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“100% duty on foreign coffees creates double-edged scenario”
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Monday, 27 January, 2025, 08 : 00 AM [IST]
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 Headquartered in Singapore with a presence in over 50 countries, ofi India specialises in key categories such as cocoa, coffee, dairy, nuts, and spices. These ingredients power a wide range of food and beverage products, from bakery items to confectionery, beverages, and culinary applications.
Srikanth Ambati, vice president - coffee, ofi India, in an email interaction with Ashwani Maindola reflected upon coffee business and more. Excerpts:
How do you see India's coffee market growing in the next five years? What could be the driving factor?
India's coffee market is poised for significant growth, with projections indicating a steady 3-4% annual growth rate in the coming years. This forecast is particularly promising given the market's recent performance, showing a remarkable 10% absolute growth over the past three years, compared to the historical CAGR of 1% over the last decade.
The growth is primarily driven by the instant coffee segment, which now commands a 60% market share, a substantial increase from 18% just four years ago. This surge aligns with changing consumer preferences and the rising café culture across urban India, supported by increasing disposable incomes and evolving lifestyle patterns. While specialty and niche coffee segments are gaining traction in metropolitan areas, there remains significant room for growth, as India's per capita coffee consumption stands at merely 70 gram annually, considerably below the global average of 1.3 kilogram.
The market's future expansion will depend on both domestic consumption growth and export demand enhancement. To facilitate this growth, strategic government interventions, particularly in export incentives and expansion of coffee cultivation areas, will be crucial for improving the availability of Indian coffee both domestically and internationally.
Do you see enough policy interventions from Governments for the sector's growth?
The Indian government has implemented several supportive policies for the coffee sector, though there's scope for more comprehensive interventions. Currently, a significant import duty of approximately 100% on foreign coffees creates a double-edged scenario. While protecting domestic farmers, it also limits Indian consumers' exposure to global coffee varieties. This protection mechanism, coupled with export incentives through duty drawback and RoDTEP schemes, forms the backbone of trade-related policy support.
Through the Integrated Coffee Development Project Scheme (ICDP), the government has established a robust support system providing crucial subsidies for various activities. These include seedling plantation, Good Agricultural Practices (GAP), and pest/disease management. Additionally, farmers receive support through subsidies for machinery and fertilisers, while the Coffee Board of India actively promotes Indian coffees through trade fairs and productivity enhancement programmes.
However, several areas require increased attention from policymakers. The Coffee Board's productivity enhancement programmes have proven to be valuable but could benefit from being more readily available to growers. Programmes introducing new coffee varieties may achieve greater impact with enhanced reach and more effective implementation at the grower level. Additionally, a stronger emphasis on research into farm operation mechanisation could address the growing challenges of rising labour costs and availability, which are becoming increasingly significant for the sector.
What's your demand from the policy makers to help coffee sector?
Despite coffee production being a profitable venture in India, the sector faces a peculiar challenge where the area under cultivation hasn't expanded proportionately to its potential. This situation calls for a comprehensive policy framework that can catalyse growth and expansion in the coffee sector, particularly through targeted interventions to encourage new farmers into coffee cultivation and support existing ones.
Looking at successful international models provides valuable insights for policy development. Colombia's approach through its National Coffee Fund demonstrates the effectiveness of structured support systems, providing dedicated funding for research, development, and promotion of local coffee varieties. This includes crucial aspects such as climate-resilient variety development and cultivation improvements, creating a holistic support ecosystem for coffee growers. Similarly, Uganda's success story through the Uganda Coffee Development Authority (UCDA) showcases the impact of substantial government support, where subsidies of up to 40% for new planting and replanting initiatives have led to significant expansion in coffee cultivation areas.
We advocate for the implementation of similar comprehensive support systems in India, with a particular focus on creating proper structures for Farmer Producer Organisations (FPOs) to enhance price realisation for small growers. This structural support, combined with research and development initiatives, could significantly boost the sector's growth potential and help Indian coffee achieve greater recognition in global markets.
What are the challenges for coffee business that you see, which can hinder growth?
The coffee sector in India faces several significant challenges that could potentially impede its growth trajectory. Price volatility emerges as a primary concern, with global supply and demand fluctuations causing considerable market instability. This volatility has already forced several supply chain players out of business, creating disruptions in the established market structure and affecting the sector's overall stability.
Operational challenges present another significant hurdle, particularly in the form of insufficient mechanisation in farming practices. The sector's heavy reliance on manual labour, combined with increasing labour scarcity, poses a serious threat to farm maintenance and operational efficiency. This challenge is particularly evident when comparing productivity metrics across major coffee-producing nations. India's current production stands at 2-2.5 MT per hectare, significantly lower than competitors like Vietnam (2.5-3.5 MT/HA) and Brazil (3.5-4 MT/HA), indicating substantial room for improvement in productivity through mechanisation and modern farming practices.
The sector has potential for growth and sufficient focus on quality improvement in on-farm operations, will boost overall competitiveness of Indian coffee in global markets. We need to collectively arrive at a coordinated response from industry stakeholders and policymakers to create sustainable solutions that can drive the sector's growth and development.
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