Why would a Brazilian billionaire buy a coffee farm?

Coffee Intelligence – July 25th 2024 – Jordan Montgomery

• The ultra-wealthy and powerful are increasingly acquiring Brazilian coffee farms
• Brazil is one of the largest destinations for foreign direct investment, with a big focus on agriculture
• China jumped from 20th to 6th largest buyer of Brazilian coffee in the space of 2 years

GROWING interest in coffee farms from the ultra-wealthy and powerful is hastening significant changes in the world’s largest coffee-producing country. 

As global economic circumstances worsen and coffee production and the industry at large become increasingly hard to maintain, let alone profit from, this begs the question – why?

The global coffee market is expected to be valued at around $161.66 billion by 2030, increasing at an annual growth rate of 4.84%. Despite this growth, coffee farms are consistently unprofitable for most farmers, with estimates that many small-scale farmers earn less than $1/lb for their coffee. 

In December 2023, Ântonio Francisquini – otherwise known as the “Coffee Baron” – acquired control of Ipanema Coffees, the largest coffee farm in Brazil. Producing over 7,000 tonnes of coffee annually, the acquisition of Ipanema Coffees further solidifies Francisquini and his holdings group AFB&IOB as the largest producer of coffee in the world. 

Others are interested in Brazilian coffee-growing land too. In 2007, musician Lenny Kravitz famously acquired a $3 million Brazilian farm, and Mitsubishi Corp bought a 20% stake in Ipanema Coffees in 2012. 

This interest is far from random. A boom in overall commodity prices in the early 2000s, followed by the global financial crisis of 2008, led to commodities depreciating. But interestingly, land not only held its value but increased over time – creating a perfect investment opportunity. 

“Consistent land value may be one of the main motivations for the rich, powerful and influential to acquire coffee-growing land in Brazil,” says Giuliana Bastos, Coffee Market Trends Specialist and Coffee Journalist at São Paulo Coffee Hub. “This especially in a territory that doesn’t appear (on the surface) to be as affected as others by the climate emergency. For example, it’s safer to invest in a mountainous property in Brazil than in islands or coastal land.”

The financial crisis shifted the way companies, pension and endowment funds and private business people chose their investments. Using land as a premium asset as part of a long-term strategy – especially forested and carbon-capturing land – is becoming increasingly common.. 

“Coffee estates in Brazil have at least 20% preserved native forests because our laws are strict in this regard,” Giuliana says. “When we see the strengthening of a carbon market, it becomes an even more interesting business.” 

Why are the wealthy investing in coffee farms?

Brazil is no stranger to foreign financial interest, and is consistently one of the largest destinations for foreign direct investment (FDI). 

While in previous years this investment has been directed towards industries such as financial services and extracting natural resources, attention is quickly turning to agri-finance, or investment in the agricultural sector. This will soon account for close to 25% of Brazil’s GDP. 

Recent decades have marked growing Chinese investment in Brazil. In June 2024, the China-Brazil High-Level Coordination and Cooperation Commission (COSBAN) gathered in Beijing to agree to and sign a range of private sector and intergovernmental agreements, including export and investment in sectors such as agriculture. 

Opportunities for Brazilian coffee within China are expanding. The Brazilian government recently secured a $500 million deal at the COSBAN summit to sell 120,000 tonnes worth of coffee to promote Brazilian coffee in China’s largest coffee chain.

“Three years ago, Brazil exported only $80 million worth of coffee to China. Last year, it increased to $280 million. Now, this single company has formalised another $500 million. This opens up opportunities for Brazilians, creating more jobs and income,” said Carlos Fávaro, Brazilian Minister of Agriculture and Livestock in the formal press release issued by the Brazilian Government about the COSBAN summit.

Beyond coffee, the Brazilian government wants to further boost the diversification of its trade relationship with China, and recently received almost $4.7 billion in loans from Xi Jinping’s government. The China Development Bank has agreed to grant three loans of a total of over $1.8 billion for the “deepening of pragmatic cooperation between Brazil and China.” 

So far, strengthening relationships between the two countries has led to a boost in coffee sales. From 2022 to 2024, China jumped from the position of 20th to sixth position of largest buyer of Brazilian coffee – a massive growth of 278%.

“Considering this, investments are welcome to help finance production and also to contribute to improving the quality and sustainability of coffees in Brazil,” says Giuliana. “However, I believe that Brazil is already doing its homework. Since in recent years, the country has achieved significant growth in productivity, quality, sustainability, and more.”

“We must also consider a high personal investment from producers themselves, who are seeking greater professionalisation in production.” 

While investment might mean good news for many of Brazil’s main industries and their exports, Chinese investment has also been accused of creating unfair competition within Brazil, and raised concerns about environmental and social consequences in bio-diverse regions like the Amazon. 

Concerns notwithstanding, China is the main destination for Brazilian agricultural exports and quickly becoming Brazil’s most important trading partner. In 2023 alone, sales to the Chinese market reached a record $104 billion, accounting for more than 36% of Brazil’s total agribusiness exports. 

The US and China are competing for Brazil’s attention, but who is winning? 

With significant trade opportunities up ahead, it’s no wonder companies, investment funds and billionaires are vying to invest in Brazil’s agro-finance, including its already large coffee industry.

Companies and wealthy individuals – such as the “Coffee Baron” – have anticipated the changes ahead. For example,  Nescafé has recently invested in the expansion of its presence and production in Brazil to capitalise on a growing domestic market and exports to China. 

However, this growth is also fostering more competition in global markets, from exporters and coffee prices to coffee shops. It also signifies ongoing competition between powerful players, as well as a shift in the dominance of the coffee trade.

The United States has long been one of the largest consumers of coffee in the world – falling only behind the EU – importing a reported $8.3 billion worth of coffee in 2023 alone, or 24.5 million bags. Although this dwarfs China’s estimated 1.8 million bags, its fast-growing relationship with Brazil will undoubtedly cause some concern for the US and other major importers. 

Since 2009, China has been Brazil’s largest trading partner. In 2023, the trade flow between the two countries exceeded $157 billion. In contrast, the United States – Brazil’s second-largest trading partner – had a trade flow of just under $75 billion. 

“With growing consumption driven by young consumers and the opening of coffee shop chains with thousands of stores, the impact of Brazilian coffee exports to China is huge for the coffee industry in Brazil. It creates potential new business and values our product for a super-powerful market,” says Giuliana.

China’s growing interest in securing Brazil’s financial future and exports may also signify a potentially weakening relationship between Brazil and the US overall. With both countries taking advantage of Brazil’s growing agro-finance sector that seeks foreign investment, a stiff competition could send coffee prices soaring. 

Although it is becoming increasingly difficult for farmers to profit from growing coffee, the advantages of foreign investment and acquisitions may prove to be beneficial for these farmers in the long term. 

“With the recent boom and professionalization of coffee producers, many coffee growers have consolidated. In any case, there are good reasons to attract the interest of investors,” says Giuliana. 

“And it’s not just about the highs. Coffee is a commodity with times of highs and lows – but the climate outlook, consumption growth, fall in global production, and other factors are attractive to these investors.”

At first glance, Brazil’s coffee sector – or indeed the global coffee sector – may seem too unreliable for investment. But investors and major industry players are looking beyond that, and so are billionaires. Once more, Brazil could set the tone for what is to come in the global coffee sector.  

Why would a Brazilian billionaire buy a coffee farm?  – Coffee Intelligence