caravan to Aden or Hodeida, where it is sold to agents of foreign importing houses. Mocha, once the principal exporting city for coffee, was abandoned as a coffee port early in the 19th century, chiefly because of the difficulty of keeping the roadstead of the harbor free from sand bars.

Mocha coffee, grown in the Yemen district of Arabia, comes from there to Aden by either sea or overland. Fully 60 percent comes by boat from Hodeida, 10 percent from other Red Sea ports, and 30 percent by camel caravan. Before the World War, many of the importing and exporting houses had agencies in Hodeida, where the finest qualities were bought on the spot; but since the war few of these agencies have again been opened, although the installations are in many cases there awaiting the developments of the market.

At present most of the coffee is bought in Aden from native merchants or brokers. These send around samples to exporting houses, which set the price they are willing to give, depending upon the amount of probable loss from impurities.

The coffee is generally packed 10 maunds. The maund is 28 pounds, and there are four to the cwt. The coffee is usually repacked for export into bags of six to 6.4 maunds.

The methods of cleaning in Arabia are primitive. The principal work is done by Indian women and children, who sift and sort out the dirt, stones, and dead beans, leaving only beans of best quality. These are paid about one rupee for 10 maunds, and each can clean about a bag a day. In some houses the coffee is then put through a cleaning machine, which adds a finish to the process.

It costs about 25 cents a pound to buy coffee in 100-bag lots in Aden from a native broker. Harar coffee bought in Jubuti costs about 18 cents a pound in 300-bag lots.

Java and Sumatra

In Java and Sumatra, coffee from private estates, not under government control and operated by European corporations or individuals, has now succeeded the government-monopoly coffee. Private estate crops are sold by public tender, usually on or about January 28 of each year. If the owners do not get the price they desire in Batavia or Padang, the coffee is sent to Amsterdam for disposal.

In Colombia

In Colombia before the World War, the coffee trade was in the hands of the larger exporters of the country, who were also the larger importing merchants. They made loans to their clients on the security of future crops. Such loans were usually represented by small stocks of merchandise and supplies, together with some cash. These accounts were taken up at the end of the picking season with coffee delivered to the merchant, who had the beans cleaned in the local coffee-cleaning plants, sacked, and shipped for export for his own account, the small planter really receiving a small part of the profit.

During the speculative period in 1919, which was induced by the high prices in New York for Colombian coffee, there was active competition in coffee buying, intensified by the activity of a large American export and import concern, with the result that the producer received a much larger margin of profit for his coffee and more actual cash than ever before.

This situation has meant a revolution in the coffee trade and industry of Colombia. Instead of coming into town (the nearest large commercial center) about twice a year, at the end of the November-December and April-May-June picking seasons, to solicit goods and a small loan from his dealer, the small producer has been sought out for his product with cash offers. He has escaped from the prevailing high interest rates charged him, and has been able to buy where and how it has best suited his interests. He is no longer controlled by the local merchants, and has money in hand with which to enlarge his plantations, purchase better equipment, and improve his living conditions.

To understand fully the far-reaching effect of this situation, it should be borne in mind that, with the exception of the plantations of Cundinamarca, nearly all the coffee in the country is produced on small plantations owned and worked by individual planters of the poorer class.

Importing merchants of the coast cities of Barranquilla and Cartagena are large buyers of coffee in the interior, which they export for their own account, investing their surplus every year in coffee and hides for export.

Formerly most exports from Colombia to the United States were financed by 30-, 60-, and 90-day drafts drawn by the exporter (by arrangement with the American consignee), generally for two-thirds the market value of the merchandise at time of shipment, but during recent years American banks established in Colombia have handled a growing proportion of the export business to the United States. The producer turns over his coffee or hides to the bank for export, the bank recognizes a credit in his favor for two-thirds the market value, and when the goods are sold credits him with the balance, less expenses, interest, commission, and exchange. The terms on which these credits are generally arranged, both locally and in New York, are 2½ percent commission plus interest, the latter item 12 percent for local transactions.

After the coffee is purchased in the producing countries, there are still to be reckoned the factors of additional expenses and time in shipment overseas before the consuming markets are reached. The freight rates are not constant, and the time required varies from four days for Mexicans to New Orleans, 11 to 18 days for Brazils to New York, 30 days for Javas to New York, and 20 to 40 days for Mochas from Aden to New York, depending on whether the ship comes direct or not.