Coffee

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Coffee is the second largest traded commodity in the world & is an extremely important foreign exchange earner as far as the commodities are concerned. Brazil and Columbia are top two coffee producers in the world. They account for more than 40% of the total world produce while India¶s contribution is just 4.1%. Indian coffee is rated among the best-quality mild coffees in the international market and is exported to USA, UK Russia, Europe, Sweden, Norway, Yugoslavia, Belgium, Australia, Japan and the Gulf countries. In India coffee cultivation is largely confined to the hilly regions of the southern states of Karnataka, Tamil Nadu and Kerala Karnataka accounts for 53 percent of the planted area (59 percent planted to Arabica, 41 percent to Robusta) while Robusta is dominant in Kerala (which has 28 percent of planted area). In Tamil Nadu however the crop is majorly of Arabica (which has 11 percent of planted area). Some 1, 33,049 small planters and 2,948 large planters cultilvate4d coffee during the year. India produces 260mn Kgs of coffee per year. Indian coffee production has a yield of 800 ± 900 kg. Per hectare, this is low compared to the world average of 1,100 kg per hectare. The area under coffee cultivation is approximately 3.1 lakh hectares. India produces an average of nearly 2 lakh tones of coffee a year, valued at over Rs. 460 crore, mainly grown in south India. Out of the total production only 20% is consumed in the domestics markets rest is exported. Thus India has to depend heavily on foreign markets. Indian coffee is typically mild and not too acidic-and yet it possesses and exotic full-bodied taste and a fine aroma. The flavour is full bodies, slightly acidic and straightforward.

Coffee Market

The coffee market and its various elements are what drive the coffee industry. Within the Market portion of the coffeeresearch.org site you will find information and statistics on coffee consumption, exportation, importation, and explanations of the world coffee market. This section will focus on general coffee statistics, coffee market prices, and coffee market trends. To supplement this coffee market research, there are many coffee marketing subscription websites exist to give instant quotes and to facilitate trading. Additionally, for the special ty and gourmet coffee market, the Specialty Coffee Association of America and the National Coffee Association publish extensive annual data on coffee consumption statistics in the United States. For more specific international coffee market information, th e International Coffee Organization is the best resource.
INDIA'S COFFEE INDUSTRY OVERVIEW The world coffee production in the coffee year 2009 10 is estimated to be 123.6 million bags signifying a decline of over 4.5 million bags in the CY 2008 -09 when production totaled at 128.2 million bags. This is revealed in a report of International Coffee Organization market report for January 2010

excluding additional information that has to come from Colombia and Vietnam. The ICO report also states of a significant fall in coffee production in Brazil - by about 14 percent besides production shortfall apprehended in countries like Cote d'Ivoire; Tanzania, Uganda, Papua New Guinea, Vietnam, Mexico, El Salvador, Equador and Peru. The Colombian production is unlikely to register worth mentioning increase. The over all world supply of coffee is likely to be tight in 2010 due to low level of opening stocks as well. In the export front calendar 2009 closed with a decline of 3 percent at 94.7 million bags from 97.7 million bags in 2008. World consumption however is provisionally estimated at 130 million bags in 2008 from 128 million bags in 2007. Domestic consumption in exporting countries was up at 36.7 million bags compared with 35.4 million bags in calendar 2007. The Brazilian Coffee Industry Association expects 4.15 percent increase in world consumption of coffee.

Total world exports of coffee (2008 & 2009) 2008 Colombian Milds Other Milds Brazilian Naturals Robustas Total 12219 22524 28724 34199 97666 2009 9278 20861 30033 34518 94690 % Change -24.07 -7.38 4.56 0.93 -3.05

Source: International Coffee Organization, Coffee Market report, January , 2010

Indian Coffee Board puts country's coffee production at 2.90 tonne (Post monsoon estimation) and 3.06 tonne (Post Blossom Estimation) respectively. For the present crop year beginning October, the board has estimated an output of arabica at 101,525 tonnes and robusta 204,755 tonnes. Karnataka leads the country with 2.05 tonne (Post monsoon estimation) and 2.21 tonne (Post Blossom Estimation) production followed by Kerala and Tamil Nadu. According to ICO estimate, India produced over 3.1 million bags of 60 kgs each in 2009 compared with 3.3 million bags in 2007.Country's coffee exports during fiscal 2008-09 stood at 1.96 lakh tonne signifying marked decline from 2.18 lakh tonne in 2007-08. India's Coffee Production (In tonne)
State Karnataka Kerala 2006-07 206025 59475 2007-08 191575 49000 2008-09 183860 57200 2009-10 205700 59250

Tamilnadu Non-traditional areas (Andhra Pradesh & Orissa) North Eastern region Total

18225 4085 190 288000

18100 3175 150 262000

16255 4870 115 262300

19350 5185 115 289600*

Post Monsoon estimates * Source: Federal Ministry of Commerce, Government of India

India accounts for about 4.5 percent of world coffee production and the industry provides employment to 6 lakh people. Among the coffee growing states, Karnataka accounts for 70 percent of country's total coffee production followed by Kerala (22 percent) and Tamil Nadu (7 percent). Europe accounts for about 70 percent of India's total coffee exports. Of this again, 70 percent is shipped via Suez Canal. Major Indian coffee importing countries include Italy, Germany, Russian federation, Spain, Belgium, Slovenia, US, Japan, Greece, Netherlands and France. India's Exports of Coffee
Year 2006-07 2007-08 2008-09 2009-10 (Upto March 8, 2010 Quantity (In tonne) 249029 218998 197171 181225 Value ( In Rs crore) 2007.90 2046.29 2242.64 1944.98

Source: Federal Ministry of Commerce, Government of India
With a view to expand coffee cultivation, Coffee Board has been implementing developmental programmes for coffee development in North Eastern Region and Non Traditional areas. During 11th Five Year Plan, Coffee Board has proposed to support coffee expansion programme taken up by the Integrated Tribal Development Agency on 24000 ha. area in Andhra Pradesh and on 850 ha. area in North Eastern Region, which will facilitate export of coffee. As a part of export promotion, the Coffees from different regions with their logos are promoted including the coffee from the areas under Integrated Tribal Development Agency, as µAraku¶ Coffee. Constant endeavour is being made by the Government to help the coffee growers to ease their bank debts.

Updated on March 15, 2010

A SWOT analysis on Indian coffee
Pravin Palande

Mumbai: Understanding the strengths, weakness, opportunities and threats (SWOT) of an industry is paramount for its survival and growth. To understand the coffee market in India we must first analyse the industry environment. What may be perceived as a strength in one situation may turn out to be otherwise in another. Also, what must be considered is that the domestic coffee industry is going through a period of transition. It is metamorphosing from a controlled to a free market. Hence, there will be temporary travails which can be rectified in due course. With this in mind, we can proceed to make a SWOT analysis. Strengths Coffee production in India has risen from a meagre 17,000 tons at the time of Independence to the existing 270,000 tons. This proves that core infrastructure such as technology, finance, agricultural inputs, etc., are in place and growers have made use of them. Harmonious labour relationship, particularly in Karnataka, the largest coffee producing state. Widely dispersedownership of coffee farms which reduces the risk of industry crippling strikes. Over 98% of the farms are of an area of 10 acres or less. Coffee is not a perishable commodity. Thus, the risk of crop wastage is nonexistent. Coffee crop is rotated with other crops, thus, supporting the grower during periods of low prices. Weakness The price realisation of Indian coffee is low. This is because India, being a minor player in the global coffee market, is not in a position to influence prices. Domestic coffee consumption is very low, making coffee produced in the country highly dependent (more than two third of domestic coffee produced is exported). This puts a heavy risk on growers as their revenues are highly dependent on global prices.

Historically, it has been proved that there are hardly any linkages between global and domestic coffee prices. Domestic prices have remained high despite a crash in global coffee prices. Myopic view of coffee exporters who rush to cancel export contracts atthe first sign of higher domestic prices. This results in a negative image of India as an unreliable supply point. Opportunities India being a minor player in the global market has great potential to improve its marketshare through higher yields and improved quality. Also, domestic consumption being very small, there lies a huge opportunity to expand the market with the help of intensive coffee promotion. After the introduction of free sale quota (FSQ), there is adequate capital formation. This improves the prospects of growth in productivity as growers can reinvest proceeds in that direction. Although coffee consumption in the US is declining, it continues to rise in Asia. India, being strategically situated, can cash in on this opportunity and become a major supply point.The decision (if taken) to join the Association of coffee producing countries (ACPC) will help India in the long run. Presently, the export quotas dictated by ACPC is something that Indians are not agreeing. After all, much ofthe coffee from India is exported. Threats Cheap labour is one of the most critical cost factors in coffee production. Substantial increase in labour cost can erode competitiveness of Indian coffee in the international markets. Coffee is one of the few agricultural crops in India which is subject to taxes. Hike in taxes can substantially reduce margins to growers and serve as major disincentive. Competition from tea, a cheaper and more popular beverage locally, can reduce its minuscule domestic consumption. Russia, the largest importer of coffee from India, is undergoing an economic crisis. As a result, it has suspended coffee imports. This threatens to severely dent our export volumes. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.

Strengths: USA
Health Benefits

y

One of the factors that have deterred people from drinking coffee in the past was the belief that it was in some way harmful. This is no longer the case. In recent years, some 19,000 studies have been done in an attempt to understand the risks or benefits of consuming coffee. While many studies have explored the connection between coffee and certain illnesses such as cancer and high blood pressure, no evidence has been found to link coffee to these health risks. What might be more surprising is that recent studies have shown that coffee can actually be good for you. This is good news for the people of America and for the Coffee Industry. ³"Overall, the research shows that coffee is far more healthful than it is harmful," says Tomas DePaulis, PhD, research scientist at Vanderbilt University's Institute for Coffee Studies, which conducts its own medical research and tracks coffee studies from around the world. ³For most people, very little bad comes from drinking it, but a lot of good."´ industry. y Health Studies This is good news for the coffee

According to a study done by Scientists at UCLA and the University of Southern California and reported on WebMD on February 19, 2009 , the more coffee that you drink the less likely you are to ever being diagnosed with a stroke. This is not the only study to show that a higher intake of coffee can lead to better health. Another example is a study done by Harvard School of Public Health; and Brigham and Women¶s Hospital showed coffee consumption can reduce the risks of type 2 Diabetes. Drinking 6+ cups of coffee a day may reduce the risk of type 2 diabetes by 54% in men and 30% in women. Coffee helps to increase your resting metabolic rate, which could help keep diabetes at bay. y Benefits for the Coffee Store Franchisee

Positive health risks are clear drivers of consumption, so this is good news for coffee stores and coffee store franchises, as consumers are happier to drink more caffeinated beverages. Questions posed to consumers about the health benefits of drinking coffee and if they thought that coffee is good for their health are both up significantly since 2005. More people now believe that there are health benefits to coffee and that i t is good for their health.

Is there Health Benefits to Coffee? % answered Yes

answered Yes Is Coffee good for your health? % answered Yes

2005 2008 Total Increase

37% 46% 9%

26% 36% 10%

Weakness:
As with growing any crop there are unpredictable elements that will affect the production of the crop and therefore the cost of coffee for the coffee franchisee. The coffee plant is selective about growing conditions. Coffee trees can't tolerate weather that is too hot or cold, or too wet or dry. Climate change can play a huge role in the amount of coffee that is produced and how much it costs the retailer. For example, in 2005 coffee prices rose. This rise was most likely because of a harvest that was 10% to 20% lower than that in the record years before. An increase in consumption of coffee in Russia and China also played a part. Because of the recent economic downturn, consumers are less likely to spend $5 for a cup of coffee than a year ago. Consumers are more conscious of spending and ar e more willing to shop around for the best deal. To remain successful, a coffee house needs to change their business in response to this consumer trend. Starbucks has realized the importance of this consumer trend and in response has begun its first combin ation discount by selling coffee and breakfast foods together for $3.90. This is a discount of nearly $1.20 in an attempt to lure consumers into its coffee shops during the recession.

Opportunities:
The coffee industry is well developed and rooted in society with 54% of the overall American adult population drinking coffee, that¶s 400 million cups of coffee consumed everyday. The stimulant effect of coffee is one of the reasons that hard working Americans make stopping into a coffee house part of their day. The local coffee house also provides a warm, calm environment in which people come to socialize, relax or even catch up on work. This sustained growth in the industry points toward a solid opportuni ty within the coffee franchise industry. Though the coffee industry is highly developed and competitive; the demand for speciality coffee is growing every day. Italy, with a population of 60 million, has over 200,000 coffee bars. In comparison, the U.S. ha s approximately 21,400 coffee bars with

a population of 290 million. This just shows that there are a lot of opportunities for new outlets in the industry. The growth of the specialty coffee market may not be where it was in the early 90¶s when the number doubled every 2 years but that does not mean that there isn¶t a growing market. The growth is driven by the demand Americans have shown for up market and premium-priced coffees. From 2005-2010, coffee sales are expected to grow by a further 125% to reach $18,839 million in 2010. This just shows that there is still a huge amount of opportunity within the specialty coffee market The coffee industry has changed over the last few years. The old style coffee house is no longer the only place to purchase good specialty coffee. Drive-thru, kiosks and carts are becoming more and more popular as they can offer their products and services to the µon-the-go¶ American. The start up cost for kiosks, drive-thru or cart franchises are much less than that of a stand alone coffee house. This means there are more opportunities available, for a lower investment, to start up and run a coffee business. Massimo Zanetti Beverage Cafés USA INC offers the opportunity to franchise a Chock Café Kiosk for the low initial investment cost of $20,100. In 2004 Seattle¶s Best Coffee and Borders Books and Music announced a licensing agreement to open Seattle¶s Best Coffee cafes in existing and new Borders Book stores.

Threats:
A common threat in any industry is an economic recession, which reduces consumers' consumption. We are currently in a recession and this has reduced revenue in companies, regardless of the sector. It is not only the coffee industry that has felt the effect of a more money-tight consumer base. Many coffee stores are taking measures to bring customers back to the coffee house. Promotions and special offers are ways of enticing customers. Starbucks closed 7,100 stores nationwide for three hours to retrain about 135,000 in -store employees and people who oversee their stores. This was in a bid to raise sales and to better the over all experience of the customer. Seattle¶s Best Coffee LLC has a buy one get one free offer to entice consumers to the coffee store. A coffee house is exposed to rising costs of coffee and dairy produc ts. This is something that can not be foreseen but may have a big impact on the coffee store industry. Franchise Direct's Disclaimer

The Indian Coffee market
by V S RAMA RAO on SEPTEMBER 9, 2010

India continues to remain a tea loving nation. However, with the increase in the number of coffee outlets and the changing age profile of the population, the base of the consumers drinking coffee is expanding Nestle India and Hindustan Le ver dominate sales of instant coffee, accounting for 95% of value sales in 2006. It is estimated that by December 2008, the country would have 1,135 organized cafes, growing at 63% per annum in terms of number of outlets. India has eight big cities, 53 tow ns with a one million population and 3,410 urban agglomerations of below one million populations. It has potential to accommodate 5,000 coffee retail outlets. With a large base of young working population India will emerge as the fastest growing coffee market. The Indian coffee Board has taken steps to boost coffee consumption by 50% by 2012. We are pushing the consumption to make it part of India¶s consumer culture, thereby giving the beverage a lifestyle status says its chairman. Table given below indicates the consumptions of coffee in India. Calendar Year Quantity (in MT) 1991 55000 1992 55000 1993 55000 1994 55000 2000 60000 2001 64000 2002 68000 2003 70000 2004 75000 2005 80200 The key players in this market are Barista, café coffee day and Qwiky¶s. Fast food retailers like McDonald¶s who have for long offered milk shakes and ice creams have also started offering coffee. Barista

Barista are the key players. Barista which means bartender in Italian is a chain of coffee shops established in the year 1999. Turner Morrison has a 60 per cent stake in Barista Coffee Company Ltd with Tata Coffee holding 34 per cent and the remaining six per cent being held by the employees. In March 2007, Italian coffee roaster Lavazza acquired Barista for Rs 430 crore from Chennai based Sterlite InfoTech Group. The company has 140 outlets across India and plans to add another 50 in the current year. Barista also has three outlets in Sri Lanka and four in Dubai. International sales account for 10 per cent of the business at present. Every Barista café aims to recreate an ambience and experience of the typical Italian neighborhood espresso bar in India. The interiors are bright trendy and comfortable. It also offers game like Pictionary and chess aimed at promoting an interactive social environment. The coffee chain initially targeted the premium segment of the market with its high pricing however the company went in for a 15 to 30 per cent price reduction last April following which there had been a 47 per cent increase in footballs. The company claims that in December 2003, Barista experienced a 21 per cent per store increase in footballs over the pervious December with the number of footballs for the year totaling 14 million. Barista has entered into alliances with premium hotels and has launched espresso bars at Taj properties across India. The company also plans to launch a new concept bar called Pavement Bar at the Taj poolside which would be a 24 hour coffee shop. Tie ups have also been done with Planet M and PVR cinemas. Promotional associations are also done with CNBC, Singapore Airlines and Evian. Enthused by its growth over the past five years Barista aims to be the world¶s number one in coffee chain within the next 10 years.

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