Ban on Vietnam coffee imports will hit India’s re-exports

India’s move to ban farm product imports from Vietnam on phytosanitary issues will hurt the exports of value-added instant coffees from the country, exporters said.

Instant coffee makers in India such as Tata Coffee, CCL Products and Nestle India, among others, depend on Vietnam for cheaper robusta imports and re-export the same after value-addition here. Vietnam is a major producer of the robusta variety.

The low-priced imported robustas are converted into soluble coffees such as instant and freeze-dried coffee and re-exported mainly to Russia and other European countries. Instant coffees, in terms of green bean equivalent, accounts for about a third of India’s coffee exports.

“The ban on imports can potentially derail India’s instant coffee industry and hurt the exports of soluble coffees,” said Ramesh Rajah, President of the Coffee Exporters Association.

The coffee industry has been caught off guard by the Union Agriculture Ministry’s move to ban six farm products, including coffee and pepper, on concerns over phytosanitary issues, with effect from March 7. India’s move comes close on the heels of Vietnam announcing its intent to suspend imports of Indian peanuts, cassia seeds, cocoa beans, harricot beans and tamarind over phytosanitary issues.

Industry rattled

The Centre’s move to ban imports from Vietnam has rattled instant coffee makers, who have made significant capacity addition in the past few years to cater to the growing export and domestic demand.

Apart from large companies such as CCL Products, Tatas, Nestle and HUL, several smaller players such as Vayhan Coffee, Narasu’s and SLN Coffee have entered the instant coffee segment in recent years. The total instant coffee production capacity is estimated at around 50,000 tonnes per annum.

Rajah said India is the tenth largest buyer of Vietnam’s robustas. Imports from Vietnam stood at 32,606 tonnes in 2015-16, accounting for almost half of total imports of 64,087 tonnes during the year.

Indian companies also import raw coffee from Indonesia and Uganda, among other countries, to be re-exported as value added instant coffees.

In the current financial year, imports from Vietnam were estimated at 21,560 tonnes for the April-September period, while the total inflow of coffees into the country stood at 36,298 tonnes for the period.

“The ban on imports will not have any impact on us as we operate a big facility in Vietnam. But we can look at sourcing from other origins,” said C Rajendra Prasad, Executive Chairman of CCL Products (India) Ltd, the largest instant coffee maker in the country.

Big investments at stake

CCL Products operates a 20,000 tonne instant coffee facility at Duggirala, near Guntur in Andhra Pradesh, and another 10,000-tonne facility in Vietnam. CCL is also in the process of expanding its soluble coffee manufacturing facility in India and plans to add a 5,000-tonne per annum freeze-dried coffee plant in Chittoor with an investment of $50 million for which it has already bought the land. The Chittoor facility is expected to be operational sometime in 2018.

Tata Coffee, the largest integrated coffee player, recently announced plans to set up a 5,000 tonne freeze-dried coffee manufacturing unit in Vietnam. “We are studying the notification to understand its implications and work on an appropriate response. Vietnam is one of the sources of Green Coffee for us,” a Tata Coffee spokesperson said.

Instant coffee accounts for about 20 per cent of all global coffee consumption with freeze-dried instant coffee being the most premium.

The surge in re-exports drove India’s coffee shipments to a new high of 3.6 lakh tonnes in calendar 2016. Instant coffee exports, including re-exports, in terms of the green bean equivalent, grew 14 per cent to 1.06 lakh tonnes over last year’s 93,698 tonnes.

Re-exports in 2016 were up 24 per cent at 81,485 tonnes over the previous year’s 65,724 tonnes.

COMMENT NOW