International BusinessGroup ProjectCoffee HSCode:

Submitted To:Submitted By:Prof. S.S. TripathiAbhishek Desai27NMP38Rahul Tiwari 27NMP64ContentsIndian Coffee3Growing Conditions3Important Varieties4Coffee Industry5Segmentation on value chain basis6Segmentation on consumption basis6Coffee Varieties7Coffee Industry in India7Coffee Exports9SWOT Analysis9PESTEL Analysis10

Indian CoffeeThe saga of Indian coffee began on a humble note, with planting of Seven seeds of Mocha during 1600 AD by the legendary holy saint Baba Budan, in the courtyard of his hermitage on Baba Budan Giris in Karnataka. For quite a considerable period, the plants remained as a garden curiosity and spread slowly as back yard plantings. It was during 18th century that the commercial plantations of coffee were started, thanks to the success of British entrepreneurs in conquering the hostile forest terrain in south India. Since then, Indian coffee industry has made rapid strides and earned a distinct identity in the coffee map of the world. In India, coffee is traditionally grown in the Western Ghats spread over Karnataka, Kerala and Tamil Nadu. Coffee cultivation is also being expanding rapidly in the nontraditional areas of AP and Odisha as well as in the North East states. Coffee is predominantly an export oriented commodity and 65% to 70% of coffee produced in the country is exported while the rest is consumed within the country. Indian coffee industry earns a foreign exchange to the tune of about Rs.4000 Crores. Indian coffee has created a niche for itself in the international market and the Indian Coffees are earning high premium, particularly Indian Robusta which is highly preferred for its good blending quality. Arabica Coffee from India is also well received in the international market. Coffee is an export product with low import intensity and high employment content. This is evident from the fact that more than six lakh persons are directly employed and an equal numbers of individuals get indirect employment from this sector.The two main varieties of coffee viz., Arabica and Robusta are grown in India. Arabica is mild coffee, but the beans being more aromatic, it has higher market value compared to Robusta beans. On the other hand Robusta has more strength and is, therefore, used in making various blends. Arabica is grown in higher altitudes than Robusta. The cool and equable temperature, ranging between 15 degree Celsius to 25 degree Celsius, is suitable for Arabica while for Robusta, hot and humid climate with temperature ranging from 20 degree Celsius to 30 degree Celsius is suitable. Arabica requires more care & nurture and is more suitable for large holdings whereas Robusta is suitable irrespective of size of the farm. The harvest of Arabica takes place between November to January, while for Robusta it is December to February. Arabica is susceptible to pests & diseases such as White Stem Borer, leaf rust etc., and requires more shade than Robusta.Growing ConditionsIndia 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.Indias 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.FactorsArabicaRobusta

SoilsDeep, fertile, rich in organic matter, well drained and slightly acidic (Ph6.0-6.5)Same as Arabica

SlopesGentle to moderate slopesGentle slopes to fairly level fields

Elevation1000-1500m500-1000m

AspectNorth, East and North- East aspectsSame as Arabica

Temperature150 C 25 0 C ; cool, equable200 C 300 C; hot, humid

Relative humidity70-80%80-90%

Annual rainfall1600-2500 mm1000-2000 mm

Blossom showersMarch- April (25-40mm)February March (25-40 mm)

Backing showersApril-May (50-75 mm) well distributedMarch-April (50-75 mm) well distributed

Source Indian Coffee BoardImportant VarietiesKents: Kents is the earliest variety of Arabica, selected by an English planter of the same name during the 1920s. This variety remained popular with the planting community till the 1940s, because it was less susceptible to rust. Today, it is grown in a few areas but it is still known for its exceptional cup quality.S.795: This is by far the most popular Arabica selection released during the 1940s with high yields, bold beans, superior quality and relative tolerance to leaf rust. This selection was developed using Kents Arabica, known for its high quality. Even today, the S.795 is a favorite with the planters and is a widely cultivated Arabica variety. S.795 has a balanced cup with subtle flavour notes of Mocca.Cauvery: Popularly known as Catimor, Cauvery is a descendant of a cross between Caturra and Hybrido-de-Timor. Caturra is a natural mutant of the famous Bourbon variety. Thus, Cauvery inherited the high yielding and superior quality attributes of Caturra and the resistance of Hybrido-de-Timor.Sln.9: Selection 9 is a derivative of a cross between an Ethiopian Arabica collection, Tafarikela, and Hybrido-de-Timor. Sln.9 has inherited all the superior cup quality traits of Tafarikela. This variety has won the Fine Cup Award for best Arabica at the Flavour of India - Cupping Competition 2002 organized by Coffee Board of India.

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.

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

The plantations in the south are the cradle of Indian coffee. They include the Bababudangiris in Karnataka, known as the birthplace of coffee in India. The Eastern Ghats and the North Eastern states are newly developed areas of coffee.

Source: Coffee Board - Government of IndiaCoffee Industry

The coffee industry is segmented on the basis of: Value chain Consumption

Segmentation on value chain basisOn the basis of player presence in the value chain, the industry can be segmented into the following

Planters: Planters are coffee growers who primarily sell their produce at farm gates or auctions.Planters-cum-traders / integrated players: These are coffee growers who have diversified into the packaged coffee segment to insulate themselves from fluctuations in bean prices. They are present throughout the value chain, from estate operations such as curing and blending to marketing and selling in the domestic retail or export markets. Tata Coffee Ltd (TCL), is one of the key players in this category.

Non-integrated players: These are players without captive coffee plantations, who purchase cured beans from curers, agents, co-operatives and auctions, and then grind, blend, pack and market the same. For example, Hindustan Unilever Ltd (HUL) and Nestle India Ltd. Although HUL has some plantation facilities, it primarily sources from auctions.

Segmentation on consumption basis

The industry can be segmented into filter coffee and instant coffee based on consumption. Of the total domestic consumption, about 45 per cent is consumed as filter coffee and the remaining as instant coffee. Both, filter coffee and instant coffee can be classified further into pure coffee and coffee blended with chicory. Chicory is mixed with coffee to enhance its taste and flavour. The quantity of chicory mixed with coffee determines the taste, flavour and price of the end-product. Since the price of chicory is significantly lower than that of coffee beans, blended coffee costs less than pure coffee. However, the Prevention of Food Adulteration Act, 1954, allows an addition of only up to 49 per cent chicory. Instant coffee is also sold in different flavours and cold coffee forms such as vanilla, mocha and lemon.

Coffee Varieties

Arabica: It is a mild coffee but the beans are more aromatic and have a higher market value. It accounts for 75 80% of the worlds production. It is grown in higher altitude. It requires a cool and equable temperature ranging from 15C to 25C as Arabica requires care and nurture and is therefore more suitable for large holdings. It is susceptible to pests and diseases such as White Stem borer, leaf rust etc. and therefore requires more shade. The harvest of Arabica takes place from November to January.

Robusta: It has more strength and produces an inferior tasting beverage with higher caffeine content, therefore used in making various blends. It requires hot and humid climate with temperature ranging from 20C to 30C. The harvest of Robusta takes place from December to February.

Coffee Industry in India

India is worlds seventh largest producer of coffee with a vast majority of coffee grown in these three southern states of India i.e. Karnataka (72%), Kerala (20.8%) and Tamil Nadu (7.7%). These southern regions lie in the Western Ghats range which is a biodiversity hotspot coffee cultivation is also being expanding rapidly in the non traditional areas of Andhra Pradesh and Orissa as well as in the North East states. Nearly 60 70% of the coffee produced in these regions are said to be exported while the rest is consumed within the country.The post monsoon forecast for the year 2014-15 has been placed at 331,000 MT, which is a reduction of 13,750 MT (-3.99%) over the post blossom estimate of 2014-15. Of the total estimate of 331,000 MT, the Arabica production is estimated at 99,600 MT while that of Robusta at 231,400 MT. Arabica production estimate has shown a decline of 5,900 MT (-5.59%) while Robusta declined by 7,850 MT (-3.28%) over the post blossom estimate of 2014-15. When compared to final estimate of 2013-14 (which was placed at 304,500 MT), the current post-monsoon estimate (2014-15) showed an overall increase of 26,500 MT (8.70%).In terms of Arabica, the production estimate has shown a marginal decline of 2,600 MT (-2.54%), while Robusta production shown an increase of 29,100 MT (14.58%). The increase in production estimate over the 2013-14 final estimate is mainly seen in Karnataka to the tune of 25,240 MT followed by Kerala (1,550 MT)and NTA&NER (360MT) while the Tamil Nadu has shown a marginal decline of 650 MT. By the states, the post monsoon crop estimate for Karnataka is placed at 236,340 MT with a break up of 76,005 MT of Arabica and 160,335 MT of Robusta. This is a decline of 11,960 MT (-4.82%) over the post-blossom estimate comprising of -5.82% decline in Arabica (4,695 MT) and -4.33% in Robusta (7,265 MT). In Karnataka, the Kodagu district experienced a maximum decline of 9,495 MT both in Arabica (1,295 MT or -6.43%) and Robusta (8,200 MT or -7.26%) over the post blossom forecast followed by Chikmagalur (1,535 MT or -6.97%) and Hassan (930 MT or -2.74%) districts. In Kerala, the berry development was normal and not much adverse effect on crop was reported. Therefore the post monsoon forecast is placed at 68,225 MT with a marginal decline of 650 MT (-0.94%) from the previous post blossom estimate of 68,875 MT. In Tamil Nadu post monsoon forecast is placed at 18,125 MT against 17,875 MT of post blossom estimate which is a marginal decrease in production of 250 MT. In Non-Traditional areas of Andhra Pradesh and Orissa the post monsoon forecast is placed at8,100 MT against post blossom estimate of 9,480 MT with a decline of 1380 MT (-14.56%) mainly on account of Hud-Hud cyclone. In North-Eastern Region, the post monsoon forecast is placed at 220 MT.

Coffee Exports

India exported a total of 1,23,133 MT of coffee between Jan 2014 to Aug 2014. Italy was the largest market followed by Germany and Russian Federation. India exported 22.13% of the total to Italy, 10.48% to Germany and 7.39% to Russian Federation. CCL Products (India) Limited was the largest producer of coffee with around 12.22% of the total export followed by Amalgamated Bean Coffee Trading Co. Ltd with around 8.5% of the total export.

Source Coffee BoardSWOT Analysis

Strengths: India is Asias third largest producer and exporter and worlds seventh largest 70% per cent of the coffee produced in India is exported Around 600,000 people are daily employed in various coffee plantationsWeaknesses: Weather: The industry is hugely weather dependent and the volume of production depends on it. Lack of farmers financing: Farmers in India lack the capability to invest in growing high quality coffeeOpportunities: Specialty Coffee Coffee today is better valued as gourmet coffee which fetches higher profits. Promoting coffee consumption As the consumption rate is low, the coffee board of India is creating awareness to promote its consumption Exports of Coffee Over the period of time as the coffee consumption increases across the globe, theres huge opportunity to export high quality of Indian coffee beansThreats: Competition from other countries: India faces a stiff competition from other exporting countries. Lack of training Even though India is the largest producer of coffee, it still lacks the training and knowledge about various technologies needed in growing coffee. Inadequate research and availability of info to farmers: In coffee industry the focus hasnt shifted to research which is essential in growth of coffee

PESTEL Analysis

Political: Indias political situation is considered to be stable. It has reduced its political interference in the enterprises management which has led to an increase in efficiency and productivity of businesses Government of India imposes various industry specific regulations such as the Coffee Act, 1942 with the aim of promoting the sale and consumption of coffee in India and abroadEconomic: Economic factors such as interest rates, taxation changes, economic growth, inflation, exchange rates etc. affect the coffee industry in terms of its production, import export, consumption. Interest rate influences the cost of capital which plays an important role in the expansion and growth of the industry. Exchange rates have a great impact on the coffee industry. It affects the cost of import and export of coffee. Since India is the 6th largest exporter of coffee, the coffee exports increase over the years however due to exchange rate, its can affect its value in terms of cost. Increase in inflation causes the demand of coffee to decrease and thereby decrease the coffee consumption. It is essential for the farmers to be aware of the economic situation in the times of the economic and financial crisis.

Social:

India is having a huge population out of which a majority of the population consists of the youth. The lifestyle of India has changes over the years. These changing patterns have a great impact on the coffee industry. These days majority of the population prefer coffee which has resulted in an increase in coffee consumption.

Technological:

Technology plays an important role in the development of coffee industry. With the emergence of innovative technology the coffee production and improvement has increased tremendously. Developments in agriculture have made it possible to grown various varieties of coffee beans in India. Also it has helped the farmers to harvest the coffee beans faster.

Environmental:

Various environmental rules and regulations have been implemented in India in order to safeguard the environment. The coffee industry of India has to abide by these rules and regulation which processing coffee. Environmental disasters such a heavy rainfall or draught have a great impact on coffee production. Also global warming and other environmental issues affect the coffee production which in turn affects the economy as a whole.

Legal:

The health authorities of India have introduced various policies about caffeine production and consumption. India has also implemented various international trade regulations in order to strength the imports and exports of coffee.

Comparative Country AnalysisThe two countries chosen for comparison are USA and Germany. Both the countries have huge coffee imports and relatively high coffee per capita consumption.GermanyGermany is the second important coffee market in the world, just overshadowed by the United States. Coffee is the most famous beverage in Germany even more popular than beer. On the supply side dominate few roasters. Market structure influences the market outcome and explains the processors ability to exercise market power.Coffee, coffee, coffeeNot surprisingly, neither wine nor beer is the drink of choice in the morning. Tea and coffee are preferred. Those, too, have been the subject of heated debate and until not too long ago only rich people could afford the drinks. "I need to have coffee, coffee; if you want to give me a treat - pour me a cup of coffee," Johann Sebastian Bach wrote in 1732.An expression of national identityTea and coffee houses are still popular places to hang out. And the hot drink you go for has almost become a question of national identity: While in Britain it is undoubtedly tea, in Germany coffee has the upper hand. On average, Germans drink 150 liters of coffee per year - more than beer, wine or mineral.So the next time you sit down in a bar, your decision what to order might - whether you know it or not - not just be based on personal preference, but also on the cultural and historical context of each of those tempting beverages listed on the menu.PROSPECTS Demand for coffee products that are fast and quick to prepare is predicted to remain high over the forecast period. Tight work schedules and a relatively low unemployment rate mean that most Germans have a regular income but little spare time. This acts as a strong incentive to buy convenient products, particularly because the desire of working Germans to engage in many activities in their spare time is high, and time-saving products are needed. Products which allow for quick consumption and easy preparation are thus expected to be the best performers over the forecast period. Convenient products like coffee pods and x-in-1 instant coffee typically carry high unit prices, which is why coffee is anticipated a positive value CAGR at constant 2013 prices over 2013-2018. In volume terms, however, a moderate CAGR decline is predicted.Comparison of Target CountriesCountry Population (Millions)Net imports (million bags)Total bagsPer capita consumption (kg/year)

Green beansRoastedSoluble

Austria8.40.550.250.110.916.4

France634.281.620.035.935.7

Germany8212.692.241.3916.326.8

Italy607.712.060.159.925.8

United Kingdom622.210.550.343.13

United States31820.680.641.1522.474.1

USA

13