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Protectionist Puerto Rico
Struggles To Rebuild Coffee Sector

By Larry Luxner

The Puerto Rican city of Caguas, nestled in the mountains half an hour’s drive south of San Juan, isn’t known for much - though it does happen to be the home of Puerto Rico’s two largest coffee producers: Grupo Jiménez and Garrido & Compañía.

And nearly two years after its destructive visit, both companies are still struggling with the aftermath of Hurricane Georges.

“Without a doubt, the hurricane destroyed more than a third of our coffee crop,” says Julio Torres, executive vice-president of Grupo Jiménez, the island’s biggest coffee producer.

Torres, interviewed in Caguas a few months ago, said that “before Georges struck in September 1999, our crop was around 300,000 quintales (hundredweights). Following the hurricane, it was only 70,000 quintales. Government insurance paid for 60% of the damages, but they took too long to serve all the insurance claims, even more than a year in some cases.”

By 2000, Puerto Rico’s total coffee crop had risen to 140,000 qq, which at the government-set subsidy price of $243/qq would translate into a cash value of $34 million. Industry leaders predict the crop will reach 200,000 qq this year.

Grupo Jiménez, the industry leader, reported revenues of around $70 million last year. The company’s leading brand is Café Yaucono, which enjoys an island wide market share of 47%, followed by Café Rico, which has a 20% market share. A third brand, Café Rioja, has a 3% share, while the group’s fourth brand, Yauco Selecto, is geared strictly for exports.

Joe Ricci is general manager of Garrido & Compañía. He says his company’s main brand, Café Crema, has 20% of the Puerto Rican coffee market, and that Garrido has annual revenues of $30 million. He refused to disclose profits, saying only that “we’re not going to be in the red.” About 15% of total sales consist of in-office coffee service, and most of the remaining 80% is derived from domestic sales of Café Crema. Only a very small percentage comes from premium coffee bean exports.

Ricci said the company has 150 employees throughout the island, one-third of them in Caguas. The company’s owner is Suiza Foods, which purchased it from the Garrido family in 1996 for an undisclosed amount. Both Torres and Ricci agree that the remaining 10% not dominated by Grupo Jiménez and Garrido is split among Café Coquí, Café Luri, Café Borinquen and other smaller brands.

Interestingly, Café Rico was originally produced and sold by a group of coffee farmers known as Cooperativa Cafeteros de Puerto Rico. In its heyday, Café Rico was the island’s leading brand, with more than 50% market share. During the 1930s and 40s, it was the top Puerto Rican coffee exporter, selling mostly to Europe.

In 1982, according to San Juan-based newspaper Caribbean Business, Cooperativa Cafeteros de Puerto Rico’s financial problems became so serious that the company was sold to a group of shareholders, who promptly renamed the company after its best-selling brand, Café Rico.

“Even though the product’s name remained on top, the new owners were forced to start the company from zero as a roaster and distributor,” said Torres. The company’s roasting and southern regional distribution operations are still based in its birthplace, Ponce. “Where our coffee is Number 1,” he said. Grupo Jiménez distributes 60 coffee and coffee-related products, including three canned spinoffs: Café Rico Espresso, Café Rico Decaf and Café Rico 50/50 - which is 50% regular coffee and 50% decaffeinated.

The latter, says Torres, “is for coffee drinkers who have been told to avoid caffeine, but who want to cheat a little.”

All told, Grupo Jiménez has 125 employees, including a sales staff of 50 and a distribution fleet of 65 vehicles. Clients include large and medium-sized supermarket chains, grocery stores, cafeterias, restaurants, bakeries and hotels.

“The demand for coffee is around 315,000 quintales, and this year’s crop is under 200,000 quintales,” said Torres. “We make up the difference by buying on the international market through the government, because coffee is a protected industry here.”

Jorge F. Sanders, executive director of the Coffee Roasters Association of Puerto Rico, said that the Puerto Rican consumer pays $3.64 per pound of coffee at the retail level - a price set by the local government consumer-protection agency DACO in order to protect local farmers. The Commonwealth’s Department of Agriculture is also a buyer of last resort, purchasing beans at $2.43 a pound when the island’s estimated 15,000 to 17,000 coffee farmers can’t find other customers.

“From 1991 until Hurricane Georges hit in September 1999, Puerto Rico had been producing all the coffee it consumed,” he says. “Obviously, this changed with the hurricane. In February 2000 we began importing coffee.”

Sanders says coffee is the only product that pays a duty upon entry into Puerto Rico, even if it’s coming from the U.S. mainland.

“In 1931, Congress gave Puerto Rico the power to establish duties on imported coffee,” he said. “Even when Puerto Rico became a Commonwealth in 1952 and when NAFTA was passed in 1993, this provision wasn’t affected.”

Sanders, whose organization has eight member companies, explained that the purpose of this law is to protect Puerto Rican farmers.

“That’s why we still have a strong coffee-growing industry, because the prices are on average two-and-a-half to three times the world price. Right now, it’s four times the world average,” a situation which Sanders concedes is “good for the grower, but not for the [Puerto Rican] consumer.”

Asked why coffee is still regulated, Torres says it’s “in order to maintain the coffee industry in Puerto Rico, especially in the 16 mountain towns for which coffee is the main source of income. Due to the federal minimum wages, we cannot compete worldwide. That’s why we have an import duty authorized by Congress in order to defend the Puerto Rican coffee industry.”

According to government statistics, coffee exports accounted for less than 1% of total coffee production by volume, bringing Puerto Rico about $1 million in revenue.

Ironically, in recent years, the Caribbean island - whose coffee in the late 19th century was the favorite of kings and popes - has begun importing coffee from Costa Rica, the Dominican Republic and elsewhere just to meet local demand. Sanders explains, “These days, Puerto Rico cannot compete cost-wise with Costa Rica, Guatemala or Ethiopia,” he said. “Federal laws govern our island. We have to pay a minimum wage of $5.15, later going up to $5.75 an hour. We also have to pay social security and other benefits. And all the fertilizers and materials we use are more expensive than in other countries. In Costa Rica, which is a well-developed country at this moment, they pay the coffee picker about $1 per 28 pounds of cherries. This past year, Puerto Rico was paying more than $4. How can you compete? And Costa Rica is one of the most developed countries.”

“Asia, which was going to be the biggest coffee client in the world, is starting to become one of the biggest growers,” he continued. “Vietnam and other countries have ventured into the coffee business, and their costs are even lower than that of Colombia.”

Local business executive Jaime Fortuno says, “The only way Puerto Rican coffee could have survived was with the intervention of government. Now anybody who gets caught smuggling coffee into Puerto Rico can have their property confiscated, plus fines and jail terms.”

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