Mounties’ Pension Fund Bankrolls Expansion of Brazilian Coffee

(Bloomberg) -- You can thank Canadian public servants for bringing you high-quality Brazilian coffee.

The Public Sector Pension Investment Board, one of Canada’s largest pension funds, in May bought an undisclosed minority stake in Grupo Montesanto Tavares, which sells high-grade beans to chains including Starbucks. As part of the deal, PSP agreed to inject as much as 1.5 billion reais ($362.2 million) into the group with the goal of making it the largest coffee producer in Brazil, a person familiar with the negotiation said. Some of the money has started to be disbursed, allowing the firm to do pay down bank debt and boost working capital, the person said, asking not to be named because the details aren’t public.

GMT, as the Brazilian company is known, controls exporters Atlantica Coffee and Cafebras and importer Ally Coffee, which operates in the U.S. and Europe. The group’s five farms are located in highlands of Minas Gerais and Bahia states, land that has a lot of potential growth area for specialty coffees, a higher margin market that is growing more than average, said Rogerio Schiavo, a partner at GMT. About 40 percent of GMT’s production is dedicated to the top-quality beans, which they bet consumers worldwide will keep buying up.

PSP, which invest funds for the pension plans of the Canadian public service, the armed forces and the Royal Canadian Mounted Police, had C$153 billion ($118 billion) in net assets at the end of March. The fund’s press office directed further questions on the deal to GMT and said their focus is “developing strong partnerships with best-in-class, like-minded local operators, such as GMT.” IF Asset Management was the adviser on the deal.

Brazil is the world’s largest coffee producer. Prices for the commodity are at their lowest levels in more than a decade due to the plunge in the Brazilian currency and an oversupply of beans.

Thanks to the capital injection, GMT plans to quintuple annual production to 500,000 bags over the next 10 years. That could make them the largest in Brazil, Schiavo said, adding that it’s currently among the top 10. The company has some 2,000 hectares (4,942 acres) of unused land for planting, which could double production, and also plans to acquire new land and farms. Revenue for 2018 should reach 1.5 billion reais, up 11 percent from last year, Schiavo said.

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