Despite strong domestic demand, Brazilian coffee industry profits have dropped to the lowest level in a decade due to fierce price competition among a large number of roasters.
Sales are expected to rise more than 40 percent to 4 billion reais (US $1.8 billion) in 2005 but average margins will range from a loss to 4 percent profit, according to the Brazilian Coffee Industry Association (Abic).
"Roasted coffee prices rose 20 percent while the price of green coffee, the raw material, climbed 30 percent and salaries soared 167 percent over the past 10 years," Abic's executive director, Nathan Herszkowicz, told reporters.
Speaking on the sidelines of the association's annual meeting in north-east Brazil, he said that roasters have had to cut costs and profit margins which were around 15 percent a decade ago.
A large number of smaller and less efficient roasters were either driven out of business or had merged to be more competitive.
Herszkowicz estimated that the number of Brazilian roasters has shrunk by 35 percent to 1,100 in the last five years and that the trend will continue despite a growing market.
At the same time, the five biggest Brazilian roasters now account for nearly 50 percent of supermarket coffee sales, compared with 22 percent a few years ago.
However, this didn't discourage some Brazilian producers from investing in roasting units to produce speciality and gourmet coffees commanding prices three times higher than for traditional types.
"The problem is that there were a lot of roasters producing a very similar product," Herszkowicz said. "They need to develop new products for niche markets and invest much more in marketing."