Historic Coffee Trader Gets $300 Million ShotBy
Coffee trader with Middle Eastern origins gets syndicated loan
Sucafina on track to be one of world’s top 5 coffee traders
Nicolas Tamari says there are many things his grandfather Wahbe, who set up as a foodstuff trader in the Middle Eastern city of Jaffa in 1905, would recognize about the family firm today. There are also plenty of twists and turns he couldn’t have planned for.
After two wars pushed the family business from the Palestinian port to Lebanon and then Switzerland, the company, re-founded as Sucafina SA in 1977, is now based near Lake Geneva and has become one of the world’s largest coffee traders. And as the coffee industry consolidates, it’s marshaling the financial firepower to grow, securing a $300 million syndicated loan from banks including BNP Paribas SA, ABN Amro Group NV and UBS Group AG.
"I don’t think he would have imagined us living in Europe, because this was unthought of, but keeping the same values and remaining in the same business, I think he would have expected that from us," Tamari said in an interview.
Sucafina, which also traded sugar before focusing on coffee alone, has sought expansion while other houses shrink. The company hired about 50 people in the past year, opened offices in Colombia and Brazil, reorganized its North American unit and is starting a business in Seattle. The trader, which brought in Noble Group’s former head of coffee, David Behrends, as a partner in 2015, is opening up 20 percent of equity to managers and key employees.
It’s responding to a wave of consolidation in the coffee industry, squeezing margins for traders from Neumann Kaffee Gruppe to Volcafe Ltd. and Olam International Ltd. Investment vehicle JAB Holding Co. has spent more than $30 billion to acquire companies including Keurig Green Mountain and Peet’s Coffee & Tea chain. Nestle SA, the No. 1 coffee company, has joined the fray, buying Blue Bottle Coffee for $425 million last month.
"I like to consider Sucafina the smallest of the big trade houses or the biggest of the small trade houses," Behrends said at Sucafina’s offices in Geneva. "If we were content to stay at this size and we weren’t vertically integrated, we would eventually get acquired by someone. We are on a path that will lead us to being one of the top five."
The battle for survival in a market where fewer buyers have more power means trader profits are shrinking and their customers are demanding ever-more generous financial terms. The growing popularity of coffee with millennials, who want to know exactly where their beans come from and get closer to the farmer, is also putting the role of traders into question, Behrends said.
For Sucafina, that has meant diversification. Earlier this year, it started a joint venture with Cia Agropecuaria Monte Alegre, a century-old producer in the heart of Brazil’s coffee belt. In 2014, it also purchased Beyers Koffie NV, a private label roaster. The trader also owns 32cup NV, a specialty coffee merchant in Antwerp.
The 850-employee company trades the equivalent of about 5 million bags of green coffee a year, just under 5 percent of global trade. While there are no official statistics, bankers financing the sector say that makes Sucafina the sixth- or seventh-largest coffee dealer. Still, Behrends says volume isn’t the be-all-and-end-all.
Profits Not Bags
"I would love if the coffee trade could rank themselves by profitability rather than number of bags," Behrends said. "I think if that happened, it would change how people behave immediately. Ultimately we are not volume-centric."
It’s leading position in east African countries such as Rwanda, Uganda, Ethiopia and Burundi, where margins are still higher, is an advantage while dealings in top growers Brazil, Vietnam and Colombia make up a global trading book.
"We think if there’s one place where coffee production can really substantially grow, it can really come from Africa: Uganda and Ethiopia," Tamari said in Beirut, where Sucafina was celebrating its 40th anniversary. "In Africa, the margins are good and the key is to own assets and work directly with the farmer."
Sucafina will probably add about a million bags of coffee to its portfolio from the new office in Colombia and increased presence in Brazil, Behrends said.
The company is also planning to grow in Brazil, the world’s largest grower where it’s currently in talks to acquire a warehouse and a mill, according to Tamari. While the company is trading more, it won’t engage in the war for volumes currently raging the coffee business, they said.
While the Sucafina name may not be known outside the coffee industry, Wahbe Tamari already represented Nestle dairy products in the Middle East in the mid-1940s and his company accounted for 10 percent of Palestine’s citrus exports. Later, the business he passed on to his son Abdallah W. Tamari, the eldest of six children, became the region’s partner for many of the world’s top food traders. Moving from Beirut to Geneva, however, meant that Sucafina became a competitor.
With business expanding fast, the 18-month borrowing-base credit facility will come in handy. The syndicated loan is the first for Sucafina. Until now, the trader ran bilateral credit lines with several lenders.
"It’s a conversation that started two years ago considering the growth of the company and its increased traded volumes," Philippe Penet, head of BNP Paribas’s specialized trade solutions unit, said in an interview in Beirut. "Time has come from moving from standard bilateral financing with its key banks to a borrowing base secured facility."