By Reese Ewing and Peter Murphy
SAO PAULO/BOGOTA (Reuters) - Enticed by espresso and lured by lattes, more Brazilian and Colombian consumers are waking up to the aroma of top notch coffees their farmers have traditionally produced for the cafés and grocery shops of developed nations.
Trendy chains like Starbucks Corp (NSQ:SBUX), brands like Juan Valdez that represents Colombian growers and in-home espresso machines marketed by Nestle SA (VTX:NESN) are some of the pioneers transforming the coffee consumption habits of the two countries' combined populations of nearly a quarter billion people.
Their more demanding and experimental consumers are adopting lifestyle habits of developed countries, after a decade of economic prosperity in the two countries that grow 40 percent of the world's coffee and most of the best beans.
As Latin American consumers climb up a rung of the global coffee ladder, they are expanding the market for beans that earn farmers more at a time when prices for the undifferentiated bulk commodity are foundering to four-and-a-half-year lows.
Even though it does not open until 10 a.m., Isabela Raposeiras' Coffee Lab café in the trendy Vila Madelena neighbourhood of Sao Paulo is nonetheless packed only minutes after opening, with customers jockeying to sample the latest in specialty coffees.
"I really liked a coffee I tried last week, so I did some research on it and in the end didn't buy it (for my customers) because I didn't like the place it came from," Raposeiras said referring to high standards that are winning her new clients.
Populous developing countries in general -- even traditional tea drinking nations in Asia -- are expected to continue driving demand growth, the head of the International Coffee Organisation, Roberio Silva, told Reuters. Their consumption rose 80 percent from 2000 to 2012, versus just 11 percent in established markets like North America and Europe.
While rising coffee consumption in Asia is mainly instant coffee made from cheaper robusta beans, consumers in these two countries where coffee drinking is longer-established, are now buying a bigger share of the cream of their own crops.
Brazil's out-of-home coffee consumption is rising more than 20 percent a year and sales of capsules for home espresso machines like Swiss roaster Nestle's Nespresso and cheaper Brazilian brands have grown eightfold in four years.
"It's a trend that was imported from the United States and spread quickly," Nathan Herszkowicz, the executive director of Brazil's Coffee Industry Association (ABIC), said of a cafe culture renaissance spilling over into home consumption habits.
Tapping new sources of demand has rarely been more critical as the coffee market grapples with oversupply in arabica and prices near four-year lows, prompting governments in both countries to begin subsidizing their farmers.
Even though drip-filter brews are still the mainstay method of preparation in both countries, as is the case in the United States, chic espressos and drinks based on them like cappuccinos and lattes are both countries' fastest growing segments.
While overall coffee consumption in Brazil, the world's second biggest coffee drinker, is growing at a steady 2 percent annually, espresso consumption is expanding at 10 times that rate, said ABIC's Herszkowicz.
Marketing and coffee experts have branded espresso and other precision coffee preparation methods as "monocupping", because only one or two shots are prepared at a time with little waste, in line with the higher value of the coffee beans used.
"It's a trend that is here to stay, like it or not," coffee specialists at Ona Consulting, Manuel Diaz.
An espresso uses about double the grams of ground coffee per serving in drip-filter brews, partially offsetting the fact that newer recruits to the habit of coffee drinking tend to consume more efficiently with no left-overs.
"The coffee industry will lose when my father's generation dies," Judith Ganes, a commodities specialists at J. Ganes Consulting said, referring to older generations all the way up to the baby boomer era after the second world war.
"His generation drinks six to eight cups of brewed coffee a day and throws another four cups down the drain," she said, estimating it would take about 10 of today's younger, less wasteful monocuppers to replace her father's consumption.
Higher-end coffees cost more to produce but still pay off for the grower. While standard commodity grade good or hard cup Brazilian unroasted arabica sells for between $0.85 to $1.00 a pound, specialty beans earn growers $2.60 to $9.00 a pound.
And there is always the appeal as a farmer of medalling one's beans in competition. A recent award-winning Panamanian natural arabica fetched $300 a pound, Ganes said.
Arabica for December delivery on New York's ICE futures exchange was sold at 4-1/2-year lows of $1.09 per lb on Friday, down from $1.65 a year ago.
The ICO estimates that global coffee production expanded 7.6 percent over the past season, while consumption has only expanded 2.1 percent last year, a worrying imbalance that has in the past been righted by some growers abandoning crops.
Gourmet coffee sales are still a niche in the world's top two arabica producers, with just 2 percent of Brazil's total market and 2.6 percent of Colombia's, but look set to sustain a run of double-digit growth in both countries for some time.
Brazil, the world's No. 2 coffee consumer after the United States, consumes mostly lower quality beans dark-roasted and sweetened to mask astringent flavours. Colombians on the other hand drink less than a third of what Brazilians consume per head, highlighting that market's potential for growth.
Rising living standards have helped change coffee habits. A near-decade long growth spurt in Brazil swept 40 million poor into a new middle class. Improving security in Colombia, where guerrillas have fought a civil war for five decades, spurred a wave of foreign investment.
Growing disposable income in Colombia was likely a decisive factor in Starbucks' recent move to open its first store in the Andean nation in 2014 with 50 more scheduled to follow in its first five years.
"(Coffee chains) are helping train consumers to recognize the value of the different qualities and to feel ready to pay more for higher qualities," said Ana Maria Sierra, head of Colombia's roaster-funded Toma Cafe initiative to promote better and more profitable coffees.
Before Toma Cafe or "Drink Coffee" initiative began three years ago, Colombian consumption as a whole had been in decline for 20 years, a trend roasters say reflects the challenge of recruiting new consumers when products lack quality.
"We think consumption will grow much more, through education and specialty coffee," said Amado Alvarez, a Bogota restaurateur who says he became Colombia's first owner of an exclusive Marzocco Mistral Italian espresso maker four years ago.
The 15,000 euro ($20,700) chrome-finished angular with a retro look takes pride of place on the counter as Alvarez talks at length of how it can churn out a run of espressos with "consistent froth", without gradually losing pressure or temperature.
"There are a lot of good coffees staying in Colombia now, when before, they were all going abroad," he said, as blenders and coffee grinders whirred while clients shuffled in and out on a Friday morning.
(Editing by Marguerita Choy)