Coffee

Report on COFFEE : MARKETING & FINANCE

Prepared By : Abhijeet Sabat Batch of 2009-11

INDIAN INSTITUTE OF PLANTATION MANAGEMENT, BANGALORE (An Autonomous Organization Promoted by the Ministry of Commerce and Industry – Govt. of India)

Jnana Bharati Campus Malathalli Post Bangalore 560 056

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INDEX

Sr No

Topics

1

Introduction

2

Coffee Marketing

3

ICO

4

Pre liberalization Marketing Plan

5

Post liberalization Marketing Plan

6

Medium Term Export Strategy for Coffee

7

Future Strategies for New market

8

Financial Assistance in exporting Coffee

9

Coffee Schemes

10

Conclusion

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Introduction

BABA BUDAN HILLS-BIRTHPLACE OF INDIAN COFFEE

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INTRODUCTION TO THE INDIAN COFFEES

The world's best shade-grown 'mild' coffees. Indian coffee is the most extraordinary of beverages, offering intriguing subtlety and stimulating intensity. India is the only country that grows all of its coffee under shade. Typically mild and not too acidic, these coffees possess an exotic full-bodied taste and a fine aroma.

Indian coffee has a unique historic flavor too! It all began with a long, arduous journey around four hundred years ago... When the legendary saint bababudan brought seven magical beans from distant Yemen and planted them in the chandragiri hills of Karnataka. The sensations of aroma, flavor, body and acidity that you enjoy with each coffee experience is rooted in these mystical beginnings. It is often said, the Indian coffee grower pours his life into the crop. Is it any wonder then that India has consistently produced and exported a remarkable variety of high-quality coffees for over one hundred and fifty years?

The coffee industry of India is the sixth largest producer of coffee in the world, accounting for over four percent of world coffee production, with the bulk of all production taking place in its Southern states. India is most noted for its Monsooned Malabar variety. It is believed that coffee has been cultivated in India longer than anywhere outside of the Arabian peninsula.

Coffee was cultivated exclusively in the Arabian peninsula. To maintain this monopoly on coffee production, the Arabians forbade the export of coffee beans that had not been roasted or boiled enough to prevent germination. However, in the 17th century, Baba Budan, an Indian pilgrim to Mecca, smuggled seven coffee beans back home to India. There he planted the beans in the Mysore region, establishing the first coffee plantation in India.

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GROWING CONDITIONS

India cultivates all of its coffee under a well-defined two-tier mixed shade canopy, comprising evergreen leguminous trees. Nearly 50 different types of shade trees are found in coffee plantations. Shade trees prevent soil erosion on a sloping terrain; they enrich the soil by recycling nutrients from deeper layers, protect the coffee plant from seasonal fluctuations in temperature, and play host to diverse flora and fauna.

Coffee plantations in India are essential spice worlds too: a wide variety of spices and fruit crops like pepper, cardamom, vanilla, orange and banana grow alongside coffee plants. India's coffee growing regions have diverse climatic conditions, which are well suited for cultivation of different varieties of coffee. Some regions with high elevations are ideally suited for growing Arabicas of mild quality while those with warm humid conditions are best suited for Robustas.

All coffees grown in India are grown in shade and commonly with two tiers of shade. Often inter-cropped with spices such as cardamom, cinnamon, clove, and nutmeg, the coffees gain aromatics from the inter-cropping, storage, and handling functions. Growing altitudes range between 1,000 m (3,300 ft) to 1,500 m (4,900 ft) above sea level for Arabica (premier coffee), and 500 m (1,600 ft) to 1,000 m (3,300 ft) for Robusta (though of lower quality, it is robust to environment conditions). Ideally, both Arabica and Robusta are planted in well drained soil conditions that favour rich organic matter that is slightly acidic (pH 6.0–6.5). However, India's coffees tend to be moderately acidic which can lead to either a balanced and sweet taste, or a listless and inert one. Slopes of Arabica tend to be gentle to moderate, while Robusta slopes are gentle to fairly level.

Blooming and maturing Blooming is the time when coffee plants bloom with white flowers which last for about 3–4 days (termed "evanescent" period) before they mature into seeds. When coffee plantations are in full bloom it is a delightful sight to watch. The time period between blooming and maturing of the fruit varies appreciably with the variety and the climate; for the Arabica, it is about seven

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months, and for the Robusta, about nine months. The fruit is gathered by hand when it is fully ripe and red-purple in colour.

Climatic conditions Ideal climatic conditions to grow coffee are related to temperature and rainfall; temperatures in the range of 73 °F (23 °C) and 82 °F (28 °C) with rainfall incidence in the range of 60–80 inches (1.5–2.0 m) followed by a dry spell of 2–3 months suit the Arabica variety. Cold temperatures closer to freezing conditions are not suitable to grow coffee. Where the rainfall is less than 40 inches (1.0 m), providing irrigation facilities is essential. In the tropical region of the south Indian hills, these conditions prevail leading to coffee plantations flourishing in large numbers. Relative humidity for Arabica ranges 70–80% while for Robusta it ranges 80–90%.

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MAP OF INDIA SHOWING THE VARIOUS REGIONS OF COFFEE PRODUCTION

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COFFEE GROWING REGIONS IN INDIA CAN BE GROUPED UNDER THREE DISTINCT CATEGORIES

Traditional areas representing the southern states of Karnataka, Kerala and Tamil Nadu

Non-traditional areas comprising Andhra Pradesh and Orissa in the eastern Ghats of the country.

The northeastern region comprising the 'seven sister' states of Assam, Manipur, Meghalaya, Mizoram, Tripura, Nagaland and Arunachal Pradesh

The plantations in the south are the cradle of Indian coffee. They include the bababudan giris in Karnataka, known as the birthplace of coffee in India. The eastern Ghats and the north eastern states are newly developed areas of coffee.

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VARIETIES

India offers several varieties of specialty coffees that are popular in the west. Continuous research by Indian scientists has helped identity better strains that will make finer coffees with added flavor profiles, in both Arabica and Robusta varieties.

MONSOONED COFFEE

Monsooned coffee has a story to tell. The "monsooning" of coffee first happened quite by accident in the deep of sailing ships - a shipload of coffee bound for Europe acquired a mellow yet unique taste en route, with the coffee beans 'swelling' due to the moisture in the air. A new kind of coffee was born - Monsooned coffee.

Even today, India offers the same golden quality monsooned coffee prepared by the unique natural elements of yester years and the special process of today; the Monsooned coffee still has the Monsooned flavor, mellow taste and golden look. Consumers in Scandinavian countries love it for its special color and flavor.

MAIN GRADES:

MONSOONED MALABAR AA

MONSOONED BASANALLY

MONSOONED ROBUSTA AA

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MYSORE NUGGETS EXTRA BOLD

This coffee is a premium coffee that represents the best quality coffee from India. The beans are very large, uniform blush green in color with a clean polished appearance. In cup, the coffee exhibits full aroma, medium to good body, good acidity and fine flavor with a hint of spice Arabica plantation coffee (washed coffee) grown in the Mysore, Coorg, Biligiris and Shevaroys regions.

ROBUSTA KAAPI ROYALE

This coffee is prepared from Robusta parchment from the regions of Mysore, Coorg, Wynad, Shevaroys, Pulneys and Barbabudans.

The beans appear to be bold, round with pointed ends and gray to bluish gray in color. This cup ensures full body, soft, smooth and mellow flavor.

PRODUCTION AREA:

In India, coffee bean cultivation is largely confined to the hilly regions of the southern states of Karnataka, Tamil Nadu and Kerala.

Karnataka accounts for 70 percent of country's total coffee production followed by Kerala (22 percent) and Tamil Nadu (7 percent).

GROWTH PROMOTIONAL ACTIVITIES:

Only one fifth of the coffee bean produced in India every year is consumed in the domestic markets, while rest of it is exported.

Most of the exports are to Russian federation, Germany, Italy and us. Till recently, the coffee board directed coffee sales in India. Coffee growers with a total coffee cultivation area of above

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10 hectares were required to sell a minimum of 30% of their production to the coffee board. This quota system has now been abolished to encourage exports and now growers can export 100% of their produce in order to boost the coffee consumption the coffee industry has started emphasizing on three channels of distribution, namely cafe chains, vending machines and ready to drink products.

MAJOR PLAYERS

The major players in this segment are:  NESTLÉ  BROOKE BOND (LEVER)  TATA COFFEE

COFFEE BOARD OF INDIA

The coffee board of India is an autonomous body, functioning under the ministry of commerce and industry, government of India. The board serves as a friend, philosopher and guide of the coffee industry in India. Set up under an act of the parliament of India in the year 1942, the board focuses on research, development, extension, quality up gradation, market information, and the domestic and external promotion of Indian coffee.

Till 1995, the coffee board had a monopolistic control over the marketing of coffee in India. However, the winds of liberalization swept the Indian coffee industry and since 1995, marketing of coffee is strictly a private sector activity. In fact the coffee board went through a massive down- sizing and two- thirds of its employees were retired under a voluntary retirement scheme. The coffee board conducts basic and applied research on coffee and can boast of 75 glorious years in coffee research. The central coffee research institute in the chickmagalur district, Karnataka state has been in the forefront of coffee research over the years and continues to remain one of the premier institutes of the world as far as coffee research is concerned. The board also has a vast extension network spread over the three main producing states of Karnataka, Kerala and Tamil Nadu, as well as in the non-traditional areas of Andhra Pradesh,

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Orissa and the seven north-eastern states. The extension set up provides the day- to- day link with the grower community and this wing facilitates the transfer of technology from lab to land. The board also encourages the consumption of coffee in India and abroad. Towards this end, the board participates in food and beverage exhibitions abroad. The board also runs 14 India coffee houses in the country. The India coffee house brand of coffee powder is well known in India for its quality and aroma.

The board has for long years worked on the quality of Indian coffee. The board runs two quality control laboratories in Bangalore and Hassan, which control and advise the industry on quality issues. The labs are equipped with the best roasting and brewing machines. The best cup- tasters and quality evaluators keep a strict vigil on the pre and post harvest processes with a view to ensure that the quality of Indian coffee is maintained.

Economic & market intelligence unit the board has an economic & market intelligence unit functioning from its head office at Bangalore. The unit undertakes various activities related to market information & intelligence, market research studies, crop forecasting and coffee economics aspects. The unit also undertakes studies on research related to the coffee trade including WTO issues. Notable publications include the daily market intelligence report, a comprehensive database on coffee (bimonthly) and market intelligence report (quarterly). The periodical reports that are already completed included coffee consumption in urban India 2001 and coffee consumption in India 2003. The unit is currently coordinates a study on logistics and competitiveness of coffee producing countries (India, Vietnam & Brazil) and a manual on coffee retailing. The unit also in the process of implementing a project on price risk management for coffee growers.

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COFFEE MARKETING

Coffee market can be segmented as instant and filter coffee. Filter coffee can further be segmented into pure and chicory blend coffee. Coffee is a major export commodity in many developing countries. Many countries like India, USA depends heavily on coffee as a source not only to foreign exchange but also of employment in rural areas. Before liberalization heavy taxation made coffee an important source of government revenue. Governments of developing countries regulated coffee marketing not only because coffee was as important as a source of export earning and foreign exchange, but also for institutional and political reasons. The main intergovernmental organization for coffee, bringing together the world coffee sector through international cooperation is the international coffee organization (ico).

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ICO (INTERNATIONAL COFFEE ORGANISATION) The international coffee organization was established in London in 1963. It makes a practical contribution to the world coffee economy by:  Enabling government representatives to exchange views and co ordinate coffee policies and priorities at regular high-level meetings.

 Improving coffee quality through the coffee quality-improvement programme and specific projects.

 Increasing world coffee consumption through innovative market development activities.

 Initiating coffee development projects to improve quality and marketing.

 Encouraging a sustainable world coffee economy.

 Working closely with the private sector through a 16 strong private sector consultative board which tackles issues such as food safety.

 Providing objective and comprehensive information on the world coffee market; and;  Ensuring transparency in the coffee market through statistics.

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INTERNATIONAL COFFEE AGREEMENT (ICA): International coffee agreement (Ica) entered into force in 1962 for a period of five years, and it has continued to operate under successive agreements negotiated since then. The main objective of the agreement was to raise and stabilize the world coffee prices and hence the governments of all major coffee producing countries came together to take some joint market controlling measures and doing so would have been difficult and costly, so they liberalized coffee sub sector. Pre – liberalization marketing chain:

Producer

Coffee Board

Domestic Market(30%)

Export(70%)

Before liberalization, the producers of coffee were selling their coffee production to coffee board, a regulatory body at fixed price. On the basis of curing works like cleaning, sorting and grading, coffee board decide to market these goods in market in proportion of 30 % to domestic market and 70 % for exportation.

The coffee board of India is an autonomous body, functioning under the ministry of commerce and industry, government of India. The board serves as a friend, philosopher and guide of the coffee industry in India. Set up under an act of the parliament of India in the year 1942, the board focuses on research, development, extension, quality up gradation, market information, and the domestic and external promotion of Indian coffee. Page 16

Till 1995, the coffee board had a monopolistic control over the marketing of coffee in India. However, the winds of liberalization swept the Indian coffee industry and since 1995, marketing of coffee is strictly a private sector activity. In fact the coffee board went through a massive down- sizing and two- thirds of its employees were retired under a voluntary retirement scheme. Post – liberalization marketing chain:

Producer Auction Exporters

Domestic Market

Export

After liberalization, producer started to sell their product in domestic and international (export) market on auction basis and role of coffee board was shifted from marketing to research, extension & promotion.

Thus producers were satisfied after liberalization of marketing chain because that made export to customers directly, avoiding implicit taxes (despite the fact that exported commodities were exempt from taxation, the board had effectively been paying a sales tax.)

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MEDIUM TERM EXPORT STRATEGY FOR COFFEE

To boost Indian coffee exports as well as to maximize export earnings, the coffee board is implementing a medium term export strategy during the current plan period. The key initiatives identified in the strategy to improve coffee exports from India are as under:  Shifting product mix in favor of Arabica.

 Cost reduction to improve competitiveness.

 Improving quality perception of Indian coffee.

 Integrating Indian coffee with the global coffee trade.  Guarantee reliability of exporters.

 Carryout a major communication initiative in key overseas markets to enhance the image of Indian coffee as well as to improve market share.

 Participation in important overseas trade fairs involving exporters and grower exporters.

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 Organizing buyer-seller meets between Indian exporters and overseas buyers in key markets.

 Hosting visits of roaster/buyer delegation from leading consuming countries to Indian coffee tracks and facilitating interaction with the industry representatives.

 Organizing "cupping" of Indian coffees by international coffee experts to evaluate and propagate the finer attributes of Indian coffees.

 Institution of export awards to encourage exporters.

FUTURE STRATEGIES FOR NEW MARKET:

 Establishment of export promotion council for coffee.

 Government regulation in quality testing and processing.

 Duty free import for processing equipments.

 Extensive marketing and promotional activities.

 Sponsoring trade fairs and global coffee summits.

 Attractive and durable packaging and transportation.

 Regular market survey for customer satisfaction and preferences.

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WORST CASE RISKS INCLUDE:

 Determining that the business cannot support itself on an ongoing basis.

 Having to liquidate equipment or intellectual property to cover liabilities.

From the above case study we conclude that proper market analysis by expert is needed and suitable marketing strategies are to be executed to strive in market.

FINANCIAL ASSISTANCE IN EXPORTING COFFEE

Export finance refers to the finance of the goods from the home country to the importers port. The export financing begins with as soon as export order is received and accepted. The exporter needs finance for transportation, taxes, documentation, insurance, packing, clearing and forwarding and payment of freight. Most of the export trade is carried out on credit basis. It takes 3 to 6 months to realize the export bills. Meantime the exporter has to execute further orders for which additional working capital is required. The export finance mechanism and institutional support are vital for the promotion for international business. India is the first among the developing countries to design an integrated export financing scheme. The various agencies

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involved in provision of finance are RBI, EXIM bank, commercial banks, ECGC and other financial institutions. EXPORT FINANCE IN INDIA: The nature of export finance may be short term or long term credit. Short term credit facility is extended for a period from 30 days to 180 days which is granted by commercial banks. The long term finance is provided for a period from 5years to 2o years which is provide by EXIM, ECGC and IDBI bank. The irrevocable letter of credit is generally used in export of coffee. PRE – SHIPMENT FINANCE:

Pre – shipment finance is defined by reserve bank of India as “any loan to an exporter financing the purchase, processing, manufacturing, packing of goods.” It is an interim advance provided by bank for helping the exporter to purchase process, packing & shipment of the goods for exports. It is also known as packing credit. It is provided by any bank or financial institution. The exporters generally require finance at the pre-shipment stage for the following purpose:  To purchase raw materials, components, machinery equipment & technology.

 To pay for transportation & warehouse expenses.

 For specialized export packing of goods.

 To pay insurance premium on shipment of goods.

 To clear the goods after inspection, customs & excise authorities.

 To pay commission to overseas agents & freight for shipment of goods.

 To provide additional working capital from time to time.

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POST – SHIPMENT FINANCE: When the exporter needs an advance after completing the process of shipment of goods is called as post-shipment finance. The exporter needs finance at the post-shipment stage for the following purposes:  To pay ECGC premium, freight, insurance premium on shipment & other shipment expenses.

 To participate in the fairs & exhibitions.

 To pay to overseas agents and various authorities such as customs, port, inspection etc.

 To pay regular expenses between the shipment of goods & realization of exports bill.

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COFFEE SCHEMES

The important function of the development department is to render financial assistance coupled with the technical assistance to the coffee growers for the overall development and improvement of their estates through increase in production. In this section the board is implementing 6 types of loan schemes and 3 types of subsidy schemes. They are: Intensive cultivation loan.

 Replanting loan.

 Extensive cultivation loan.

 Special purpose loan.

 Interest subsidy.

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 Expansion subsidy.

The tribal coffee growers are given 4% interest on intensive cultivation loan, replanting loan, extensive cultivation loan, and special purpose loan. INTEREST SUBSIDY SCHEME FOR LARGE AND SMALL GROWERS: To provide financial relief to small coffee grower sector on the interest charged by the financial institutions on extending the working capital/crop hypothecation loans, interest subsidy scheme has been introduced on year on year basis subject to the approval of government @ 5% for small growers and 3% for large growers. EXPANSION SUBSIDY SCHEME: The coffee board expansion subsidy scheme implemented between 1978 and 1989 had given fillip to the coffee expansion among the tribal growers. The interest shown by the tribal farmers had forced government to create an independent agency for coffee development. Accordingly, m/s. Girijan coffee plantation Development Corporation limited, has been formed to develop coffee in tribal sector. This agency developed coffee in an extent of another 1000 ha, in the tribal holdings. The itda, paderu, has taken over the development of coffee in the state of Andhra Pradesh, among the tribal sector from the year 1995 and is the only agency, currently involved in coffee development.

INCENTIVES SCHEME FOR ORGANIC COFFEE GROWERS: Coffee board is providing financial assistance (grant) to organic coffee growers towards the cost of inspection & certification of organic coffee. The eligibility norms for providing financial assistance are as follows:

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 The grower/growers association/shg has to produce organic coffee as per the national standards of organic production (nsop).

 The coffee should have been certified by an accredited inspection & certification agency recognized

under

national

programme

for

organic

production

(npop).

Visit

www.apeda.com for the list of inspection & certification agencies.

 In case of the self help groups, growers associations/ cooperatives and ngo’s they should have been registered under co-operative societies act or society’s registration act of their respective state.

 The financial assistance towards inspection & certification cost will be released only after evaluation of application by coffee board.

SUPPORT TO SMALL GROWER SECTOR SCHEME: Financial incentives are given for taking up the following capital investments in the farms of the small coffee growers:  Replanting.  Water augmentation.  Quality up gradation.  Pollution abatement measures

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CONCLUSION

Coffee is a major export commodity in developing country like India and liberalization of coffee market has given rise to competition and to survive in this competitive market newer and newer strategies are need to be formed to take the advantage of opportunities arising in this market. Simultaneously financing also plays an important role in developing coffee market and coffee export.

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BIBLIOGRAPHY www.google.com

www.ico.com

www.coffeeboard.com

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