Export sop has ‘instant' effect on robusta demand

Exporters of instant coffee are making full use of the 5 per cent benefit recently announced under the Vishesh Krishi and Gram Udyog Yojana with effect from January 1 this year, by buying robustas in large quantities.

As a result, robusta cherry prices are still ruling at levels of Rs 2,500 for a 50-kg bag towards the end of the harvesting season, almost the same level as the price in December 2010. Last season, the price dropped from about Rs 2,500 in December 2009 to about Rs 1,800 in February and March 2010.

The export concession is expected to reverse the sluggish trend in soluble coffee exports since January 2011, conferring a competitive advantage on India at a time when world consumers are looking to cut costs, industry observers said.

Mr Ramesh Rajah, President, Coffee Exporters' Association, said: “Soluble coffee exports were high in 2010 (at over 80,000 tonnes) because of the availability of cheap robustas, but that situation has changed. The export concession has come at the right time.”

NEW DESTINATIONS

Coffee Board officials said that nascent markets such as Turkey have emerged as large buyers of soluble coffee from India. The number of export destinations for soluble coffee increased from 45 countries in 2005-06, to 79 countries in 2010-11 (up to February 22).

Mr Rajah said: “India has emerged as a centre of instant coffee exports on account of lower overhead costs. White label manufacturers, or those who manufacture for major brands, operate out of India.”

He said: “However, the world over, instant coffee is losing ground to roasted and ground (R&G) coffee. India has merely eaten into the market share of other exporters in Brazil, Ecuador and Europe.”

Exports to Turkey have risen from 621 tonnes in 2005-06 to 2,038 tonnes in 2010-11 (up to February), or more than three times.

The major buyers from India are: Russia, Finland, Malaysia, Ukraine, Hungary, Taiwan, Singapore, Lithuania and Poland. Russia bought nearly 24,000 tonnes in 2005-06, accounting for almost 50 per cent of India's soluble coffee exports of 52,315 tonnes. In 2010-11 (up to February 22), exports to Russia were 26,660 tonnes, or 36 per cent of total soluble coffee exports of 74,557 tonnes.

“South Africa is another emerging market,” Coffee Board officials said.

INSTALLED CAPACITY

Industry observers said unlike in the rest of the world, soluble coffee is a growing market in India. “There is a switch to soluble at the cost of R&G coffee in India,” Mr Rajah said.

This divergence between the domestic and global market perhaps explains why leading players in soluble coffee such as Unilever and Nestle have not undertaken major capacity expansion over the last two years. “There is always the option of outsourcing the manufacture,” industry sources said.

Industry sources said that the installed capacity for soluble coffee in India is 1.49 lakh tonnes, which includes recent additions in capacity by SLN Coffee Pvt Ltd in Kushalnagar and Vayhan Coffee Ltd in Hyderabad. Vayhan is a major exporter to Turkey.

DOMESTIC CONSUMPTION

Coffee Board officials estimate the domestic consumption of soluble coffee at about 60,000 tonnes (in green bean terms), whereas industry sources believe it is closer to 40,000 tonnes. Exports in 2010 (calendar year) were over 80,000 tonnes. “Therefore, the scenario we are looking at is that of a capacity of 1.4-1.5 lakh tonnes, about 1.2 lakh tonnes are put to use,” industry observers said.

About half the soluble coffee exports (or about 40,000 tonnes in green bean terms in 2010) is sourced from Indian robustas, despite the fact that Vietnam prices are lower and the import is duty-free. Mr Rajah said: “The cost of freight and transport can make import unviable.”

Mr Amit Pant, Business Manager, Olam Agro India, said: “Shipments take time to arrive, and besides they have to be contracted in container lots. Sourcing from domestic growers is often easier.”

RISING PRICES

Export earnings from soluble coffee have doubled from Rs 401 crore in 2005-06 to Rs 841 crore in 2010-11 (up to February 22), pointing to a rise in prices from Rs 76.70 a kg to Rs 112.81 per kg.

Instant coffee prices have risen primarily on account of supply-side factors such as rising cost of raw coffee, higher diesel prices and packaging costs, particularly of polybags, which are linked to petroleum prices, industry sources said. Prices of corrugated cartons have also risen.

There has been some value-addition in India. While India was earlier producing only spray-dried coffee, freeze-dried coffee production, which requires higher investment, has been on the rise.

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