The least trader of the traders

I interviewed Teddy Esteve, the CEO of ECOM Coffee, while he was on Coronavirus lockdown at his home in Mexico. I asked him what was his relationship to the founders of ECOM.

ECOM is a seventh-generation business that started in cotton in Barcelona, Spain, and I’m part of that seventh generation. There are still quite a few of us from that seventh generation involved in the business, from three branches of the family.

I see from your website that ECOM is the number one coffee miller in the world and the number two coffee trader in the world.

Our company started in coffee in 1959 in Brazil. When we started in Mexico, we had a different shareholder structure than the one in Brazil. Today we are one group under a united management with a fantastic understanding of each other, so we work very well together.

Having said that, our Brazilian operations are largely autonomous.  Our people there are excellent, and they know their job better than anyone. They have been in this business for ever, and they just get on with it.

How did the business develop in Central America?

The operation in Mexico had started a few years before I arrived.

ED&F Man had come to us and said, “Hey, you guys know Mexico and we know coffee, so let’s start a joint venture coffee operation in Mexico.” We set up Omnicafé, a 50-50 joint venture; it lost a bundle in the first year.

At the end of the first year, we went to EDF Man and said, “Listen, you guys know coffee, you keep the company.” But they said, “No, no, you know Mexico, you keep it.” In the end, we lost the fight and we kept it! That was 1981.

From then on, we built the business from the ground up. We grew by knowing the business inside out.  It’s a very big advantage when you don’t inherit a business.

Did the acquisition of Cargill Coffee in 2000 boost your business? 

Anyone that buys something from Cargill, well it’s a real “wow!”

We bought Cargill’s coffee operation after Neumann, Volcafé and probably some others turned it down. Cargill was keen to sell it, so we bought it on good terms. The purchase was an important one for us. They had a lot of inventory and Cargill is without doubt the best school there is for commodity trading. We still have excellent ex-Cargill colleagues working with us.

In 2013, you took over Armajaro’s coffee operations. Was that also a boost to your business?

We bought Armajaro for their cocoa business, and it has been the best thing that could ever have happened to our cocoa business. It was a very good deal.

For coffee, it was good in the sense that the purchase included Dorman’s in East Africa. Dorman has a very good operation in Kenya, Tanzania and Rwanda. Armajaro also had some good contracts on their books with roasters.

What is your trading style?

We are very different to our competitors. We are the least trader of the traders and we are the most merchants of the merchants. If you have a scale with a wine merchant at one end and a soybean trader at the other end, I see myself more as a wine merchant than as a soybean trader.

People ask me how they can make more money. By buying cheaper coffee? No, by selling more expensive coffee, not by buying cheaper!

Everyone knows the price of coffee today; they all have a cell phone and access to the internet. We strive to improve the price to the farmer and ourselves by differentiating the product; the more I pay the farmer, the better the supply chain. Cheap coffee does not fit our business model.

Why is the price of coffee so low – is it because Brazil and Vietnam are so efficient?

Brazil sets the price of robusta. Today if you take delivery of the futures market in London you will get only Conilon – Brazilian robusta. Not everyone wants Conilon, so if you have Conilon, the easiest place to go with it is the futures market. So, although Vietnam produces more robusta than Brazil, it is Brazil that sets the futures price because the futures represent Brazils.

Brazil also sets the price of arabica.

Brazil can see yields in excess of 60 bags per hectare versus 5 bags per hectare in Africa. So, Brazil obviously produces a lot at a very cheap price. If a country wants to compete with Brazil, they have to compete on something else other than price. They have to compete on quality. In the long run, nobody can compete with Brazil just on price.

Is the world of coffee pricing broken?

There are currently too many producers who can’t make a living out of coffee. So, yes, in that sense coffee pricing is broken, and it has been broken for a while.

Having said that, there are a lot of companies who pay farmers correctly, and they are not small companies. These are people who know that you cannot live by taking advantage of others.

Two last questions: What is your favourite coffee? And what’s your favourite brewing method?

My favourite coffee is from Kenya: Dorman’s Gourmet Special Reserve. Once you drink this, you can’t drink anything else. It’s like Petrus. If I started to drink Petrus I wouldn’t be able to drink anything else. That’s why I haven’t start drinking Petrus.

I use a French press.

Thank you, Teddy, for your time and input.

© Commodity Conversations ® 2020

This is a short extract of an interview that will be published in my upcoming book Merchants & Roasters – Conversations over Coffee

 

 

One Reply to “The least trader of the traders”

  1. Appreciated the nice remarks about Cargill Coffee re the 2000 sale. Being the Cargill Coffee Economist at the time. That was a sad day.

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