Author of master's thesis evaluated more than a thousand coffee companies in 233 Brazilian municipalities
Brazilian regions that have undergone or are undergoing a process of specialization in coffee production, with a higher technological level and differentiation in terms of grain and beverage quality, present more efficient management and obtain better quality products – this is the case of the Ribeirão regions Preto, western Bahia and Cerrado of Minas Gerais. This is the conclusion presented by economist Adriano Augusto Bliska in his master's thesis “Management indicators of coffee production arrangements in Brazil: A multiple correspondence analysis”, supervised by professor Gustavo Oliveira Aggio, from the Institute of Economics (IE) at Unicamp.
The author of the research evaluated 1.122 coffee companies between 2014 and 2017, in 233 municipalities, 795 of which were smallholdings, 236 small, 72 medium-sized and 19 large. “Due to the increasing diversification of competitive strategies in the coffee segment, resulting from the instability of coffee prices, as well as the expansion of the specialty coffee market, this study analyzes whether the adoption of one of Porter's generic strategies [Michael Porter, renowned professor of Harvard Business School] by a rural entrepreneur is related to an efficient management system, and whether these results are noticeable in the main Brazilian coffee mesoregions”, explains Adriano Bliska in the dissertation.
Professor Gustavo Aggio states that it is necessary to highlight the great change that occurred in the market in the 1980s and 90s, with the end of state interference in the regulation of coffee production. “Liberalization initially impacted the most vulnerable productions, whether from small producers or even large companies that were not prepared for the change. From a historical point of view, if coffee was the main product in Brazilian production until the middle of the 20th century, today it does not have the same importance. However, Brazil is still the largest producer in the world, the largest exporter and also the largest consumer – the domestic market is a differentiator in relation to other producing countries.”
Data gathered in the dissertation show that Brazilian production corresponds to approximately 32,2% of the volume of coffee produced worldwide, followed by Vietnam (19,2%) and Colombia (9,4%). “In Brazil, coffee production occurs on 190,5 thousand rural properties (IBGE, 2006), distributed in around 1.500 municipalities, with 38% of the coffee volume being produced by family farmers. Currently production is concentrated in Minas Gerais, which accounts for 59%, followed by the states of Espírito Santo (17%), São Paulo (12%), Bahia (4%), Rondônia (3%) and Paraná (2%) ,” highlights the author.
Adriano Bliska recalls that the Brazilian coffee market has suffered strong government regulation for decades, benefiting from specific agricultural policies regarding prices and sales. At the beginning of the 90s, however, the International Coffee Agreement (AIC), which guaranteed attractive prices and stable supply, ceased to be in force, and the Brazilian Coffee Institute (IBC) was dissolved. These changes, writes the economist, led to price deregulation and risk absorption by agents in the production chain and to a lack of strategic coordination in the sector. The long period of guarantees meant that Brazilian coffee farming specialized in low-quality products; With the end of state supervision, producers were faced with a new scenario characterized by increased competition and a drop in profits.
According to Gustavo Aggio, within this process, coffee companies sought not just one, but several strategies to minimize costs, through process improvements and technological introductions. “More recently, companies have been seeking to increase the quality of the product, resulting in specialty coffees, seen by consumers as products worth paying more for, offering the producer a greater return. The strategies are not exclusive to each other, as even companies that produce differentiated coffee do not fully specialize in this special product, seeking more efficient processes to increase profits with the so-called commodity coffee, which is more homogeneous and which people buy more for the price than for the quality. The two activities are complementary.”
Questionnaires
The author of the dissertation is the son of Flávia Maria de Mello Bliska and Antonio Bliska Júnior, she from the Campinas Agronomic Institute (IAC) and he from the Faculty of Agricultural Engineering (Feagri) at Unicamp, who developed a Fapesp project whose result was a bank of gigantic data on the degree of production management in Brazilian coffee regions – work highlighted by Journal of Unicamp. It was through this tool, called the Management Degree Identification Method (MIGG Café), that Adriano Bliska prepared the 1.122 questionnaires and obtained the companies' management level; another technique, Multiple Correspondence Analysis (ACM), allowed extracting and analyzing combinations of qualitative variables.
The competitive strategies recommended by Michael Porter are related to cost (producing in large volumes to minimize expenses throughout the process), differentiation (choice to invest in the image and brand of a differentiated product) and focus (choosing specific segments or niches through differentiation or costs). “The questionnaire is very extensive and contains a large number of questions about results management, storage, technical issues and business valuation (ethics, responsibility, certification). Evidence extracted from the questionnaires is that the companies that scored the most in the management index were those that use cost minimization strategies and the search for quality and differentiation of their product”, informs the IE professor.
The research advisor states that it was identified, for example, that the mesoregions of Ribeirão Preto and western Bahia are also characterized by the production of coffees of different quality, including certification of origin. “Certification is important for consumers to build their preferences by accepting to pay more for the product, with a greater margin for the producer. The questionnaires indicate that these two regions had better management levels. Basically, we can reduce the various dimensions of research to two: the first, related to product quality, processes and economic and operational efficiency; and the second, referring to leadership, ethics, people and results.”
Aggio, who is a professor of economic theory, usually explains to students that there are several vectors of good management, with the company being able to aim at minimizing costs, maximizing profits, its growth or even the personal satisfaction of the entrepreneur who is ambitious to produce a wine or award-winning and internationally recognized coffee. “It turns out that in economics you need to make a profit. When we teach about maximizing profits, it seems clear that managers have control over this, when, in the real world, many of them do not even know this information. Therefore, we have instruments that analyze costs and best practice techniques – it is the rationalization of management, to know what is happening in production.”
The Unicamp professor cites other important vectors, such as relationships with employees or suppliers and building reputation in the market so that transactions occur more naturally. “All of this can be mapped. A management index was constructed with a score from 1 to 9: among the high scores, 19% of the companies consulted obtained the maximum of 9, 16% had 8 and 18% received 7 – more than 50% were in the range of 7 to 9 . Among the low scores, none had a 1, while 1% received a 1 and 4%, a score of 3. An interesting finding is that 46% of large companies and 11% of minifundios had the maximum score, therefore there is heterogeneity between size of the company and also between regions.”
According to Gustavo Aggio, the index shows that at the highest level there are small and medium-sized companies located in the regions of Ribeirão Preto, which has a tradition in coffee and livestock (considering the possibility of joint production), the Vale do Rio Doce and the extreme west of Bahia. “There is inertia in Brazilian coffee production, due to a brand built worldwide, a good domestic market (people will not change this consumption habit) and, now, with specialty coffees, which can also become export products.”