Costa Rican consumption of U.S. wheat growing

By Jennifer M. Latzke

It's tough to improve upon a 100 percent market share.

Yet, U.S. Wheat Associates knows that it can't rest on that track record in Costa Rica and must continue to develop relationships with the Costa Rican wheat market leaders.

On March 31, the U.S Wheat Associates Trade Team toured mills and bakeries in San Jose, Costa Rica. They discovered that despite cultural attachments to rice and beans, many Costa Ricans are developing a growing taste for wheat breads and pastas and U.S. wheat is helping suppliers fill that demand.

Pasta Roma Prince

The trade team started the day with a tour of Pasta Roma Prince, a high quality pasta manufacturer that is the second largest pasta company in Central America. The team spoke with Manuel Enrique Cordero, the general manager, and found that the company uses exclusively durum wheat from North Dakota for its pasta.

Using only durum wheat is a big change in the market, Cordero explained, but one that is paying off for their company.

"In our model, good technology with good raw materials makes for good pasta," he said. "We can compete with Italians."

Pasta Roma updated its plant with equipment from Italy, on a governmental mandate that companies in Costa Rica begin reinvesting in new technology for their businesses.

While the team at Pasta Roma is worried about the prices they are paying for U.S. durum wheat, they won't use other wheats because U.S. durum meets their quality requirements.

Demand for pasta is growing strong in Pasta Roma's Central American market. Within Costa Rica itself, though, pasta is still somewhat a niche product.

The leading factor in demand for pasta is the price of comparable foods, such as rice and beans. Giancarlo Musmanni, vice president of the company, explained that in Costa Rica when the price of rice increases, the poor feel the pain the most.

"People still have to eat," he said. Since January 2007 until now, rice has increased to two times the price of pasta. So, annual pasta consumption in the country is up--3.5 kg per person currently, with all signs pointing to 4 kg per person within five years.

The trend in Costa Rican cuisine is to move to packaged pasta products that consumers can add water, heat and eat in a short amount of time. Unlike rice that takes longer to cook, pasta lunches can be made in seven minutes and can feed a family. Pasta Roma has created several such value added pasta products, and is marketing them to consumers for around 80 cents per package. The "instant lunch" concept is slowly gaining ground in the market where convenience and price are paramount to consumers.

Wholesalers make up the majority of Pasta Roma's market, with sales to mom-and-pop grocers and other retailers making up the rest. U.S. retailer Wal-Mart has a firm foothold in Central America, with 140 stores throughout the region and plans for one store opening a month for the next five years in the region. Wal-Mart will be a major player in the food market. But pressure to give price discounts below break-even points and other buying practices are a concern, especially to family companies like Pasta Roma.

Molcrisa

Near the Pasta Roma factory, the trade team stopped to visit with the operators of Molcrisa, the largest flour mill in Costa Rica and a partner to Pasta Roma. Molcrisa mills about 1,300 metric tons of U.S. wheat each day in all of its four mills.

Molcrisa has a long history with U.S. Wheat Associates and accounts for 55 to 56 percent of the flour market share in the country. The company is still privately owned by the same family that began it, and they continue to place a premium on quality flours made from quality wheat.

To ensure their quality remains at a high level, Molcrisa only purchases U.S. wheat, despite recent increases in the price. In speaking with General Manager Luis Ruennes, Molcrisa purchases soft red winter, hard red winter, dark northern spring and durum wheats and blends them to fill their quality requirements. Ruennes said the company mills many different types flours for bakers so they can choose the flour that best suits their needs. But, overall, they prefer flours made from spring wheats because of the gluten content and the fermentation the flour offers.

The high cost of spring wheat, though, has led Molcrisa to experiment more with hard winter wheats. Bakers are learning to use the hard red winter wheat flour, and may decide to continue to use hard red winter wheat flour even if the price of spring wheat comes down.

"The price of spring flour makes the markets," Ruennes said. "Bakers don't like to retool equipment."

Artisan breads are the main types of breads in Costa Rica, with bakers preferring high gluten flour that will resist mistakes, explained Montserrat Castro Bolanos, the head of Molcrisa's quality control department. In small bakeries the dough is usually prepped by 5 p.m. the night before, with baking happening early the next morning.

The market for bread flour is growing in Costa Rica and Central America as well. In Costa Rica, the per capita consumption of bread flour is at 45 kg per person per year, or about 100 pounds. That's still not at the same level as rice consumption, though.

The Central American and Dominican Republic Free Trade Agreement, or CAFTA-DR, was another hot topic for the trade team to discuss. Costa Rica is the last country to enter the agreement, and Ruennes said CAFTA-DR will affect the finished products market more than the baking industry in the country.

"We have to pay a tax of 1 percent on wheat, but when we signed the FTA that goes to zero," he said.

Transportation costs and rising electricity bills are concerns to millers like Molcrisa. The mill pays an average of $60 per metric ton for freight from the U.S. to Costa Rica, and once the wheat is at the port it has to be trucked to the mill 60 miles over the mountains. The mill can unload 1,000 trucks every four days. Ruennes said the company will have to pay 75 percent more for electricity this summer, and has milling shifts overnight so that the milling process can be uninterrupted.

Panaderias Musmanni

If you choose to dine at a Quiznos, Subway, or Outback Steakhouse anywhere in Central America, you're eating a product made by the folks at Panaderias Musmanni and its partner Pinova.

The Musmanni family business began more than a century ago. In the 1980s, the company began offering franchise opportunities for smaller bakeries. The company sells frozen and fresh bread products in its own 200 Musmanni franchises, and also supplies frozen dough to chain restaurants.

Musmanni sells about 2,000 metric tons of product each month in the Caribbean and Puerto Rico. They have more than 170 different products, according to Pinova General Manager Tomas Acuna and Jorge Pacheco, president of Musmanni.

Musmanni prefers spring and winter wheats from the United States for the quality of flour they make. However, the cost of their flour has doubled since August of last year. To offset their costs like their colleagues, the company is using more hard red winter wheats from Kansas and the High Plains to blend with their spring wheats.

Acuna and his colleagues were concerned over rumors that the U.S. would be restricting its exports of wheat because of tight supplies. The company uses 12,000 to 15,000 metric tons of flour each year. However, the USW trade team reassured them that exports would not stop, and that supplies are actually larger than many predicted.

The challenge, explained U.S. Wheat Communications Director Steve Mercer, is that wheat has to compete for acres with corn and soybeans. Chet Edinger, South Dakota wheat farmer, explained that the high wheat prices are attributed with more spring wheat plantings this year.

Pasta Vigui

The final stop of the day was to Pasta Vigui, a small pasta maker that has introduced a line of Asian-style noodle meals that are fat-free, kosher and convenient.

President Jorge Viquez, and Carlos Gonzalez, director of finance, met the trade team with enthusiasm and a full meal, showcasing the many new value-added pasta products the company is introducing to the market.

The star of Pasta Vigui's line-up is a ramen-style noodle dish that is low sodium, fat-free and kosher and available in four flavor combinations.

Rather than frying the noodles, Viquez created a machine that will steam the noodles in about 30 minutes. Using help from the U.S. Wheat Associates' Wheat Marketing Center in Latin America, Viquez was able to create the packaging and advertising campaign for the new product.

Despite the higher price of flour, Pasta Vigui is seeing increased sales and is looking to export its newest product to the outside world.

"Even with higher costs, sales have gone up because of our new product," Viquez said. "But pasta is a basic food for the people."

At each stop of the day, it was clear that the Costa Rican taste for U.S. wheat is growing each day. With increasing tourism and population growth, the demand for pasta is increasing. And, that despite high prices, U.S. wheat has a firm grasp on the market. The five-year averages for hard red spring exports is about 3.65 million bushels, and that's still on track for this year.

Canada, though, is at the door ready to provide wheat if Costa Rican customers choose to switch from U.S. suppliers. Therefore, it continues to be vital that U.S. wheat producers keep the relationships developed with their Costa Rican customers friendly as ever.

Editor's note: Jennifer M. Latzke can be reached by phone at 620-227-1807, or by e-mail at jlatzke@hpj.com. This is the third in a four-part series on her recent trip to Latin America with U.S. Wheat Associates. The fourth and final installment will cover the group's visit to Mexico City. For previous coverage or to visit her blog of the trip, visit www.hpj.com.

5/12/08
3 Star CO\3-B

Date: 5/7/08

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