Rejuvenating the India coffee story
• Global coffee production has exceeded consumption for the second year in a row, precipitating a decline in coffee prices.
• The dual impact of declining coffee prices and rising labour costs is pushing many coffee growers into deep debts.
• The World Coffee Producers Forum has devised a strategic roadmap to focus on major coffee consuming countries across the world.
• India is taking the lead in this regard by devising a five-year coffee consumption campaign to boost sales in the domestic market.
International coffee growers are in dire straits at present due to the dual impact of declining coffee prices and increasing labour costs. The International Coffee Organisation estimates that around 25 million farmers grow coffee in 60 countries, and over 90% of these are small growers and are currently compelled to sell their produce well below the cost of production. This has pushed several of them into deep debts, and some have even abandoned their farms to migrate to the cities.
According to ICO statistics, the world consumes 1.5 billion cups of coffee every day, with the average price of a cup at US$ 3.1 in the US, US$ 4.60 in Shanghai, US$ 6.24 in Copenhagen and US$ 3-4 in Bangalore and New Delhi. But growers do not get even 5% of this value.
Moreover during 2018-19, coffee production is expected to exceed consumption for the second year in a row, with the differential at 3.06 million bags, compared to 4.16 million bags in 2017-18. Production growth was the highest in South America, with output increasing by 4.4% yoy to 80.42 million bags in 2017-18. On the other hand, consumption growth was the strongest in Asia & Oceania (4.4%). The ICO composite declined from US 112.99 cents/lb in March 2018 to US 97.5 cents/lb in March 2019.
India is a major stakeholder on this front, as it is currently home to 300,000 coffee farmers. In 2018, India’s coffee exports showed a positive increase of 2.2% in unit value, which stood at Rs 164,733 per tonne (source: Coffee Board). However, this comes on the back of a decline in exports by 7.6% yoy to reach 350,195 tonnes. Coffee production is getting increasingly unviable in India due to shortage of labour, rising labour costs as well as vagaries of climate change.
In order to address the situation, the World Coffee Producers Forum has devised a strategic roadmap to focus on the coffee consuming countries in the world. India plans to launch a five-year coffee consumption campaign in collaboration with major coffee brands like Nestle and Starbucks, along with the Government of India and other stakeholders. A special entity will be created to execute the campaign, which will be mostly funded by international roasters, and kickstart by mid-2020.
The target audience for this campaign will be 450 million people, comprising mainly of school and college students. Mr Anil Kumar Bhandari, president of India Coffee Trust and chairman of the Private Sector Consultative Board of ICO, comments, “It is like catching them young, before students get involved with colas, carbonated sugar drinks or liquors. We have to create a generational change and build a coffee culture. The campaign will be managed in consultation with parents, teachers and school/college managements. We will also rope in sugar companies, dairy brands into it.”
The campaign will have the active involvement of Carlos Brando, the brain behind Brazil’s popular coffee campaign that successfully pushed coffee exports in the country in 1990. The plan includes importing excess coffees from Brazil, Vietnam and Columbia, subject to the Government of India waiving the import duty of 105% on coffee.
India has been viewed as a highly lucrative market for coffee players, prompting an aggressive growth push from the likes of Tata Starbucks, Nestle, Unilever and Café Coffee Day. However, per capita coffee consumption in India is still stagnant at 100 gms, compared to US (4 kg) and Finland (9 kg). Consumption is estimated to have grown at a low CAGR of 2.3% since 2010 to reach 110,000 tonnes in 2018.
Coffee drinking remains concentrated in the southern markets of Tamil Nadu and Karnataka, which account for 85% of total consumption. Apparently, the youth in the non-traditional markets does love to visit cafes, but does not seem to have a penchant for consuming coffee back home. In such a scenario, if the campaign to boost consumption is successful, it will be beneficial for Indian coffee producers as well, since they will have the benefit of a lucrative growth market on their home turf.