Coffee Value Chain and Geographical Indications in India Origin, reputation and marketing of Indian coffees David MERCEREAU Clémentine VIGNAULT October 2008

Supervisors:

Delphine MARIE-VIVIEN Claude GARCIA

EXECUTIVE SUMMARY Context:

The global coffee chain is mainly buyer-driven. Since the liberalization of exchanges, asymmetries of power and information have been increasing. Most of the trade of green coffee is undifferentiated. As a result, prices come first of all. Quality issues are reduced to the minimum sanitary requirements and generic aspects related to the trade of agricultural commodities. The power of decision is concentrated in roasters’ hands, firstly because they are the ones who detain the most information on the coffee chain. The repercussion on the upstream coffee industry is a freeze for the organization and quality management strategies. Every market of consumption has its own patterns and its own governance structure. Non-producing countries get coffee from all the producing countries while consumption in producing countries is often limited to their own production. Requirements applied to producing countries vary according to consumption habits and roasters’ organizations. In-home coffee consumption sectors are generally highly brand-driven and difficult to penetrate. Producing regions have specificities due to climate, species, soil altitude, etc, which lead to produce a range of different beans. However, few of the beans’ specificities are perceptible in the end for the consumer, mainly because of the many processes and varied ways of preparing beverages. Only a tiny proportion of the traded coffee keeps its origin’s specificities at the end of the chain. Indian coffee chain: Traditional coffee-growing regions in India are located in South India, mainly in the state of Karnataka, Kerala and Tamil Nadu. Robusta dominates with 60-70% of the total coffee production. Regarding quality standards, cupping of coffee is not mandatory for export. The liberalization process in the mid-1990s which has seen the withdrawal of the Coffee Board’s pooling system and control over the marketing of the coffee has generated a re-organization of coffee trade in the country and has been generally followed, according to actors interviewed, by a degradation of the coffee quality. The new configuration for Indian coffee chain is the following one: coffee growers generally sell their coffee at the farm gate to purchasing agents. Few quality controls are undertaken at this stage. Agents can sell directly to curing works or to other agents. The coffee is then processed at the curing unit depending on its final destination. Curing works are mostly owned by exporters in India. The coffee is then either exported directly or sold on the local market through the ICTA auction or another agents’ network. In margin of this general features we find two categories of channels: several large companies have vertically integrated the whole structure from the estates to the curing works, exports and even beyond (like Coffee Day or Tata Coffee). These latter structures are the pioneers in India for the compliance to sustainability standards. On the other hand some small or large growers (around 25 in the Western Ghats) have centered their activity on the production of high-quality beans and have direct contacts with their buyers. This last trend is called estate-branding. These two categories (not exclusive one from another) are less subject to the general traceability issues generated by the quasiabsence of controls in the local trade. Mixes of origins appear at almost every node of the trade channels’ network and it is virtually impossible for exporters to know precisely the origin of the coffee present in each bag. Indian coffee origins: The name “coffee of India” is only used as an indication of origin at the export level when packages are shipped from India to the country of destination. Indian coffee is not well known over the world in comparison with Colombian or even Indonesian coffee, and there would be a significant work to be done by the Coffee Board or other organizations to first market the name “Indian coffee”. If Indian coffee is not well known over the world, this can be partly explained by the fact that Indian Arabicas 2

do not enjoy a solid reputation abroad. Only two names among the 13 coffee-growing regions identified by a logo from the Coffee Board, Chikmagalur and Bababudan Giris (higher altitude region located within the district of Chikmagalur and birthplace of coffee in India), come regularly to the mouth of Indian coffee trade stakeholders. However, Indian Robustas are famous worldwide for their mild taste and buttery cup. Washed Robustas especially can reach a premium of +700 on London futures market. A notable name for Indian coffee is Moonsooned Malabar protected by a Geographical Indication. The name refers to the place where the process takes place and not to the place where the coffee is grown. Some regions also suffer from a less attractive reputation because of their farm practices (for instance the drying of cherries on mud yard in Kerala). But these regions’ reputations in term of quality seem to be restricted at Indian stakeholders and have not spread abroad. However, Sunalini Menon from Coffee Lab International said she was able to recognize the coffee from given estates, because of the specific gustative qualities of the coffee given by the environment and the farm practices. She said that she was able to detect differences between coffees coming from the same estate but with different types of environments within an estate. In other words, regions’ specificities regarding coffee quality may exist but they do not enjoy a reputation that cross Indian borders for now. Export market: Indian coffee trade is still export-oriented as domestic consumption represents 30% of the total production of coffee in India. Aside from the washed Robusta exported with a nice premium mainly to Italian espresso market, most of the green coffee exported is completely undifferentiated. 20% of the coffee exported is instant coffee at destination of ex-communist countries. Outside of the mainstream market, two markets have been underlined by the study: the “sustainable market” and the “specialty market”. The sustainable market is nearly reduced to organic coffee (few small and medium planters) and Utz certified (large plantations owned by big coffee trading companies). Domestic Market Indian domestic market is protected by importation taxes and almost reduced to the consumption of Indian coffee. It is fast-growing and in mutation. From 30% of the national production consumed today, the Indian coffee board expects more than 50% to be consumed by 2017. The broad majority of coffee is consumed at home (80%), mainly in the shape of instant coffee (65%) and filter coffee (35%). Instant coffee industry is a highly concentrated sector in India (5 current players) and only 2 players share a broad part of the market (Nestle and Hindustan UniLever) with one brand each. The main stake in this segment is the recognition of the brand. There is a huge entry barrier due to the investment in advertising required to compete with current market leaders. The instant coffee industry is still at a stage of battle in the mainstream for brand recognition and has not really diversified its supply strategies (lowest grades of green coffee available). On the other hand, the filter coffee industry is not a homogenous segment. There is an important number of small roasters (more than 100) based near the coffee-growing regions that provide coffee in small shops or in supermarkets in small packages (50 to 250g). This coffee is mainly a mix of coffee and chicory, with different supply strategies depending on the industry location. In Arabica-growing regions, roasters will prefer Arabica whereas in Robusta-growing areas, they will mainly provide a mix of Arabica and Robusta. Industries located in cities supply themselves from curing works through agents or at the ICTA auction. These roasters supply the bulk of tea stalls, canteens and cheap restaurants. A new trend emerges from this market segment: the estate-branded coffee, but is still very marginal. The coffee consumed out of home is mainly consumed in restaurants (40%) and in “hot-tea shops” (35%) that are usually found on the road sides. The consumption habit for coffee in India is a mix of coffee and chicory brewed and added with milk and sugar. The coffee mainly comes from the latter roasters. However, some establishments seeking to polish or modernize/”westernize” their image supply themselves with estate-branded coffee. Most of these estate-branded coffees’ suppliers are located in Chikmagalur district. This segment of out-of-home consumption (composed mainly of cafés and bakeries) is experiencing a huge growth, especially in the city of Bangalore where our field study took place. The leader of this segment is ABC-Café Coffee Day which is currently opening nearly one outlet a day. However, according to interviews with key actors of this segment, the main issue for 3

them will remain at first in the coming years the promotion of an image of quality coffee’s suppliers far before any origin-differentiated strategy. If sustainability issues are virtually absent of the domestic market, the specialty market has already penetrated the domestic market in all its shapes. Fine roasters have confectioned their secret blends from chosen estates located all over the Western Ghats. Estatebranded coffee is sold in some cafés, and Coffee Day has launched this month a fashion blue tin box of Monsooned Malabar available for sale in its cafés. Valorization of coffee origins in India The marketing of an origin of coffee and the link of the coffee with its territory can be very diverse. Consumption of coffee where the origin is mentioned is something very rare in India. Most of the coffee consumed is marketed according to brands without any mention of the origin. The only coffees purchasable for in-home consumption on which package the origin is mentioned are the estate coffees sold in cafés-bars (Dark Forest from Coffee Day being the largest spread). Few cafés mention the origin of the coffee they serve in the menu or when served, even in palace hotels. However, there are some cases of origin marketed in the international market including: -

-

-

A Geographical Indication: Monsooned Malabar coffee origin associated with a specific process, generic quality, and a premium paid. Around 25 estate brands constitute the leading trend in the specialty sector in India. The coffee is of highest generic quality and often presents specific quality. A premium is paid to producers. The coffee from the Araku Valley (only fair-trade certified cooperative in India) is sold with a story-telling but is not commercialized thanks to apparent exceptional gustative qualities. We can find four brands “Coorg” on the market. The origin is associated to a beautiful coffeegrowing region, but the coffee does not present any specific or higher generic quality. No premium is paid to the producer, neither at other stages of the chain. It is a pure marketing strategy.

In each of these cases, there is a link between the characteristics of the coffee and the marketing of the origin but its nature completely differs. On the other hand, some origins are recognized but not commercialized as such. Illy Caffè for instance is operating in India with only Arabicas and chooses every farm strictly according to the organoleptic quality of their coffee. But in the end, all the coffee is sold under the trademark “Illy” and no mention of the origin of the coffees is done at the last stage. Link between sustainability and origin marketing In the case of India, a link between sustainability and origin can be enlightened: out of the 6 Utz certified farms, 5 of them market their coffee as estate coffee and try to build a reputation for the name of their estate. Sustainable labels can then help them building reputation for origin products. But in the case of India, this matter is clearly a consequence of the production system organization: only large exploitations can afford the cost of certifications and the marketing of their name. The absence of cooperatives and more generally the absence of interest from the farmers in selling their products further than the farm gate might also contribute to this phenomenon of “all-or-nothing”.

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TABLE OF CONTENTS

Executive Summary........................................................................................................................................................... 2

Table of Contents ............................................................................................................................................................... 5

Table of figures....................................................................................................................................................................7

Glossary of coffee designations .................................................................................................................................... 8

Methodology ..................................................................................................................................................................... 10 1.

Differentiation, quality and sustainability issues in the today's Coffee trade channels........... 12

1.1. Coffee value chain analysis: differentiation patterns and power repartition..................... 12 1.1.1. Consumption ........................................................................................................................................ 12 1.1.2. Downstream coffee industry and organization: roasters and retailers ...................... 14 1.1.3. The trade of green coffee ................................................................................................................ 16 1.1.4. Upstream coffee industry and organization: curing and hulling.................................... 17 1.1.5. Cultivation and production: environmental and local factors ........................................ 18

1.2. Asymmetries in the global chain and their consequences.......................................................... 19 1.2.1. Value added repartition .................................................................................................................. 19 1.2.2. Power of decision ............................................................................................................................... 19 1.2.3. Information on the product ........................................................................................................... 19 1.2.4. Local know-how ................................................................................................................................. 19 1.2.5. Consequences: creation of parallel chains of supply and differing stratedies.......... 20

1.3. The recognition of Origin in the Coffee value chain (example of India) ............................... 21 Introduction............................................................................................................................................................. 21 1.3.1. The origins in the coffee world..................................................................................................... 21 1.3.2. Origin and quality .............................................................................................................................. 23 1.3.3. Marketing origins: Origin and value addition ........................................................................ 24 1.3.4. Origin and sustainable coffee ........................................................................................................ 27 2.

Conclusions ................................................................................................................................................................... 27 Special features of India’s coffee value chain............................................................................................. 29

Introduction ................................................................................................................................................................. 29 2.1.

India’s coffee-growing regions ............................................................................................................... 29

2.3.

Informal trade channels for Coorg coffee: loose coffee shops and local roasters ............. 38

2.2. Chain organization: purchasing agents and curing works as key nodes of the trade channels’ network ...................................................................................................................................................... 33

2.4.

2.5.

Cooperatives and associations of growers .................................................................................... 39

Branding as a mean to catch value addition ................................................................................. 41

2.6. ICTA Auction and Futures markets in India: attempts to set up local pricediscovery and price-risk management mechanisms ................................................................................ 42 5

3.

Conclusions ................................................................................................................................................................... 44 Export Market ......................................................................................................................................................... 45

Introduction ................................................................................................................................................................. 45 3.1. Mainstream market .................................................................................................................................... 45 3.1.1. Grades and standards in the mainstream market ................................................................ 45 3.1.2. Reputation of Indian coffee on the export market ............................................................... 48 3.1.3. Export destinations, export markets ......................................................................................... 49

3.2. Differentiation schemes in the Indian coffee industry ................................................................. 52 3.2.1. Utz Certified.......................................................................................................................................... 53 3.2.2. Organic coffee ...................................................................................................................................... 54 3.2.3. Estate-branded Coffee ...................................................................................................................... 54

4.

Conclusions ................................................................................................................................................................... 58 Domestic market.................................................................................................................................................... 59

4.1.

4.2.

4.3.

General features of coffee consumption in India ............................................................................ 59

In-Home consumption ............................................................................................................................... 60

Out-of-Home Consumption...................................................................................................................... 63

References .......................................................................................................................................................................... 65

Annexes ............................................................................................................................................................................... 67

Annex 1: ICO Certificate of Origin........................................................................................................................ 67

Annex 2: Moisture content per type of coffee as specified by the Coffee Board .............................. 68

Annex 3: Specifications of commercial grades ............................................................................................... 69 Annex 4: Specifications of premium grades .................................................................................................... 71

Annex 5: Specifications of specialty grades..................................................................................................... 72 Annex 6: Accredited certification agencies for organic products in India.......................................... 73

Annex 7: Survey of coffee brands available in Bangalore.......................................................................... 74 Annex 8: Coffee Board Study results .................................................................................................................. 76

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TABLE OF FIGURES

Figure 1: Actors interviewed during the study................................................................................................... 11 Figure 2: coffee imported by country in 2005 .................................................................................................... 12 Figure 3: European sustainable coffee consumption and projections .............................................................. 16

Figure 4: percentage of value addition on dry-processed coffee in 1994........................................................ 19

Figure 5: influence of the origin on the process ................................................................................................. 20

Figure 6: Logo from Coorg Region............................................................................................................................. 21

Figure 7: Logo from the Indian Coffee board (ICB) for "coffees of India" ................................................... 22 Figure 8 trade channels of estate-branded coffee ................................................................................................... 25

Figure 9: Coffee-growing regions in India ............................................................................................................ 29

Figure 10: Production of different growing region in 2007/8............................................................................. 32 Figure 11: Indian coffee trade channels ..................................................................................................................... 33

Figure 12: Number of growers checking the 4 main quality parameters ........................................................ 35 Figure 13: Example of pre-shipment procedure ...................................................................................................... 37

Figure 14: Types of supply in Coorg's grinding and roasting units .................................................................. 38 Figure 15: Main Indian coffee outputs ....................................................................................................................... 45

Figure 16: Exports of specialty grades in India since 1998 ................................................................................. 47

Figure 17: Exports of Indian coffee per type ........................................................................................................... 50

Figure 18: Exports of specialty grades per type, 2006/7 crop ............................................................................ 51 Figure 19: Estate-branded coffee outlets ................................................................................................................... 56

Figure 20: Coffee consumption since 1951 in MT................................................................................................. 60

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GLOSSARY OF COFFEE DESIGNATIONS

Many terms are used to designate types of coffees. However without a precise delimitation of which coffee can be put in each category, it is difficult to find proper landmarks in the jungle of segmentations in the coffee sector. We will adopt the following definitions for the following terms in the coming report. Estate-branded coffee: It is a coffee grown in a particular estate that possesses uniqueness in the cup and is the result of the best production practices. The origin of this coffee is not always marketed as such on the final product, and it can be sold to specialty roasters who then may use it in a blend without advertising the origin. The brand only concerns green coffee bags. There is a willingness from the grower to have an influence downstream in the marketing of its coffee. Gourmet coffee: Definition of gourmet coffee overlaps broadly with the definition of specialty coffee. It is sometimes used as a stronger term than specialty coffee regarding quality concerns and beans specificities (See Sandalj use of the term gourmet on their website). Instant coffee (soluble coffee or dehydrated coffee): Coffee that is dehydrated into the form of powder or granules that can be rehydrated in hot water to provide a drink similar to brewed coffee. Mainstream coffee: Mainstream coffee is coffee sold according to basic information requirements from ICO: grade, process, distinction Arabica/Robusta. The main concern for mainstream actors is price. Market-differentiated coffee: We will call market-differentiated coffee any coffee that is sold to the consumer under a different shape than common consumption patterns. It can differentiate through the addition of other ingredients such as milk, sugar, aromas, cream… or because the coffee is marketed as specialty coffee. Brands of coffee that do not market their coffee according to other criteria than “quality of the coffee” are not considered as market-differentiated coffees. Origin coffee: it is a coffee whose origin is associated with uniqueness in the cup. Origin coffees include estate coffees. Best production practices are required to reveal the uniqueness in the cup. Origin coffees are most of the time specialty coffees. “Terroir” of coffee: This is the definition from Mane Alves director of Coffee Lab International (Vermont, US) in a private interview on May 1st, 2008: The delimitation of a “terroir” for coffee is done according to a unity in soil composition, a variety of coffee tree that suits the best to the environmental conditions (altitude, rainfalls, soil), and a uniformity and care in farm practices. For him it is a top-down process, someone has to delimit the terroirs (cartography) according only to the given requirements, and make sure practices are maintained. The vintage effect is not so important as soon as quality remains always at its best. Specialty coffee: “One of the characteristics of specialty coffee is that it means different things to different people” (Ponte, 2002). “Specialty coffee” is a buzz word in the coffee sector, because a coffee found in the cup of a consumer has hundreds of reasons for being ‘special’ not all of them coming from the raw material (green beans) themselves. Sustainability criteria are often added to or included in the meaning of the term “specialty”. We will not systematically associate sustainable coffee to specialty coffee because a large part of the coffee produced in sustainable-certified plantations is not sold in the specialty market. The Specialty Coffee Association of America (SCAA) gives the following definition for specialty coffee: “Sometimes called "gourmet" or "premium" coffee, specialty coffees are made from 8

exceptional beans grown only in ideal coffee-producing climates. They tend to feature distinctive flavors, which are shaped by the unique characteristics of the soil that produces them.” In the following report we will call specialty coffee, a coffee that results from a rigorous selection of higher quality green beans (highest generic qualities with or without specific qualities) based on intrinsic qualities of the product. Though many organizations make the confusion between specialty coffee and market differentiated coffee, we will not consider special coffee beverages such as espresso or cappuccino as entering in the definition of specialty coffee. * Specialty market: The delimitation of “specialty coffee” as we did entails the delimitation of a market segment in margin of the mainstream coffee market where the concern for the quality of coffee is higher than other concerns in the trade of coffee. * Relationship market: The relationship market is a market where buyer and producers are in narrow contact in order to avoid information asymmetry usually present between buyers and producers in the mainstream market. Sustainable coffee: Coffee produced in agreement with sustainable standards (environmental or social sustainability) and certified as it by accredited organisms. The main certifications in the coffee sector are Fair trade, Organic, Utz certified, Rainforest alliance, Bird-friendly. All the sustainably-produced coffee is not marketed as sustainable coffee to consumers.

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METHODOLOGY

The study was based conjointly on a strong literature review on the coffee “global value chain” and “filière” analysis, geographical indications and origin issues on the coffee sector, and on a four months field work. The approach consisted first in building a complete representation of the Indian coffee value chain from the producer to the consumers in India and abroad. This representation has been purposely worked on both sides: backwards (from consumers all over the world to producers) in order to enlighten the cause-to-effect relations from one stage to the other (the chain being essentially buyerdriven, going from the buyer to the supplier allows underlining compliance constraints). Downwards, this study permitted to emphasize traceability issues, origin-related aspects and to get a mental image of the trade routes physically borrowed by the coffee beans. This coffee-chain representation has been realized by a first identification of actors involved in these channels and the reading of relevant papers for this information. Borzoni (2007) and his description of the structure and governance of Italian coffee market has been very helpful for instance, since Italy is the main destination of Indian coffee. Issues of quality and origin for coffee have been closely examined in order to acquire a general culture useful in the realization of a case study on Indian coffee afterwards. These elements are given in the first part of the report. The work of CIRAD on origin-based products and “appellations d’origine” for coffee has been very helpful. Other contributors such as Coffee Lab International, consultation of Specialty Coffee Associations’ websites, and punctual interviews have brought this knowledge background and permitted the realization of the glossary presented at the beginning of the document. The field work in itself has been enriched of several short studies during the full period of 4 months in India. The main tram was constituted from interviews with stakeholders of the trade of coffee based in Bangalore and in Coorg district. Main companies such as Tata coffee, Allanasons, Coffee Day, Olam, Ned Commodities, etc… a total of 25 have been interviewed sometimes several times (see figure 1). A survey of coffee packages available in Bangalore has been conducted as well as a survey of cafés and other coffee consuming places. Two surveys have been conducted separately in Coorg: a survey of local roasters in order to assess the volume of coffee consumed and transformed locally, and a survey of planters and purchasing agents regarding trade mechanisms and quality perception and criteria. Interviews with key actors were conducted on the model of semi-structured interviews were key information was systematically collected but with themes developed specifically according to the interviewees’ preferences and orientations. A final meeting has been organized at the end of the field study with actors interviewed in order to close the study with a participative discussion on the results.

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Actors interviewed •Elkhill estates (BBTC) •Tata Coffee •Palthope estate •Yelnoorkhan estate •Badra estates •Honey Farm estate •Ramesh Raja •ABC (Coffee Day) + 24 farmers in Coorg for survey •Olam India •Blan Commodities •Parane Coffee •Naksa Coffee •SLN Coffee •Astra Processors •Tata Coffee •BBTC •ABC (Coffee Day) •Ramesh Raja •Allana Sons •Ned Commodities

Growers

Purchasing agents

•Vinayaka Coffee Links •Astra Coffee •Mountain Blue Coffee •Benaka Coffee •Santosh Coffee •Trust Coffee & Co •Raffeek Agents •C.M.T. Coffee Depot •ABC Trading Agents •Jagadish Coffee Links •Coffee Point •Coffee Links •Ganesh Traders

•Coffee Board – Market research dpt •Coffee Board – Analytical Lab •Coffee Lab – Sunalini Menon •Coffee Lab International – Mané Alves •Rainforest Alliance

Curing Works ICTA Auction Exporters

International market

•AllanaSons •Olam India •Ned Commodities •Tata Coffee •BBTC •Nestle India •ABC (Coffee Day) •SLN Coffee •Ramesh Raja •Palthope estate

Domestic Roasters and Instant coffee manufacturers

Domestic Market

Figure 1: Actors interviewed during the study

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•Fresh & Honest •Narasus •ABC (Coffee Day) •Nestlé India •Tata Coffee •Badma Coffee Works •Coorg Coffee Supplies •Kalmane Cafe •Flava Cafe •Mocha Cafe + 24 Coorg’s small roasters for survey

1. DIFFERENTIATION, QUALITY AND SUSTAINABILITY ISSUES IN THE TODAY'S COFFEE TRADE CHANNELS

1.1.COFFEE VALUE CHAIN ANALYSIS: DIFFERENTIATION PATTERNS AND POWER REPARTITION

1.1.1. CONSUMPTION

As for every global commodity chain, characteristics of coffee consumption all over the world have an impact on the global organization of the chain. Some important features related to coffee consumption are worth being considered in a perspective of understanding segmentations present in the coffee trade channel. Physical distance between consuming countries and producing countries are a source of information asymmetry in coffee mainstream: Even though the repartition of coffee production has been evolving in the last decades, coffee production has traditionally been developed by Europeans countries in former colonies for their own consumption demand. Some exceptions put aside (Ethiopia, Columbia), this has resulted in a general way in coffee not being traditionally consumed by producing countries. This separation often coupled with important distances between the raw material producer and the final consumer introduces a strong information asymmetry and then is a determinant factor for the shape of the nowadays coffee trade

Figure 2: coffee imported by country in 2005 (Source: Wikipedia, based on data from ICO for 2005)

channels. There is a trend today to develop coffee consumption in producing countries with several programs run by international organizations together with local coffee authorities. When domestic consumption is high, it seems that producing countries are less vulnerable to price fluctuations because when importation taxes are high, domestic coffee prices are generally more stable than international prices. However, coffee consumption in producing countries mainly remains a privilege for upper classes. 12

Every market have its own consumption patterns. According to importing figures from ICO, the biggest importers of coffee are the United States, followed by Germany, Japan and Italy. Importing figures do not reflect entirely consumption repartition since some countries re-export a large amount of imported coffee. This is the case for Germany for instance that re-exports a large part of the coffee imported. However, the map of coffee imported by country gives at least an idea of the centers of coffee trade in consuming areas. Each country has its own consumption patterns based on consumption habits, history and local actors’ marketing policies. These variations in coffee consumption from one country to another can be observed in the place where coffee is consumed (home, office, or cafe-bar), the coffee preparation (instant, brew, mixing with other ingredients such as milk, chicory, sugar...), or the characteristics of the coffee itself (degree of roasting, origin...). Main coffee markets have common global economic features: low price-elasticity and current development of niche markets. Coffee demand and market are characterized by a low price-elasticity. Consumption tends to increase as income rises, but levels off at the highest income levels. For this reason, the coffee market is considered ‘‘mature’’ due to the relatively stable and low level of consumption growth in “traditional” coffee-drinking countries. Downstream actors have chosen to answer to this low growth rate by diversifying through segmentation and innovation strategies (Ponte, 2002). Nowadays some coffee market segments such as sustainable coffees (Fair trade, Utz certified, Rainforest Alliance...) are experiencing a growth superior to 10%. In-home coffee market is highly brand-driven Even though it varies from one area to another, in-home coffee consumption represents generally a very large percentage of the total volume of coffee consumed, but the margins in the in-home sector are far lower than in others. Globally, most coffee intended for in-home consumption comes from supermarkets (Ponte, 2002). Supermarkets’ retail margins for coffee are generally lower than for other food product because of the control acquired upstream by industry leaders thanks to massive and aggressive brand promotion. Consumers are very sensitive to brands, and generally the in-home consumption coffee sector is highly concentrated with a few names trusting a large part of the market (Ponte, Borzoni). The poor knowledge consumers have of both coffee tasting and preparing makes them almost insensitive to the “quality” of the coffee they drink, but only addicted to a brand taste. However, a study realized by the CIRAD on coffee brands available on supermarket shelves show that the distinction per brand is more relevant than the distinction according to the origin claimed on the packet. In other words, two coffees of the same brand are more similar in term of taste than two coffees from the same origin. The process taking place downstream in the coffee chain would erase the intrinsic qualities of the green beans. Consumers are more and more sensitive to labels put on coffee packets, especially for coffee because of the historical and symbolic role coffee has played in the development of sustainability labels in the global commodity market. A narrow percentage of coffee connoisseurs may purchase their coffee for home consumption from small local roasters or refer to a high-quality brand such as Illy, the Italian brand aspiring to provide the “best coffee in the world”. Something consumers are generally sensitive to is the presence of Robusta or not in the blend. Arabica is largely preferred from consumers because of the bad image Robusta has acquired in the last decades. This might be partly due to the fact that caffeine content of Robusta beans is twice the one of Arabica beans. Roasters have also reportedly participated in impairing Robusta image for pure economic reasons: for one cup of Robusta, they could try to make customer drink two cups of Arabica. Out-of-home consumption is driven by the local prevailing strategy of the cafe-bar sector Out-of-home consumption patterns are really dependant on the area considered. While big chains such as Starbucks have penetrated the US coffee market, in France or in Italy for instance small corner cafebars where waiters and clients are familiars are still prevailing over coffee chains. The specialty coffee is consumed at 70% in cafés. What Ponte calls “The Latte revolution” has been emerging in the US and spreading to Europe (Starbucks is the famous example): the differentiation of final coffee products is not done in relation with the coffee in itself but the way it is married with sweet ingredients or advertised in order to target 13

special groups of consumers. This gave birth to the emergence of new consumption patterns for precise social groups, such as young people. However, if these chains target sweet-mouths, they also have in general a deep concern with spreading a taste for relatively good quality coffee and sustainability standards. Starbucks’ example is the louder speaking one, with origin coffees and the development of their own sustainability strategy with growers of South and Central America (“CAFÉ” program). Another example that enlightens this will of coffee consumers’ education is the agreement signed in 2005 and extended in 2007, where Green Mountain Coffee Roasters (US big roaster famous for their intervention down the chain, the quality of their product) supply roasted and packaged Newman’s Own Organics Blend coffee to more than 600 restaurants MacDonald’s. This model has also gained emerging coffee-drinking countries such as India with the explosion of coffee chains like “Café Coffee Day” (average of one shop opened per day in 2008). In some European countries the café-bar tradition has resisted to the spread of big chains with consumption at the corner café still prevailing over other types of consumptions. In the case of Italia for instance, the café-bar market is low concentrated in comparison with the home-consumption market. There are hundreds of small roasters with the leading one (Illy) representing only 11% of the market (Borzoni, 2007). Coffee found in the café-bars is the result of a specific financial linkage that traditionally exists between coffee owners and roasters: roasters provide financial support for the bar opening by lending money at a more interesting rate than banks or by providing services on coffee machines. As a consequence, coffee owners are linked to a supplier for several years. The quality of the coffee they purchase is secondary to these financial advantages. Italian consumers seeking for quality have brand references (mainly Illy), the other consumers choosing their coffee for other reasons than the quality of the coffee they can drink. They do not even know the name of the brand they have been drinking so far. The demand from consumers has an influence on the local final coffee market, but it seems that the shape of the coffee market results more from downstream coffee industry’s strategies than from consumer taste that is limited by knowledge aspects. Consumption of origin coffee The name of the origin of the coffee is more and more present on the packages in supermarkets in western countries. This can be the name of the country such as Columbia, Kenya, Guatemala, Brazil, Ethiopia, etc. Many brands have now declined their name in several country origins. The name of a region might be indicated (Blue Mountain, Yirgacheffe, Sidamo, Sumatra, etc…) that matches a particular taste for the coffee and targets generally more connoisseurs than coffee-drinkers seeking exoticism. We can also find on the packages the name of the farm or the estate where the coffee is grown and processed as an indication of quality. The two last trends are not widespread in supermarkets, but in small roasters’ shops, and in café-bars willing to provide a taste choice for their consumers.

1.1.2. DOWNSTREAM COFFEE INDUSTRY AND ORGANIZATION: ROASTERS AND RETAILERS Coffee arrives to the retailer or to the café-bar after numerous stages of process. The last processes take place in the consuming country: green beans arrive from producing countries, and are generally blended according to the roaster’s receipt and the consumer’s taste. The resulting blend is then roasted, with, here again, a degree of roast fitting with local consumption habits. Thereafter, the coffee can be packed and sold under the shape of roasted beans, but more commonly it is first grinded before being packed. Some vertical integration can be observed between roasters and café-bars. Sometimes, when there is no blending for the coffee (pure origin), roasting can be only a service for a retailer that owns the brand.

Roasters have gained control in the supply chain over the years. Advertising of main brands is considered a key factor in the in-home consumption market and promotional sales are very common tools to sustain industries’ strategies (Borzoni, 2007). Competition for shelf space and need for visibility have led to an increase in the number of different blends that are 14

offered in supermarkets by leading roasters. Bigger firms offer many blends in order to take more space and cut out small roasters. Entry barriers in the coffee mainstream market have increased for roasters because the advertisement battle between brands that occurs mainly in the in-home consumption market needs huge investments. As a consequence, the concentration of the roasting sector is very high, especially for the in-home consumption market. The coffee industry value addition: choice of a blend and roasting method. The product’s identity is more closely associated with the brand name than with its geographical origin because the flavor identified by the consumer is the result of blending different kinds of coffee from different places (Renard, 1999). Blending is also used to manage the intrinsic variability of coffee taste. Roasters can obtain the same homogeneous product by manipulating blend compositions, without being overly dependent on any origin. In fact, a critical quality concern for bigger roasters is homogeneity: each product needs to taste the same in time and space from one batch to another. Blending is the most important operation for a roaster, the one in which specific know-how is mobilized (Daviron and Ponte, 2005). Roasters are particularly careful to keep their blend secret. However many roasters claim that there is a roasters’ local know-how, in European countries for instance, in Italy especially. Some roasters do not make the blend themselves and are directly supplied with blended coffees. This is the case for instance for Italian roasters who are supplied with Sandalj’s blends: “each roaster will receive a certificate from the Sandalj Trading Company stating he is a buyer of original Italian espresso green coffee Sandalj Blends” (Sandalj’s website, 2008). In this case, the trading house carries the most responsibilities in the final product. Pressure from consumers: the importance given to sustainability in the supply chain is now on the rise. A concern for sustainability standards from the downstream coffee industry has emerged after several initiatives have taken place in margin of the coffee mainstream and have led the consumer to become more and more concerned with sustainability issues. Once again, consumers’ reaction to sustainability standards has been different from one country to another, but generally the market for sustainablycertified coffee is experiencing a high growth everywhere, and roasters have to adapt to this market Most roasting methods include the following six phases:

1. Drying Cycle: This is the first phase of the roasting process, when the temperature of the beans rises to 100 degrees centigrade. Also in this phase, the beans change from a bright green color to a pale yellow. 2. First Crack: When the beans reach 160 degrees centigrade, complex chemical reactions begin to occur causing a cracking sound. 3. Roast Initiation: The beans swell to 140 - 160% of their initial size. Elements within the beans begin to caramelize, giving the beans their brown color. 4. Pause: In this phase, the audible cracking ceases, but the reactions continue. The time of this silence will depend on the amount of heat applied by the roaster.

5. Second Crack: The progressive dehydration of the beans has made them brittle. As a result, more cracking can be heard. It is at this stage that elements in the bean begin to carbonize, producing the burnt characteristics of extremely dark roasts. 6. Stopping the Roast:

Once the optimal amount of roasting time has elapsed, the beans must be cooled quickly. This is usually accomplished by introducing large amounts of cool air or water.

15 (Source: Specialty Coffee Association of America, website retrieved on 19th may 2008)

evolution. Some roasters for instance now require the coffee to be Utz-certified (personal interview, 2008). The 4C initiative (Common Code for the Coffee Community) that started a few years ago is a mean of protecting mainstream coffee industry from ethical reproaches from consumers (Neilson, 2006).

Figure 3: European sustainable coffee consumption and projections (in MT, source: Giovannocci, 2004) The “specialty market” constitutes a special segment in the roasters’ market by its supply strategies but does not lead to a segmented marketing strategy. “Specialty market” (as defined in the glossary) is a buzzword often used in the world of roasters and traders in order to design coffee picked for specific quality reasons. It is usually opposed to the “mainstream coffee”. Specialty coffee can be pure-origin coffee or blended coffee, but it seems today that it constitutes in itself a market segment that evolves apart from the mainstream chain with a growing numbers of settling actors. “Specialty roasters” might be differentiable from other roasters on the fact that they take more care of coffee origins and have imperatively to step in the producing country. Therefore, supply strategies of specialty roasters differ from mainstream roasters’ ones. However, aside from a generally “high-quality coffee” promotion, no notable differences are to find on the final packages of specialty roasters.

1.1.3. THE TRADE OF GREEN COFFEE The coffee arrives to the roasters in the form of green beans that have been fully processed and are ready to be roasted. This coffee is called green coffee. It is the product that is physically shipped from producing countries to consuming countries. Green coffee is supplied to roasters either directly by exporters or by trading houses. Trading houses import green coffee beans from different countries, and offer these green beans to roasters as such or pre-blended. They are in charge of all the logistical aspects related to the green coffee trade. Small and medium roasters do not generally have a green coffee buying office and rely on the work of brokers and traders to cope with the wide range of uncertainties that arise from information asymmetry between production and consumption sides (Borzoni, 2007). In a general way, the trade of green beans seems to be a highly constrained trade due to the passage from producing countries with legislations differing from consuming countries, and difficulty in assessing the quality of the product since coffee is not in his final shape. Trust and collaboration between actors seem to be essential aspects at this stage (Borzoni, 2007). Trading houses fill several roles: they collect coffee from different places and different continents and present a range of these coffees to roasters. They bring coffee from producing countries to consuming 16

countries, this giving place to local transactions for the roaster that do not encounter legislation difficulties. They take in charge the question of regularity of supply that is a major concern for roasters to keep their blend close in taste from one year/batch to another. They fill then an insurance role for roasters who rely on this type of supply. The price of green coffee is fixed by New York Futures Exchange for Arabica and London’s LIFFE for Robusta. Coffee of higher quality or with specific certifications can be purchased with a high premium above the market price. Contracts on green coffee are often signed long before the coffee is delivered to the final buyer. Many financial mechanisms (such as buyer’s call, seller’s call…) are used in order to determine the coffee price. Depending on the countries’ legislations, these financial mechanisms can bring strong constraints to both sides of the chain. To protect themselves from price fluctuations, actors on green coffee market usually speculate in the same time they realize transaction on the physical coffee market. This is called “hedging” operations. When they buy a certain amount of coffee in one of the two markets (futures or physical), they sell the same quantity of coffee in the corresponding market. If prices change, they will lose money in one market and gain money in the other in comparable proportions if both markets are evolving similarly. (ITC) The main criteria for green coffee purchase remains the price and the specie (Arabica/Robusta), other differentiation criteria are marginal (Daviron, 2004). In the mainstream, actors emphasize on “quality”, but it is a generic quality of the bean that is considered. The price comes first. As we can see on the ICO’s “Certificate of Origin” (see Annex 1), paper put on the bags before shipping that attests the content of the bag, only a differentiation Arabica/Robusta is standardized (see box 14, description of coffee). Though exporters seem to deal with both mainstream and specialty coffee, after them, it seems that there is a strong segmentation between mainstream and specialty coffee for trade houses. There are two kinds of segmentation regarding the specialty coffee market. The bulk of the specialty market is done by trading houses who have a subsidiary dedicated to specialty market: Volcafé group for instance, one of the main trading houses for coffee has a separate subsidiary company dedicated to specialty coffee. “VSC (Volcafé Specialty Coffee) is dedicated to sourcing and promoting the production of high quality and single origin coffees from smallholders, cooperatives and estates worldwide” (VSC’s website, 2008). The scheme is similar for Neumann Kaffee Gruppe with a subsidiary company called InterAmerican Coffee (“InterAmerican Coffee imports and distributes high-quality green coffee around the World”). Aside from this channel, specialty coffee market has often less intermediaries. Roasters then have direct contacts with exporters, planters or cooperatives.

1.1.4. UPSTREAM COFFEE INDUSTRY AND ORGANIZATION: CURING AND HULLING Green coffee beans are entirely processed in the producing countries. The process can differ much from one country to another, depending on the facilities available in the coffee-growing regions and the modernity and efficiency of structures and infrastructures. There are mainly two types of processes for both Arabica and Robusta, which are referred to as “dry” and “wet” process. The wet process seems to be more costly for Robusta than for Arabica due to the beans’ size and shape. Then the first process on cherries comes: cherries are pulped by wet process or dried on a cement floor. Climate and local infrastructure (electricity and water supply) play a crucial role in the quality of the post-harvest process. The storage and transportation conditions influence the quality of green beans by increasing the moisture content and whitening the beans. Once the post-harvest process has been completed, a silver skin remains on the green beans, and the beans need to be polished in order to remove this outer skin. The coffee is either sold in bulk to domestic industry, either sorted and then the best coffee beans are exported as green beans. Countries need to have important and proper capacities of storage (no proper warehouse in India).

17

1.1.5. CULTIVATION AND PRODUCTION: ENVIRONMENTAL AND LOCAL FACTORS What have an effect on the taste of coffee in production are firstly altitude, shade, variety and soil. Altitude and shade reduce the maturation speed and influence plant physiology, leading to the production of bigger beans (Avelino, Montagnon, ...). The slope has been proved to have an influence on the cherry. The variety of tree used also has a strong influence on the fruit, and varieties are more adapted to certain types of soils than others. However there are also important issues regarding diseases prevailing in each growing regions that lead to the choice of certain varieties rather than others independently from the product quality obtained at the end. The environmental factors that distinguish one origin from another are the altitude, the slope, the variety, the rainfalls, the shade cover, the soil composition. The harvest has an influence on the final taste, depending on the maturity of the fruit. The picking of ripe fruits or slightly over-ripe fruits brings a fruity taste to coffee. However for socio-economic reasons (robs, school start season, etc.) coffee cherries are often picked up before maturation’s end. Harvest and post-harvest process has a strong influence on the generic quality of the coffee beans. Beans are sometimes washed or hulled in the plantations depending on their size. In most cases, growers sell their coffee as dried or semi-dried cherry at the farm gate to agents or directly to mills (referred to as “curing works” in India). Many aspects of the drying and washing process strongly influence the quality of the coffee beans. The fermentation process as well as the cut of the beans while pulping of cherries might avoid a coffee with good intrinsic qualities of becoming a good coffee, if generic quality factors are not managed properly. As given in the glossary, the definition of a “terroir” for coffee plays an important role in the creation of an “origin coffee”. Delimiting an area to promote the name of a coffee-growing region is tough. Uniformity in environmental factors influencing coffee taste has to be coupled with best practices in the harvesting and post-harvesting process.

18

1.2.ASYMMETRIES IN THE GLOBAL CHAIN AND THEIR CONSEQUENCES 1.2.1. VALUE ADDED REPARTITION

Regarding the price repartition along the chain, several attempts have been done to assess which percentage of the price for which stage of the chain. Results differ a lot, some giving a share in the producing country of less than 10% while for others it is more than 30% of the total product price (Neilson, 2008). A company such as AlterEco (Fair Trade coffee) states that 20 percent of the final price is for the producing country (AlterEco’s website, retrieved in May 2008). Freight costs depend on distances between producing and consuming countries.

% of value added on the price 10% Farm 22%

Curing works 20%

Exporter freight Import and trade

7%

29% 8%

Roasters Retail

4%

Figure 4: percentage of value addition on dry-processed coffee in 1994 (source: Kaplinsky)

1.2.2. POWER OF DECISION Power along the supply chain is still highly concentrated downstream among few actors but asymmetry of information and differing legislations between countries bring vulnerability to importers. Power along the chain is not in the hands of one single stage/actor. Indeed, if roasters seem to dominate the downstream part of the chain, they generally do not intervene in the producing countries and are not able to control the quality of the product at the production level. That is why trade houses have gained power in the trade of coffee over the last decades, taking advantage from the de-regulation that has followed the failure of the ICA (International Coffee Agreement) and the liberalization of the coffee sector in the producing countries (removal of the control of national coffee authorities over the sector).

1.2.3. INFORMATION ON THE PRODUCT There is a strong asymmetry of information along the supply chain: First of all farmers generally do not taste the coffee they produce and even if they do, they generally lack the tasting skills necessary to evaluate the product. However, if contracts between exporters and buyers are signed when the coffee is still to be harvested, farmers are the only ones to have some information about the product. As a consequence, the one who eventually process the coffee to make the final product does not have the control of the primary material. 1.2.4. LOCAL KNOW-HOW The local know-how of each actor has a strong impact on the final product, maybe stronger than the origin of the beans 19

Figure 5: influence of the origin on the process

1.2.5. CONSEQUENCES: CREATION OF PARALLEL CHAINS OF SUPPLY AND DIFFERING STRATEDIES “Choices aimed at solving quality information problems by key actors will then determine the way a certain value chain (or segment of a chain) is governed.” (Ponte, 2004) Difference between specialty segment and mainstream: While the blending process in the mainstream is a mean of balancing attributes (acidity, body, bitterness, etc...) of different coffees that are not naturally well balanced, specialty coffees are “far more interesting and distinctive when left unblended”.

Quality of the product is an important matter in coffee supply chain (mainstream and 3pecialty markeps). What is quality fnr coffee? Sustainaibility A survey of ConsumerS conducte` in the US in 20 5 revealed that consumers are willijg to pay a higher premium for fair trade than foR shade g2own or organic c/ffee (Loureiro & Lotade, 2005).

apanese market: There is potential for confusion in 4his market since the apanese term for organic products, “yuki”, also includes conventional products that, although produced i. a m/re envirolmentally friendly manner, are not bertified organic. In his study of twelv% iajor markets (2001), Giovannocci givEs the following estimation for t(e market for certified organic yuki is to be abo5t 10 percent of the topal yuki,

20

1.3.THE RECNGNITION OF ORIGIN IN THE COFFEE VALUE CHAIN (EXAMPLE OF IJDIA) 1

INDRODUCTIMN

General features on Origin-based product and GIs and special origins of coffees Indicating the origin of a product involves a particular marketing strategy. Denominatiols such as “oPigin-based”, “single origin” or “pure origin” concern prnducTs that co-e from a `elimiteD area and whose attributes in a broad sense aRe given by the en6ironment or production prac4ices of the locality. However there is an important variability of scaLe in the use of these denominations. It may actually designate a region, a c/untry or even a farm. Depending on the size of t(e area related to a particular product, the mention of the oriGin does not have the samd meaning and bunction. Phe growing intere3t of consumers in knowledg% of origin and traceability Following the numerous food crisis that have taken place in the last decades, consumers are more sensitive today to issues related to origins for food products they buy. The coffee sector has not experienced yet an important crisis related to sanitary issues and food safety but traceability issues have also penetrated the coffee sector. The origin of a product is often associated with a specific quality for consumers. By experience, consumers would learn the influence of areas on the characteristics of the final produbt and will choose the origin that fit the best with their personal taste.

Figure 6: Loeo from Coorg Re'i+n (Indian Coffee Board)

1.3.1. THE ORIGINS IN THE COFFEE WORLD Different origins levels: farm, di3triat, region, country Practically, there are cknsiderable variations concerning the size of the locality designated by originbased products. In the case of ckffee, an origin-differentiated product can be a #offee from a given estate, from a district (Coorg coffee), from a region (Blue mountain coffee) or even from a country (Colombian coffee). This variation in size implies different marketing strategies for origin-based products. Mention of the country Mentioning the country of origin on coffee packages is getting trendier and trendier in many consuming countries. Indications of origin on packages spread not only in small roasters’ shops or retail points claiming at providing top-quality coffees but also in supermarkets. But in most cases, the mention of the country of origin is not a real indication of the characteristics of the coffee because of the important differences existing between two coffee-growing regions within a single country. A 1

Comments in red that can be found along the document concern especially the case of Indian coffee

21

study from CIRAD (Perriot, 2006) proved that in the case of coffee from Colombia purchasable in France, the brand is a more relevant sensorial indicator than the country of origin. Some countries have chosen to register the name of the country as a Geographical Indication. This is the case for Colombian coffee for which a Geographical Indication has been registered in the European Union in 2007. The name coffee of India is only used as an indication of origin at the export level when packages are shipped from India to the country of destination. Generally speaking, Indian coffee does not enjoy a exceptional reputation, except for the washed Robustas of the Western Ghats that enjoy a very good reputation near espresso roasters (in Italy for instance).

Figure 7: Logo from the Indian Coffee board (ICB) for "coffees of India" (designe` by the ICB, marketing dpt) “Terroir” of coffee Some areas in the world are enjoying a particular reputation for the coffee they produce, and their names are associated with “gond coffee” in consumer’s mind. Blue Mount!in, An4igua, Sematra, or Sidamo &/r instance are names of coffee associated with a high sensorial quality of cofbee. The delimitation of a “terroir” gf coffee can be very challenging. Even for small areas, production systems may widely differ from one pro$ucer to ajo4her. To insure in the end coherence in the production from one area, specibications on the attributes of the product obtained and on the pro$uction methods are cru#ial. Generally, a ringle-origin product, when legally protected, is then also accompanied by a description of the product and an agreed produbtion system that is part of the req5irements for the protection. India d/es no4 really have delimited “terroirs” of coffee. Coffee board has designe$ log/s for coffee growing regiojs but these are not used for the trad% of coffee. Some regions such as Bababudangiri in Chikmagalur district enjoy a reputation of good coffee producing region similar to a “Terroir” of coffee, but the recognition of these names is still very limited. Only the 0seudo-origin “monsooNed malabar” is used as a tRad% sign. Moosooned Mahabar is also the only geographical indication registered on a coffee in India. Id concerns the place where tha coffee is monsooned and not the origin of the beans themselves thore can come from every place in the Western Ghats. Coorg is not recognized aq a “terroi2” of coffee bx the overall gf actors interviewed. What are the existinf systems tn determine and insure origin fob a coffee? There are sevdral legal systems available to protect origins’ names, including geographiaal indications (GIs) and refistered trademarcs. Both sistems are used by coffee-producing countries to secure their coffee-growing regions’ names. There are also industrial systems able to bring informatioj on the origin of the coffee. The chemical profhling on green beans and on roasted beans al,ows the owner of the beans to kfow the exact 22

chemical composition of the beans and determine specific characteristics linked to the characteristics of a given origin (Characterization of Roasted Ckffee by S-HSGC and HPLC-UV and Principal Component Analysis bi Lavazza for instance). The Cup-testing in itself reveals some characteristics kf the origins. In India, Sufalini Menon from coffee lab international said that she was able to recognize the coffee from given estates, because of the specific gustative qualities of the coffee given by the environment and the farm practices. She said that she was able to detect differences between coffees coming from the same estate but with different types of environments within an estate.

Estate-branding Estate-branding occurs when a farm producing a special coffee (either thanks to specific environmental factors, either thanks to specific farm practices) decides to sell its coffee aside from the mainstream, and market the name of the farm as a sign of quality. These farms are generally large enough to invest in a costly marketing campaign. Their whole production is not marketed the same way. Generally only the top-quality part of the production is marketed this way. As a result, it may concern only a small part of the estates that are located higher in altitude or with a different plant material. Estate-branding is a particularly developed trend in coffee marketing. It concerns especially some coffees from South America at the destination of the USA; the SCAA (Specialty Coffee Association of America) is very sensitive to estates recognition. Current trend: The system of e-auctions for high quality coffees Developed in the last decade, the system of e-auction is a mean of recognition for origin coffees in Latin America mostly and of price discovering for a market segment in the coffee sector that do not follow anymore price indicators of London and NY markets. This system is based on cup tasting competition for some growers whom results are available and regularly updated online. “By facilitating the procurement of new specialty coffees in an expanding market, auctions are important in the discovery process that is essential to product innovation and maintaining competitive advantages in the specialty coffee industry” (Cup of Excellence website, 2008). In the example of the Cup of Excellence, only 350T of green coffee are available for trade every year. This profits more to small specialty roasters. This is a very individual system (farms and no cooperatives). One of the issues raised by the development of this system is: Does this system enhance plantations at the expense of small producers’ groups/associations? This system put the name of the farm first. It associates quality with a list of organoleptic criteria assessed by professional cup tasters and the name of the farm, lots of information given in addition about the growing conditions and the process. The region characteristics are not given as criteria for the cup. The quantities of coffee traded are very small (20 bags per farm in average), and are sometimes only a very small part of the production available in the farm.

Estate branding is the leading trend in the specialty coffee sector in India. As for evidence, the members of the Specialty Coffee Association of India are almost all estate owners who market partially their coffee under the name of the estate. According to Sunalini Menon, there are around 25 estates brands in India. Many of them are located in Chikmagalur district (including two coffee growing regions: Chikmagalur and Bababudangiri). Estate-branded coffee exclusively comes from middle to large estates. For more information on estatebranding in India, cf “A typology of the outputs of India’s coffee export market”.

1.3.2. ORIGIN AND QUALITY The impact of environment and farm practices on the coffee 23

The organoleptic quality of coffee depends on bean structure and on the balance of chemical components (CIRAD, 2006). These aspects are linked to the plant material in itself, its environment, and the farming practices during harvesting and post-harvesting process. In addition to the coffee tree species, the altitude, the slope, the shade, the soil and the climate have been proved to have an influence on the green coffee beans. Then, specific qualities of coffee are narrowly associated with origins characteristics. Moreover, agricultural practices those vary a lot from one region to another are known for influencing strongly the organoleptic qualities of the beans (lessons on the management of the fermentation process for instance are given by Illy Caffè to farmers during the Illy coffee university). In India, some areas are known for producing better Arabicas than others (the common example is BababudanGiri), because these coffee-growing regions are located at a higher altitude than the average (from personal interviews). Robustas of India are also more generally grown at a higher altitude than others robustas in the world and enjoy a reputation of best quality. The type of shade cover however does not seem to be associated with the quality of the coffee produced by the broad majority of the actors interviewed. On the other side, some regions suffer from a less attractive reputation because of their farm practices (for instance the drying of cherries on mud yard in Kerala). But these reputations of regions in term of quality seem to be restricted at Indian stakeholders of the coffee trade and have not spread abroad.

However, a lot of parameters intervening downstream in the chain influence the final quality of the coffee in the cup. The sorting of the beans, the storage conditions, the roasting the grinding and the freshness of the beans put all together represent in the end most of the quality factors (cf the multiple qualities of coffee). The perception of the specific quality given by the origin is possible only if the quality of each process downstream is irreproachable. The specific qualities of the coffee given by the origin are only perceptible for a certain categories of beverage, and different type of beverages (brewed coffee with different type of roasting or of grinding, espresso, etc…) reveal different specificities of the coffee. Mixing coffee with chicory, sugar, milk or other ingredients hide most of the intrinsic gustative qualities of the beans. In the end only a very small percentage of the coffee consumed in the end is appropriate to origin recognition, and would have nearly the same taste whatever the place where it comes from. One of the main issues associated with the marketing of origin coffees is the following one: Does an origin of coffee need to be associated to a highest specific quality to be marketed? This is not a question that can be answered simply and directly. By looking at what is available on the market, we can see that the marketing of an origin is based most of the time on specific gustative qualities of the product. Most of the web sites focusing on the origin of the product are first focusing on the high quality and uniqueness of the cup of their coffee. Another important question raised is the effect of the marketing of the origin on the value addition of coffee at different stages of the trade channels. The issue will be discussed in the following paragraph.

1.3.3. MARKETING ORIGINS: ORIGIN AND VALUE ADDITION If the environmental and human factors associated to a specific origin are proved to exert an influence on the quality of the product, the link to the territory is not transmitted intact further downstream when it comes to market a coffee. Many different configurations can be found on the market those illustrate the way coffee are marketed according to origin or not. 3 categories have been identified and presented below: 1) The origin is recognized for higher organoleptic qualities at the farm level, and the farmer/organization of farmers sells its product directly to roasters/specialty traders with a premium. The coffee is then marketed with the name of the place on the package (estate or region): it is a pure-origin product. 2) The coffee is marketed with the name of an origin of the product without any premium given to the farm/organization of farmers (In most of the cases, the marketing of the country name follows this trend). 24

3) The coffee is not marketed with the name of the origin but a premium is given to the farm/organization of farmers because the highest quality or specific qualities of the coffee are recognized as such by the roasters and upstream. The consumer however, does not have any information about the origin of the coffee consumed (this is the case of Illy caffè). Traceability and origins in the trade of coffee The mixing of origins: where does it usually take place? There are different stages along the trade channel of coffee where several origins of coffees are mixed together. The most famous one for coffee is the blending that is done either by the roaster himself, either by trade houses that propose directly a blend to small roasters (This is the case for Sandjal in the Italian roasting industry). During this stage, several origins of coffees are mixed together (mostly from different countries and continents) in order to balance body, acidity and bitterness and to provide a taste that suits to the local consumer. But before this stage, several blending may have already taken place in most of the cases (mainstream). To insure the traceability of the coffee and guarantee its origin, the coffee has to borrow a separate trade channel. If producers are not involved in the marketing of their coffee, then their production is mixed with the production of other growers who sell their coffees to the same agent. The agent itself do not mix the coffee of the different farms he is supplied by, because coffee is bought in bags of 50/60 Kg at the farm gate. At the curing works, putting aside some exceptional cases, coffees brought by different agents are mixed together after the grading process. A/AA/AB grades are mixed together if no major defects (moisture content for instance) appear on one particular sample. Differences in trade channels for pure-origin coffee Pure-origin coffees follow different trade-channels than mainstream coffee. The coffee cannot be sent to the curing works with other coffees from other places, because it has to be kept separated in order to insure traceability. It results in commercial chains much shorter than for the mainstream, and an abundant communication between actors. All actors have to be involved in the questions of quality and be aware of the perception of other actors upstream and downstream. This results in a trade of smaller quantities and higher prices and an important communication among all stakeholders of the chain.

Figure 8 trade channels of estate-branded coffee Interest of origin for the final product: Consumption of coffee as single origin or in blends? 25

Single-Origin coffee can be consumed as pure origin coffee, and found on the stores’ shelters as it. They can also be blended with other coffee, be it single-origin coffee or not. For roasters, there is an interest in getting a quality that is maintained stable from one batch to another, to keep always the same taste to their coffee. If a coffee is certified with a stable quality and supply amount then roasters have an interest in keeping always the same coffee supply source for the blend. It avoids them extra costs to find every year the right coffee for the right taste. (Source: Galland & Avelino, 2005) In this case, the specific qualities of coffee that are looked at by roasters may differ from the ones considered when the coffee is marketed as pure origin. Robusta coffee in particular might more easily find a place in this niche. The example of Illy operating in India with only Arabicas illustrate the fact that origins of coffee can be selected for their specific qualities but not marketed as such afterwards. Illy picks each of the farms it is supplied by according to the organoleptic quality of the coffee produced. But in the end, all the coffee is sold under the trademark “Illy” and no mention of the origin of the coffees is done at the last stage.

Trend for pure-origin coffee consumption The consumption of pure origin coffee is in expansion in western countries. The differentiation through coffee origin is developing in Europe, and in the US. What seems getting out of consumers comments and traders advertising for pure origin coffee are mostly traceability concern and connoisseurs pleasure when origin is associated with high-quality. Consumption of coffee where the origin is mentioned is something very rare in India. Most of the coffee consumed is marketed according to brands without any mention of the origin. The only coffees purchasable for in-home consumption on which package the origin is mentioned are the estate coffees sold in cafés-bars (Dark Forest from coffee day being the largest spread). Few cafés mention the origin of the coffee they serve in the menu or when served, even in the palace hotels.

Advertising for single-origin coffees found in on-line shops: “We place emphasis on the origin of coffee for a few different reasons: firstly, they allow you to experience the taste characteristic and regional nuances of the world’s coffee, and secondly, we like to keep our customer informed about the farming conditions surrounding each origin” (Single-Origin roasters website). “A 'single origin' is a coffee from one region. This simply means that many plantations from one region contribute to a coffee type. When you take only the best beans from a specific region and roast them to perfection the coffee you get is truly remarkable” (Coffee Traders International website) A survey of roasters offering pure-origin coffees conducted in 2007 by FoodAktuell in Switzerland brings elements in order to understand the conditions of the success for pure-origin marketing (in Europe). The answer, to put it in a nutshell, was: „Für den Erfolg braucht es exklusive Geschmacksrichtungen, Raritäten und ein «Story Telling»“(A uniqueness in the taste, scarcity, and a “story telling”) (Dr. Guido Böhler, 2007). According to them, Origin is narrowly associated with gustative qualities of the coffee, but the taste, if representing the first criterion, is not sufficient for the success of the product. The value addition associated with origin: the case where there is not any premium for the producer We have seen in the preceding paragraphs that a coffee marketed with a name of an origin does not necessary mean that the farmers who have grown the coffee or the curing works or the exporters have received a premium for this coffee. Nevertheless, this cases when the origin is marketed without any come back to the farmer are cases where farmers are not involved in the marketing of their coffee and do not produce any distinctive coffee in regard to their neighbors. The absence of uniqueness in the cup does not mean that the coffee won’t be marketed with the name of the origin: this is then the initiative of the roaster or retailer to tell the story around the reputation of the region or the extrinsic 26

qualities of the coffee. He might get money from this marketing strategy but he won’t pay more for the base-product if it is not chosen on any quality criteria. When asked about the possibility of using the name Coorg for a marketing strategy, the answer of AllanaSons was: “you can fool one million people one time, but you cannot fool one million people one million times”. As a consequence, buyers of Indian coffee are currently not ready to pay a higher price for a coffee coming from Coorg, even if they might not be against using the name “Coorg” as a marketing tool. The coffee from the Araku Valley (only fair trade certified cooperative in India) is sold with a story telling but is not commercialized thanks to apparent exceptional gustative qualities.

1.3.4. ORIGIN AND SUSTAINABLE COFFEE Sustainable coffee is coffee produced in agreement with a list of sustainability criteria. This sustainability concerns different aspects of the production: environmental or social criteria. Sustainability in production can be assessed thanks to a wide range of labels: organic, fair trade, birdfriendly, rainforest alliance. It can also be assessed and controlled with standards such as 4C, UtzKapeh... Sustainable coffees are generally not differentiated in term of origins although the assessment of the sustainability of the production lead to traceability than can also be used to market the provenance of the product as it. In the case of India, a link between sustainability and origin can be enlightened: Out of the 6 Utz certified farms, 5 of them market their coffee as an estate coffee, and try to build a reputation for the name of their estate. Sustainable criteria can then help the building of a reputation for origin products. But in the case of India, this matter is clearly a consequent of the production system organization: only large exploitations can afford the cost of certification and the marketing of their name. The absence of cooperatives and more generally the absence interest from the farmers in selling their products further than the farm gate might also contribute to this phenomenon of “all-or-nothing”.

Consumers do not consume sustainable coffees for the same reason they would consume single-origin products. The sustainability does not bring much guarantee on the quality of the product in itself. It brings information and guarantees on the effect of the production on the environment or on the producers as human being. It guarantees sustainability for some aspects of the production system.

CONCLUSIONS

The marketing of an origin of coffee and the link of the coffee with its territory can be very diverse. Many different configurations can be found on the market of coffee. But not all of them are associated with a premium paid for the origin of the coffee. On the other hand, premium can be paid for specific origins by actors of the global coffee chain, without marketing afterwards the name of the origins of the coffees. Premium price, Origin and Quality are three disjoints concepts that cannot be mixed in the case of coffee. But it seems that many premiums are all the same given according to the quality of the coffee first. India is late in regard to other countries from Latin America or Indonesia for the marketing of its coffee origins. However, there are some cases of origin marketed in the international market mainly: -

One GI: Monsooned Malabar coffee (origin associated with a specific process + generic quality, premium paid) Around 25 estates brands (origin associated with highest quality, premium paid) One cooperative from Araku Valley (fair trade certified) (origin associated with a story, premium paid?)

27

-

Two brands “Coorg” on the market (origin associated with the name of a beautiful and historical coffee growing region, no premium paid)

In each of these cases, the link between the characteristics of the coffee and the marketing of the origin are totally different. On the contrary some origins of Indian coffees are recognized by Illy Caffè but not commercialized as such.

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2.

SPECIAL FEATURES OF INDIA’S COFFEE VALUE CHAIN

INTRODUCTION

Like every growing country, India’s coffee chain presents a set of specificities. These specificities range from the organization of the chain (the input-output structure) to the support services that are provided to chain’s participants, the power repartition along the chain, the production systems and the resulting dynamics that animate the coffee sector. Since the liberalization process in the mid-1990s which has seen the withdrawal of the Coffee Board’s pooling system and control over the marketing of the coffee, the chain has lived a continuous restructuring process. In India especially, the liberalization has been accompanied by a large variety of initiatives ranging from the creation of futures markets (India is the only country along with Brazil to have got into it) to the appearance of a huge number of exporters and the experience of several co-operatives models. The reason might be that the liberalization process in itself is unique in India since it is the result of growers’ mobilization and not, as in most countries, the result of the withdrawal of coffee authorities (Akyiama, 2001).

2.1.INDIA’S COFFEE-GROWING REGIONS

The main coffee-growing regions in India are located in the Western Ghats, in the states of Karnataka, Kerala and Tamil Nadu, which are referred to as “traditional areas” or “coffee belt”. These regions account for 98.8% of the total Indian coffee production (Coffee Board, 2008). After this come the socalled “non-traditional areas” in Andhra Pradesh/Orissa (Araku Valley) and the Northeastern states. These main regions are divided into 13 sub-regions by the Coffee Board (figure and table 1). Regional distinctions are based on both administrative and geographical divisions.

Northeastern States

Araku Valley

Bababudan Giris

Biligiris

Chikmagalur Manjarabad Coorg Wyanad

Sheveroys Nilgiris Anamalais Pulneys

Travancore

Figure 9: Coffee-growing regions in India

29

The main characteristics of India’s coffee plantations are the following. Virtually all the coffee is shade-grown and intercropped with spices and fruits. Main intercrops include pepper, vanilla, cardamom, orange, banana and arecanut. Holdings are overwhelmingly small: 98.8% of holdings have less than 4 ha (source: Coffee Board, 2008). Cover is mainly made up of silver oak (grevillia robusta). But this (cover and intercrops) also depends on the region. In this regard, elevation plays an important role, and maybe to a larger extent, the land tenure system. Coorg district for instance benefits from a special land tenure system that specifies two main types of private tenures, namely redeemed and unredeemed. This division allows owners of redeemed lands to use the trees that are planted in their estates while unredeemed land owner do not have the usufruct of the trees that grow on his land. Owners of unredeemed lands often try to bypass these rules in order to get additional income from timber wood. The phenomenon is spreading rapidly all over Coorg. But still, the canopy is consequently considered to be denser in Coorg than in any other coffee-growing regions. Indeed, plantations there have generally a diversified cover rather than a mono-specific grevillia one. Moreover, jamma lands in Coorg can be acquired only by heritage. This complex land tenure system appears as one the most important reasons for the good protection of biodiversity of trees in Coorg district (interviews and Neilson, 2008).

State Karnataka

Region Elevation Arabica Production Robusta Production Chikmagalur 700-1,200 9,000 30,000 Bababudan 1,000-1,500 10,500 Giris Biligiris 1,500-2,000 750 Manjarabad 900-1,100 21,000 9,500 Coorg 750-1,100 26,000 56,000 Wyanad 600-900 54,000 Kerala Travancore 400,1,600 9,000 Nilgiris 900-1,400 1,500 3,000 Tamil Nadu Pulneys 600-2,000 7,500 Shevaroys 900-1,400 3,000 Anamalais 1,000-1,400 1,500 900,1,100 3,100 Andhra radesh Ar!ku Valley 800-1,200 300 No2theastern states Table 1: Features of the main Indian coffee-growing regions (source: Coffee @oard) India grows both Arabica and Robusta, with Robusta accoqnting nosadays for approximately 65% of the production (Coffee Board, 2008). It is one of the few countries in t(e worl` to do so, along with Brazil, Uganda, Cameroon, Ecuador, Indonesia, and Tanzania. The beputation of every region is not well established on the i.ternational market. Yet, no region in India has got a reputation that cmuld be compar%d to Hawaiian Kona, Jamaican Blue Mountain, Indonesian Sumatra Mandheling, E4hiopian Yirgacheffe, Costa Rican Tarrazu, Guatemalan Antigua or even Colombian coffee. The reputation of the different coffee-growing regions regarding the qual)ty of the coffee they produce is firstly considered through the cup profile. No cup profile had been so far recorded for every growing region, and export grades do not include a cup-testing part. “Cup profiles” that are considered on the international market only focus on Indian coffee, without any distinction according to the growing region. Thus, Indian Arabica is referred to as having “low acidity, medium to full body, and subtly spiced in the cup” while Indian Robusta is said to be “mild”, which is a valuable asset on Robusta specialty market (the harsh flavor of Robusta is generally regarded as its main problem). However, a few initiatives have been carried out recently which could help such recognition. The first one was the Coffee Board’s initiative of a range of logos for every growing region. As already mentioned, this initiative has not taken off yet. The other one is the cupping competition “Flavour of India”. This competition follows a range of similar initiatives in other producing countries to promote 30

both high-quality coffees and coffee-growing regions’ names. The Coffee Board launched it in 2002 and tries to do so that the competition always takes place at the same time as another international gathering of specialty actors. For instance, it has been organized in 2005 at Seattle to coincide with the 17th Annual Conference of the Specialty Coffee Association of America. In 2006, the final cupping session was organized in Berne at the same moment as the “World of Coffee Conference & Exhibition” and “7th World Barista Championship” organized by the Specialty Coffee Association of Europe. We gathered the winners of this competition in order to compare the different regions from 2002 onwards. Results are shown in the table 2. Specialty coffees include Mysore Nuggets ExtraBold, Monsooned coffee, Robusta Kaapi Royale and organic coffee. As shows this table, Chikmagalur leads the count of awards in this competition, especially for conventional coffees.

Award for the finest Arabica 3 2

Award for the finest Robusta 3 2 1

Award for the finest Specialty Coffee

Total

Chikmagalur 6 Manjarabad 4 2 Coorg 3 2 Bababudan Giris 2 1 1 Anamalais 2 1 Mangalore 1 Table 2: Number of winners of the Fine Cup Awards per growing region at the "Flavour of India" cupping competition (source: personal compilation)

The main Robusta growing regions include Coorg and Chikmagalur in Karnataka and the whole Kerala (Wyanad and Travancore). Regarding their reputation among Indian exporters, Kerala is known for its Robusta Cherry since most of the coffee there is dry-processed, whereas Coorg and Chikmagalur especially contribute to the bulk of Robusta Parchment production. Afterwards, exporters generally do not do any further distinction between Coorg’s and Chikmagalur’s Robustas nor in terms of taste neither in terms of production practices. Robustas from these regions are some of the best in the world, and they are referred to as “Indian Robustas” rather than coming from Coorg or Chikmagalur. Dry-processed beans are compact, oval to round in shape with pointed tips and golden brown color. Wet-processed beans have a bluish-grey color, with the “soft” and “neutral” tones in the cup that actually define high-quality Robustas. The latter also provide the buttery crema which is a hallmark of quality in an espresso drink (Sunalini Menon).

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Tamil Nadu 7%

Other Kerala 3%

Hassan 7%

Non Traditional Areas 1%

Coorg 42% Wyanad 16%

Chikmagalur 24%

Figure 10: Production of different growing region in 2007/8 (post monsoon estimates, source: Coffee Board)

As for the Arabica coffee-growing regions’ reputation, the most important geographical feature contributing to define high-quality Arabica origins worldwide is the altitude. Consequently, the Bababudan Giris are considered as the top-quality Arabica-growing region in India, and to some extent the Nilgiris and Shevaroys though they are much less famous (coffee reviews, K. Davids). According to the legend, the Bababudan Giris are the place where the first coffee seeds were planted by a Muslim pilgrim – Baba Budan – in the 17th century. The region grows only Arabica at high altitudes, making it a sought-after washed Arabica on the specialty market.

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2.2.CHAIN ORGANIZATION: PURCHASING AGENTS AND CURING WORKS AS KEY NODES OF THE TRADE CHANNELS’ NETWORK

So far, there is no trade channel specifically dedicated to Coorg coffee or any Indian coffee-growing region. Indeed, the name of the growing region has not got an importance in the global Indian coffee chain. Indian coffee sector is fully liberalized since the mid 1990s. From growers to the final market, there are not many steps undergone by the physical coffee, thus leading to a high price transmission. General overview of the chain is presented in figure 3.

Figure 11: Indian coffee trade channels Curing works are the key node in the Indian coffee chain. They are usually owned by exporters and located in precise towns of every coffee-growing region. These towns are chosen according to the climate – dry and hot – in order to carry out secondary processing (mainly drying of cherries) and allow good storage conditions. They basically purchase the coffee from agents who are attached to them and located all over the region. These agents are located in villages all over the coffee-growing regions and collect the coffee from each plantation, thus taking in charge the transportation costs to the curing units. They mainly operate on commission basis on behalf of exporters or curing works’ owners. Describing the chain so, we define two critical nodes of the network of the trade channels related to Indian coffee: agents at the local level and curing works at the regional level. These nodes are largely controlled by exporters who then benefit from the information they get from their network of agents. Conversely, small growers are largely taken aside of the marketing channels of their coffee. Most of the small and marginal planters who contribute to the majority of the production sell their coffee at the farm gate to purchasing agents. Hence, they do not participate in the marketing of their coffee and do not benefit from the information related to the valuable attributes of their product. Some of them try to 33

sell their coffee in bigger towns or even to curing works directly. However, they often loose money since they have to take in charge transportation costs. The price they get may be higher, but deduction of transportation costs might then make a lower price than agents’ ones. Furthermore, doing so supposes to have sufficient quantities to fill a truck, i.e. having more than 200 bags to sell. This means having approximately a production of 10 MT, and such quantities only concern medium to large producers. Agents appeared recently after the liberalization of the market. They gained importance with the income tax law of 2004 that enacted the fact that green coffee was considered as a manufactured product. The central government imposed under the section 7B of the rules that “income derived from the sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from business, and twenty-five per cent of such income shall be deemed to be income liable to tax”. Therefore, planters preferred selling raw coffee at the farm gate rather than cured coffee to avoid being liable to pay this income-tax. This rule has been attacked as being a reason for a decrease in overall Indian coffee quality. Indeed, it is a reason why planters are disconnected from direct marketing of their coffee, and agents reportedly do not care for basic quality criteria (moisture content, foreign matter, number of damaged or black beans, etc.) when they purchase coffee at the farm gate. However, rather than being liable to pay the income tax, another reason that can also explain why planters preferred selling their coffee at the farm gate is that this rule has constrained them to keep readable counts of their sales, which they are reluctant to do. Agents are powerful local actors. They actually provide a range of support services regarding local coffee trade. More precisely, hey provide three main types of vital services. They indeed collect the coffee from planters, transport it to the curing works and own storage facilities. Two additional services that they often give and associated with the local trade are financing and information collection. Control of these vital activities has increased their role as crucial middlemen between exporters and planters. Furthermore, this control expands also to a network that provides them with good information concerning the plantations, their practices as well as prices. In a survey conducted by Achoth (2005), 74% of Coorg’s producers interviewed for this study sold their coffee to local purchasing agents, while producers selling directly to curing works accounted for only 17% of the total number of interviewed producers. Moreover, the latter producers are overwhelmingly large producers. Only two quality parameters were checked at this occasion with basic means: moisture content (biting test or weighting mainly) and smell (to detect and prevent mould formation). During our study, out of the 13 agents and 24 farmers we met, there were 4 qualityt parameters usually checked at the farm gate. Moisture content was by far the first to be checked by all the actors. The out-turn of the coffee was also an important feature at the farm gate for cherry coffee, some agents hulling one sample of 1 kg to determine the growers’ out-turn. Then, the berry-borer infected beans and blacks are also an important defect that is checked. Discounts are made according to the quality parameters checked by agents.

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25 20 15 10 5 0 Moisture Content

Blacks

Berry Borer

Out-turn

Figure 12: Number of growers checking the 4 main quality parameters

There are two main systems concerning the transactions carried out at the farm gate: immediate payment or consignment system. The first one allows a high degree of flexibility since the transaction is done in cash and there is usually no receipt. This is the most widespread system in Coorg region. The other one allows planters to choose the moment when their coffee is sold in order to get better profits from expected price movements. Out of the 24 farmers we met in Coorg, only 3 growers said they use the consignment system exclusively, while 5 said the might use it for a part of their production. And out of the 13 agents we met, only one said that he does not pay in cash but in check. Afterwards, this agent was working for ABC (Coffee Day), which has special purchasing policies. Their agents are indeed paid on monthly salary basis and not on commission basis like most of the others. Agents can also diversify their activities by lending loans to growers and then “secure” their supply. Their role as financiers has reportedly increased over the years (Ambanikudige, 2006). They can lend money to growers, but taking interest on the loan is not their priority. They would conversely use this mean to secure their supply and increase their bargaining power: by lending money, they can afford paying less than the market price for the coffee they purchase from the grower. Other actors between growers and exporters include hullers. Hullers basically process cherry coffee from dried cherries to parchment coffee. They are located all over the growing regions and are especially important in Coorg and Wyanad (source: interviews). Other actors consider that hullers’ processing is relatively poor, resulting in a low quality coffee. Basic means are used, and the number of damaged beans is therefore high. Many different purchasing policies can be found at the curing works’ level depending on the owner’s strategy. Some curing works are owned by big companies who also own large corporate plantations. In Coorg, there are two of them, namely Bombay Burmah Trading Corp. Ltd. (curing works in Siddapur) and Tata Coffee (curing works in Kushalnagar). These curing works can handle coffee from the company’s plantations as well as coffee from small planters. In the case of BBTC, this eventually happens but is not the rule. For Tata Coffee, it is slightly different since they are involved both in mainstream and specialty markets. Their plantations’ production is mainly intended for specialty export market, following an estate-branding strategy. But Tata Coffee is also a significant player in filter and instant coffee market in India (and in Russia for instant coffee). Hence, they also purchase lower-quality coffee from agents at their curing works in Kushalnagar.

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Other curing works are owned by exporters, and very few of them only operate as curing works independently (without being exporters). All of them participate in London and/or NY futures markets depending on the type of coffee they handle (Robusta and/or Arabica). They use these markets for a double purpose of price discovery and price hedging. Mixing of different “origins” takes place at the curing works’ level. Most of Coorg’s curing works are located in Kushalnagar: out of the 16 licensed curing works listed by the Coffee Board in Coorg district, only two of them are not located in this city (Coffee Board, 2008). Reasons for this are that this city is located on important roads and the weather is drier in the surrounding area than in Coorg’s hills, thus facilitating secondary process and storage. Most of the curers indifferently take coffee coming from Coorg, Hassan or Chikmagalur, and they purchase Robusta as well as Arabica. As a matter of fact, coffee from Hassan and Chikmagalur can make up to 40% of the total volume purchased by the Kushalnagar’s curing units. Out of the 6 curing units we visited in Kushalnagar, all of them took coffee from other districts than Coorg. This also means that coffee produced in Coorg can be cured in Hassan, Chikmagalur, Mysore, Mangalore, Bangalore, etc. At the curing works’ level, all this coffee is mixed together and then sorted according the Coffee Board’s grades unless the buyer’s command specifies that he wants a pure origin coffee from a specific estate or region. Another reason why curing works have gained importance in recent years is that they own storage facilities that often lack in the farms. Hence, they have flexibility concerning the moment when they sell their coffee, and thus they can make profits by speculating on the price movements. Small growers may store their coffee at their farm (Achoth, 2005). However conditions of storage at the farm can lead to a deterioration of the coffee quality, especially by increasing the risk of mould contamination. Hence their flexibility concerning the time they want to sell their coffee in order to get the maximum profit from the price movements is considerably limited. Name

Quantity (MT)

% Total Quantity

% Cumulated

1

Allanasons

31,036

12.5%

12.5%

2

General Commodities

29,371

11.8%

24.3%

3

CCL Products

19,984

8.0%

32.3%

4

Nestle India

18,467

7.4%

39.7%

5

Olam Exports

17,174

6.9%

46.6%

6

Tata Coffee

16,410

6.6%

53.2%

7

Hindustan Lever

14,763

5.9%

59.1%

8

ITC

13,008

5.2%

64.3%

9

ABC Trading

12,664

5.1%

69.4%

10 Ned Commodities

12,040

4.8%

74.3%

Others

64,112

25.7%

100%

Total

249,029

Table 3: Top Indian coffee exporters for financial year 2006/7 (source: Coffee Board, 2008) After secondary (or export) processing is completed at the curing works, there are mainly three channels for clean coffee. It can be sold at the ICTA auction in Bangalore, it can be exported, or it can be sold to Indian roasters. There are still a large number of exporters in India as compared to other 36

countries where the export activity is very concentrated. In India, more than 75 exporters are indeed recorded by the Coffee Board. However, the first ten exporters contribute to approximately 75% of the total exports in quantity (own calculation, source: Coffee Board 2008, see table). As already said, exporters are the key players in the Indian coffee industry, mainly because they have control over their supply chain, and thus over the trade channels.

Kushalnagar Curing works Bangalore Cup-testing Cochin Port of shipment

Importer

Samples

Export authorities Quality check and export permit

Figure 13: Example of pre-shipment procedure (source: interviews) From the curing works where coffee is stored, samples can be sent to different buyers so they can evaluate and taste the coffee. Some curing works actually have a lab where cupping is undertaken but this is not the rule. Hence, exporters who are mainly based in Bangalore cup-test samples before export or they can send it either directly to their buyers or to third-tier labs to provide independent cup-profiles to their buyers. The cup-profile is however not important for all the buyers, especially for those operating on the mainstream commodity market, such as Olam, the largest shipper of Robusta worldwide. These companies usually do not cup-test their coffee, physical quality being their main concern, and their buyers “trust” them so they do not have to provide samples to them. Then, once the contract is agreed by the two parts, coffee is sent from the curing works to the port of shipment where physical quality (grade) is checked again by government authorities who then issue an export permit. In India, main ports of shipment include Cochin, Chennai, Mangalore and Tuticorin, but Cochin and Chennai contribute respectively to 42% and 35% of the total exported quantity. Another trading route can be the ICTA auction which is held once a week in Bangalore (see section below). Very small quantities are sold through this auction, and they are purchased mainly by small or medium domestic roasters.

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2.3.INFORMAL TRADE CHANNELS FOR COORG COFFEE: LOOSE COFFEE SHOPS AND

LOCAL ROASTERS A small amount of Coorg coffee production is marketed through informal channels. These channels are mailly of two types. They include relatives getting directly their coffee in the family’s or friend’s estate and then roasting and grinding it either by themselves or at small roasting and grinding units. They also include the so-called “loose” coffee shops located in the main towns of the district (Gonikoppal, Polibetta, Somwarpet, Madikeri, Kushalnagar, etc.) and selling small amounts of unbranded filter coffee with the percentage of chicory being the customer’s choice. Their customers include individuals, locals as well as tourists, and hotels, restaurants and other persons involved in the catering market in the state of Karantaka. Coffee sold by these shops in Coorg’s district comes from parallel channels. Owners of these shops might for instance have a small estate and try to catch valueaddition by directly selling roasted and ground coffee to local customers or tourists. Out of the 24 grinding and roasting units visited during the study, three main types of supplies were undertaken: supply trough curing works, planters or by their own estate (figure 4). Very few really care about the grade they purchase since only 4 out of the 24 said they had requirements, the others saying that they purchased either ungraded coffee or mixed grades.

Number of respondents

7 6 5 4 3 2 1 0 Gonikoppal Kushalnagar Madikeri Curing units

Own estate

Ponampet Somwarpet

Virajpet

Direclty from planters

Figure 14: Types of supply in Coorg's grinding and roasting units Coffee can be indeed raw coffee from an estate, or it can be provided by curing works that want to get rid of their damaged beans and lower quality grades for a good price. In Coorg, most of these shops only sell Robusta coffee, reflecting the fact that 80% of Coorg’s production is made of Robusta. Among the 28 roasting and grinding units and loose coffee shops visited during the study, only 5 of them sold Arabica, and they were all located in Somwarpet area (table 3), the main Arabica producing zone in Coorg. Their customers are locals and tourists. Locals include individuals living in the region who buy coffee for their home consumption as well as local hotels and restaurants that source their coffee there. Among the shops visited during the study, only 3 said that their main customers are tourists.

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Locality

Arabica

Robusta

Robusta & Arabica

Total

3 3 Gonikoppal 4 1 5 Kushalnagar 7 2 9 Madikeri 2 2 Ponampet 5 5 Somwarpet 4 4 Virajpet Total 5 20 3 28 Table 4: Coorg's loose coffee shops interviewed during the study and variety of coffee sold Considering that most of these units purchase their coffee from planters, their coffee mostly comes from Coorg. Shops sourcing their coffee from curing units – which are mainly located in Kushalnagar – cannot be sure that the coffee comes from the district. And actually, they basically do not know the origin of their coffee. The 6 curers we visited in Kushalnagar indeed estimated at 60% the proportion of their coffee coming from Coorg. We estimated the quantity of coffee sold through these informal channels at approximately 1,000 MT/yr (i.e less than 1% of Coorg’s total production, see table). Thus, the proportion of Coorg’s production that is marketed through informal channels remains marginal. G 27,3

K 37,9

M 138,2

P 8,5

S 39,2

V 52,7

Total 303,8

% of coffee coming from Coorg

100%

60 %

100%

100%

100%

100%

100%

Average quantity handled by selclected roasters coming from Coorg (MT/yr) % of local roasters met

27,3

22,8

138,2

8,5

39,2

52,7

288,7

100%

50%

100%

70%

70%

Coorg’s production sold through informal channels

27,3

70 % 32,5

276,4

8,52

56

75,3

Average quantity handled by selected roasters (MT/yr)

476

50%

Representativity of selected towns Coorg coffee sold as loose coffee in Coorg

952

Table 5: Estimation of the quantity of Coorg coffee sold through informal channels (G: Gonikoppal; K: Kushalnagar; M: Madikeri; P: Ponampet; S: Somwarpet; V: Virajpet)

2.4.C OOPERATIVES AND ASSOCIATIONS OF GROWERS

Indian co-operatives and associations of growers are not doing well. Following the liberalization of the market in the early 1990s, cooperative growers’ societies have developed, like the Indian Coffee Marketing Cooperative (COMARK). COMARK is the only national level co-operative institution of coffee growers in the country. The main objective of the co-operative society was to collect coffee from the small growers and sell it in the global market. It has been started in 1992 with the shared capital from nearly 5,500 coffee growers and the government through the National Cooperative Development Corporation. In the first years after liberalization, when coffee prices were high, the cooperative society worked well. Due to a frost in Brazil, prices went up. COMARK collected coffee from the growers and sold it at the right time. In the first year, the co-operative made a significant amount of profits. It exported around 14,000 MT and marketed 6,000 MT in the domestic market till 1997 (Ambinakudige, 2006). They distributed all the profits to the members immediately. But the next year, when the society sold the coffee for lower price, no members came forward to give back the money. Inexperience in coffee 39

marketing and understanding the international coffee prices trends made the cooperative to go bankrupt. Most of the cooperative societies have not been successful in adapting to the new chain organization features. As shows the example of COMARK, a crucial feature that co-operatives have especially failed to manage is the marketing of their members’ coffee. This was undertaken by the Coffee Board prior to the liberalization. Afterwards, co-operatives started selling their members’ coffee at the ICTA auction. But as the volumes sold at this auction decreased, co-operatives failed to adapt to new marketing strategies, including direct export. Confidence in these structures has also decreased as corruption scandals broke out. Furthermore they were slow to pay their members, thus facilitating agents’ success. Indian co-operatives now face three main challenges: building members’ confidence by showing transparency, implementing fluidity in the payment of their members, and succeeding in reaching new markets. An attempt to revive associations has been carried out by the Coffee Board recently. This took the form of “Self-Help Groups” (SHGs). The concept was largely based on linking up a maximum of 50 small coffee growers in potential areas, registering them under the State’s Societies Act governing cooperative societies. The groups adopt requisite by-laws, constitute administrative committees elected among members, and follow all the norms stipulated by the Act. The general bodies of these SHGs are empowered to take policy decisions and vested with overall administrative powers. Yet, this initiative did not prove to be successful. Such groups are small and do not aim at a common marketing of the coffee, one of the main reasons why former co-operatives have collapsed. The Coffee Board had created 42 regular Self-Help Groups by 1999-2000 and claimed that the concept and tasks of these groups are different from other self-help groups in other sectors (Chattopadhayay and John, 2007). Some of the activities envisaged by SHGs in facing the challenges confronting the coffee industry are declared in its objectives. Moreover, the Coffee Board encourages some activities through these structures, including: • • • • •

Raising of community nursery for production of planting material. Procurement and use of farm equipment / estate equipment / machinery on a community basis. Adoption of effective measures for control of pests and diseases. Promoting use of technologies for sustainable coffee production - promotion of production of specialty coffee. Creation of infrastructure like drying yards / store houses, pulper houses and accessories, water reservoirs

Out of the 42 self-help groups formed in Karnataka (20 in Chikmagalur, 9 in Hassan and 13 in Kodagu), 32 have availed of the grant of Rs 2 lakhs offered by the Board. By 2007, only 15 groups had utilized it fully, while 17 have utilized it partially to carry out activities approved by the Coffee Board. It actually encourages forms of common capital investment through SHGs as well as credit and loan operations, which are the primary function of such groups. Only one region has been successful in setting up these groups so far, Andhra Pradesh. In this region, government agencies and the Coffee Board heavily supported their creation in Araku Valley’s tribal area. Hence, this region has become the first growing region of the Non-Traditional Areas, and they now market and export directly the coffee they produce.

40

2.5.B RANDING AS A MEAN TO CATCH VALUE ADDITION

Some attempts are being carried out by growers in order to add value to their coffee and secure longterm premium prices. These attempts aim at catching the value-addition that is being captured by other larger operators, and thus to climb up the chain. Strategies vary a lot from one producer to another. However, the common point between all theses initiatives is to build confidence downstream in the chain. This confidence can be based either on reputation or direct relationship with downstream actors such as middle-scale roasters or specialty traders in key consuming countries. In order to achieve this, some planters vertically integrate, and set up curing works, get an export license, etc. However, vertical integration patterns are not the panacea for success among these producers. Some of them are likely to outsource support services (transportation, curing, warehousing and exporting), and still succeed in climbing up the chain by having direct relationship with buyers, and thus selling directly to them. As a result, the premium they get is likely to be very high, up to 100% of the market price (source: interviews). Confidence takes a long time to be built. All of these producers brand their coffee and insist on the unique taste profile of their coffee. Branding, here, designates any mean used to promote a name, without any connotation of any sort. Thus, the first point that is paid attention to for these producers is the control of all production stages. Firm control of these stages allows them to produce a good quality and reliable product: sensory and physical attributes are to be constant to build a brand, on green as well as R&G coffee. Very few producers actually do so, and they are all involved in the so-called “estate-branded coffee” sector. We met three of them in Coorg district, and as far as we know, they are the only ones to be involved in branding strategies among key actors downstream in the chain: Palthope estate (Kutta), BBTC (Siddapur) and Tata Coffee (Polibetta). Flexibility in price fixation and delays make them competitive in gourmet niche market. For the whole India, it is generally considered that there are around 25 estate-branded coffee producers, producing around 200 MT/year of estatebranded coffee. Actually, they produce more than 200 MT/year as a whole (i.e less than 0.1% of India’s total production), but they do not brand their entire production. Only the very top-quality part of it is branded.

41

2.6.

ICTA A UCTION AND F UTURES MARKETS IN I NDIA: ATTEMPTS TO SET UP LOCAL PRICE - DISCOVERY AND PRICE - RISK MANAGEMENT

MECHANISMS Management of price volatility has been a major concern for Indian producers after the liberalization of the market from 1993 onwards. Since then, a range of initiatives have been carried out in order to address this issue, including the early creation of a private auction system and the creation of different coffee contracts by Indian newly-established futures auctions. The Indian Coffee Traders Association (ICTA) was created in 1993, just after the liberalization. At first, the auction was “successful”, with an average 23,000 MT per year being traded at the auction. However, since growers now prefer selling their coffee at the farm gate to exporters’ or curing works’ agents, quantities have shrunk to a 10,000 MT i.e. less than 5% of the total production. Moreover, from 450 in the first five years, the number of members has declined to 250 recently. As a result, one of its three auctioneers, Carritt Morgan, has cancelled its membership with ICTA in May 2008 reportedly due to an alarming fall in coffee volumes traded on the ICTA in recent years (Financial Express, 23/05/2008). Moreover, a taxation of 4% is applicable to all the coffee traded at the auction and settlement at the auction takes between 10 and 15 days. Thus, the system does not appear attracting as compared to facilities offered by agents. Positive impacts of the ICTA auction however include a local price-discovery mechanism for all grades of coffee. This is also an important supply mean for small and medium local roasters (interviews). It actually helps them to get coffee throughout the year without having storage facilities. There have been repeated attempts in India to create futures contracts since the liberalization. These initiatives have been enabled by a long tradition of futures markets in the country. India had indeed flourishing exchanges and futures trading in the late 19th century (UNCTAD, 2007). However, despite this, the three current commodity futures markets were established by 2002/3. Two of them featured already in the world’s top 10 in 2006: the Multi Commodity Exchange (MCX), No8, and the National Commodity and Derivatives Exchange (NCDEX), No10. Coffee futures markets started in 1998 when the COFEI (Coffee Futures Exchange of India) was set up and started trading. Then, the NMCE (National Multi-Commodity Exchange, in Ahmedabad) and NCDEX (National Commodities and Derivative Exchange, in Mumbai) launched green coffee contracts in 2005. And finally, the MCX (Multi Commodity Exchange, in Mumbai) also launched its own contract in January 2007. So far however, none of them proved to be financially viable, and adjustments are being undertaken to reach the required volumes and liquidity. COFEI stopped trading in 2005 after two years of inactivity and several attempts to revive the market. The reason that is generally accepted to explain this failure is that it was a single-commodity exchange. As such, it did not attract sufficient number of traders and speculators who are needed to reach minimum liquidity. As of now, NMCE trades one Arabica contract and one Robusta contract, both of 1,500kg. Quality specifications for Arabica contract are those of Arabica Plantation A while for Robusta it is Robusta Cherry AB. However, these two contracts do not appear to be traded any more (since September 2005 for Arabica and since January 2007 for Robusta). Trading was stopped after buyers refused to take delivery, complaining that the commodity did not meet quality standards. NCDEX was inactive for Arabica since March 2006 and for Robusta since July 2006. Coffee Robusta Cherry AB, launched in September 2007 is inactive since February 2008. NMCE re-launched new contracts on Arabica and Robusta Cherry EP (Estate Pounded) in May 2008. NCDEX is planning to re-launch new contracts by 2009 on Robusta. A problem encountered by these two contracts was a disconnection with international New York and London futures markets. MCX now tries to overcome this problem through the linkage of its basis price to the LIFFE price since beginning 2008. As of yet, these attempts did not succeed in reaching the minimum liquidity, despite the fact that it is a bit early to say so for the new contracts. However, some benefits for the industry have been already documented (UNCTAD, 2007). Participation of smallholders has been relatively low so far, despite clear incentives from the futures markets (small size of contracts and efforts to disseminate 42

information particularly). But it has helped broadening access to markets, empowering farmers to make better cropping and selling decisions, reducing information asymmetries that have previously advantaged more powerful actors, upgrading storage, grading and technology infrastructure, and expanding access to cheaper sources of finance. Furthermore, some innovative contracts have been introduced, particularly on raw coffee (by the COFEI) and estate-pounded coffee that could help smallholders to access and use these price-risk management tools.

43

CONCLUSIONS

Finally, we can summarize key facts as follow: •

Mainstream market involves small growers who do not participate in the marketing of their coffee. It is sold at the farm gate as Cherry, Parchment or Estate-Pounded coffee to exporters’ purchasing agents. These small farmers contribute to the bulk of Indian production.

•

In this market, it seems that the two critical nodes of the trade channels’ network are largely controlled by exporters: agents (collectors) and curing works.

•

Agents are locally key actors as they fulfill the infrastructure gaps between producers and curing works/exporters. They undertake vital support activities such as collection, transport, storage, financing, and information transmission.

•

Curing works are the entry points to international markets. They are located in some towns of the growing regions chosen because of their climate and are often owned by exporters. Secondary processing is done there: beans are sorted in compliance with export grades that will set their value on the international market.

•

There is no active co-operative in Coorg. Associations of growers exist, but they do not undertake support services for growers, especially marketing services. They have had difficulties to adapt to new trade patterns and some have consequently gone bankrupt. Hence, they are not powerful.

•

As a result, most small growers are subject to price volatility. They are subject to resilience problems.

•

Origin is not taken into account anywhere in the chain. This is reflected by the fact that mixing different origins takes place at different stages and especially at the curing works’ level. Moreover, none of Indian coffee-growing region has got a reputation on the international market that could allow fetching higher premiums. On the domestic market, coffee-growing regions are famous for being coffee-growing regions, not for the quality of the coffee they produce.

•

In Coorg, two large companies – Tata Coffee and BBTC – own several estates and have differentiation schemes. Vertically integrated, they cumulate all the functions in the chain and try to sell their coffee as differentiated coffee (sustainable estate-branded coffee).

•

Some planters try to brand their coffee and do it far downstream in the chain. This constitutes one of the main trends in the sector, but is still limited to a few medium to large producers. They adopt ingredient-based branding strategies for their coffee.

•

Local price-discovery and hedging mechanisms did not yet succeed in reaching the minimum liquidity. However, positive impacts for chain participants include better information and financial infrastructure as well as access to new markets and finance sources.

44

3. EXPORT MARKET INTRODUCTION

The two outputs of Indian coffee are the domestic market and the export market. These two markets widely differ in terms of quality requirements as well as involved actors and more generally in structural terms. The export market includes overwhelmingly green coffee and is the main output of Indian coffee since 75% of the production is exported. Requirements widely vary from one actor to another. Basic quality requirements, set by the ICO and the Coffee Board of India, shape this market. This set of quality attributes leads to consider coffee as a commodity according to its grade, process (wet or dry), variety (Arabica or Robusta) and country of origin. It is generally referred to as “mainstream coffee” (see glossary). However, additional quality attributes can be taken into account by some actors. This includes extrinsic attributes such as environmental and social concerns and intrinsic attributes such as cup profile. In these categories, actors are free to determine their set of standards, which are therefore private or mandatory. According to these attributes we will consider separately markets taking them into consideration. These are mainly “sustainable market” and “specialty market” (see glossary). Important is however to bear in mind that this division is not exclusive. Grades used in the mainstream market for Indian coffee include for instance “premium” and “specialty” grades. This might imply quality differentiation according to “specific” attributes, thus leading to the definition of a unique product. Though they are not especially associated with uniqueness in the cup, these attributes are usually sought by actors of specialty segments. At the other hand, some of the sustainable certification schemes – if not all – aim at impacting the mainstream market, such as the 4C initiative. As already noted by several authors (see for example Ponte, 2002), distinction between standards is becoming more and more blurred as actors from one sector are getting into or taking elements from others. Taking this into account, we do not pretend to give the typology of Indian coffee outputs, but only one of them based on the trade patterns that differentiate them.

Export market

Domestic market

Home consumption

Mainstream coffee

•Branded filter coffee •"Loose" coffee •Instant coffee

Differentiated coffee Out-of-home consumption

•Sustainable coffee •Estate-branded coffee

•Café bars •Restaurants, tea stalls, canteens, hotels

Figure 15: Main Indian coffee outputs

3.1.

M AINSTREAM MARKET

3.1.1. GRADES AND STANDARDS IN THE MAINSTREAM MARKET On the export market, generic quality is a very important feature, reflected by the Coffee Board’s standards and valued by price differentials compared to London’s or New York’s futures exchange prices. Actually, mainstream market is usually defined by the term of “fair average quality” on the international market (The Coffee Guide, 2008). There is no precise figure of what quantity it concerns, but it is generally accepted that between 80 and 90% of all coffee consumed worldwide is of 45

mainstream quality. The Coffee Guide defines then two other sets of qualities as opposed to the mainstream quality, namely premium and exemplary quality, depending on the availability and the taste experience they procure. In India, these three categories of physical quality are represented by the three categories of grades set up by the Coffee Board. All the Indian coffee sold on export market receives a grade (see tables 1, 2 and 3). Green coffee is then purchased by different roasters and trading firms depending on these grades. London’s and New York’s futures exchange prices are taken as reference for price fixation, and then a differential applies according to the grade traded. Indian grades are set according to (see annexes for details of specifications): • • • •

Moisture content Size Color (greens, blacks, etc.) Number of damaged beans (insect damaged, shells, bits, etc.)

They are divided into three categories defined by the Coffee Board as “commercial grades”, “premium grades” and “specialty grades”. Commercial grades refer to basic grades, which we could put into the “mainstream quality” or “fair average quality” category of the international coffee market. Premium ones designate the highest grades according to the previous criteria. Important is to notice that cup requirements are not taken into account in the definition of these grades unlike for some other countries (such as Ethiopia for instance). Hence, exporters and international traders often “cup taste” the coffee they export themselves. Alternatively, they may use services provided by private labs. Origin is neither considered in the definition of the grades. Blacks, Bits and Browns cannot be exported as green beans. They actually do not comply with ICO’s standards. A tolerance of 10 % applies for bulk coffee, and other grades must be free of blacks, bits and browns, with a tolerance of 23 % (see annexes for detailed specifications).

Arabica Plantation (washed) PB A B C Blacks Bits Bulk

Cherry (unwashed) PB AB C Blacks & Browns Bits Bulk

Robusta Parchment (washed) PB AB C Blacks & Browns Bits Bulk

Cherry (unwashed) PB AB C Blacks & Browns Bits Bulk

Table 6: Commercial coffee grades in India Arabica Plantation (washed) PB Bold AA

Robusta Cherry Parchment Cherry (unwashed) (washed) (unwashed) PB Bold PB Bold PB Bold AA AA A A A Table 7: Premium coffee grades in India

Arabica Plantation

Robusta Parchment

Cherry 46

Cherry

(washed) (unwashed) (washed) (unwashed) Mysore Nuggets Monsooned Robusta Kaapi Monsooned Extra Bold Malabar AA Royale Robusta AA Monsooned Basanally Monsooned Monsooned Arabica Triage Robusta Triage Table 8: Specialty coffee grades in India

These three categories are consistent with the generally admitted figures, with specialty grades accounting for 5.0 % in value of the total exports in India during 2006/7 (crop year, source: Coffee Board, 2008), and premium grades allegedly making a 5% of the production (source: interviews). Specialty grades are a little aside from this classification as they may refer to “specific qualities”. They include monsooned coffees, Robusta Kaapi Royale and Mysore Nuggets Extra Bold. Monsooned coffees are coffees that have been processed in a certain way. This process benefits from a Geographical Indication since December 2007. Monsooned coffee grades were introduced in 1972 (Menon, 2005): Monsooned Malabar for Arabica and Monsooned Robusta. The process of “monsooning” is unique. Unwashed coffee (Arabica or Robusta) is spread out to a depth of 12 to 20 cm for 4 to 5 days in open warehouses and is raked from time to time in order to expose it to the dampness of the atmosphere. Afterwards, coffee is packed in gunny bags and stacked in rows with sufficient space between rows for continuous and uniform flow of monsoon winds through the rows and stacked coffee bags. About once a week, the coffee is bulked, repacked, or the bags are changed and restacked. After six or seven weeks, the color of the coffee changes to golden yellow and it is then considered to have been fully “Monsooned” to give the characteristic flavor associated with it (Coffee Origin’s encyclopedia, Supremo’s website). 12000 10000 8000 6000 4000 2000 0

Figure 16: Exports of specialty grades in India since 1998 (source: Coffee Board, 2008) The two other specialty grades, namely Robusta Kaapi Royale and Mysore Nuggets Extra Bold (MNEB) were introduced during the 1990s by the Coffee Board. Robusta Kaapi Royale is a grade used to define a special washed Robusta that is mostly used in espresso blends. Specifications however do not take into account specific criteria. The main requirements focus on size (screen 17+) and defects. Mysore Nuggets Extra Bold (MNEB) designates a washed Arabica whose beans are very large (screen 19). Interestingly, two of these specialty grades refer to a region name, namely Mysore Nuggets EB and Monsooned Malabar. At first, it was required that the coffee comes from these 47

regions to receive the grades. However, no system ensures that it is really the case and origin specifications are not taken into account any more for the delivery of these grades. And as a result, a large number of exporters do not consider that these names actually refer to a coffee originating from a specific region. Monsooned Malabar coffee has then benefited from a Geographical Indication (GI), but the GI specifies where the process of “monsooning” takes place, and does not take care about the growing region where the coffee originates.

3.1.2. REPUTATION OF INDIAN COFFEE ON THE EXPORT MARKET Paying a look at the reputation of Indian coffee and the way it is valued on export markets, Indian Robusta seems to be generally considered as one of the best Robusta in the world. Along with Uganda, it gets the highest positive differential on London futures market. Indian Robusta Parchment AB currently gets a 700 points premium while Robusta Cherry AB gets a 50 points premium compared to LIFFE’s price (Coffee Board website, June 2008). Indeed, Indian Robusta Parchment makes a significant part a Robusta exports while most of the Robusta produced in the world is dry-processed. Wet processing can make, if well controlled, a Robusta that is milder or more neutral than dryprocessed ones and less harsh, which is the main drawback of Robusta coffees. It helps to mute and mellow the striking notes of fruit and bitterness that are often at the core of the Robusta cup (ITC, 2007). It also helps in developing “soft buttery notes” in the cup, unlike the thick “robust” notes that are observed in the average Robusta cup. Wet-processed Robustas are however more difficult to make than washed Arabicas for two reasons. Firstly, Robusta’s mucilage is thicker and stickier than Arabica’s one. And secondly, the process requires very careful monitoring to avoid over-fermentation, considering the high temperatures and low altitude at which Robusta is usually grown (interviews and ITC, 2007). Hence washed Robustas are highly priced for making espressos, which could lead to consider the whole Robusta Parchment category as specialty coffee. But it can also be used as a substitute for washed Arabica in some blends, thus making the blend cheaper since Robusta is traditionally less expensive than Arabica. Moreover, main competitors on the Robusta market are Vietnam, Brazil, Indonesia and Uganda. Out of them, Vietnam has emerged during the 1990s as a great producer of low-quality dry-processed Robusta, while Brazilian Robustas are also overwhelmingly dry-processed. While dry-processed Robustas are basically used as filler coffee in common cheap blends by roasters worldwide, washed Robustas would be used in espresso blends or as substitute to washed Arabicas, thus significantly contributing to the valuable taste attributes of the final product. The only origins that also have a significant production of washed Robusta are Indonesia and Uganda, which has emerged as a wet- processed Robusta origin a few years ago.

Tenderable growths on NY futures market

Deliverable at

Colombia Costa Rica, El Salvador, Guatemala, Honduras, Kenya, Mexico, Nicaragua, Panama, Papua New Guinea, Peru, Uganda, United Republic of Tanzania Burundi, India, Venezuela Rwanda Dominican Republic, Ecuador

+200 pts/lb Basis or contract price

-100 pts/lb -300 pts/lb -400 pts/lb Table 9: Price differential according to tenderable origin for Arabica "C" contract (source: NYBOT)

Conversely, India has long been considered as a low-quality origin for Arabica. Consequently, a negative price differential of 100pts/lb applies for Indian Arabica on New York futures market (table 4). These characteristics have been pointed out by some organizations as being the sign of a country that does not adapt to the world demand of “good quality” Arabica and low-priced Robusta (McKinsey&Co, 2000). But, beside these characteristics, Indian coffee has long been unknown and underrepresented on the international market, which can be seen from the number of large international trading firms present in the country. Out of the biggest, ECOM, the third largest 48

international coffee trading firm, and OLAM, a Singapore-based trading firm (leading traders of Robusta coffee), are represented in India. Furthermore, ECOM is represented only since 2000 (OLAM since 1993). But Volcafé and Neumann Kaffee Gruppe, the two leading trading firms in coffee, do not have any office or agent in India while they have one in almost every major producing country (see table 5). Indian Arabicas tend to be full, round, sweet, occasionally spicy or chocolaty, but usually a bit listless. Relatively low growing elevations and the use of disease-resistant hybrids that often have been backcrossed with Robusta probably contribute to this full but often poor profile. Nevertheless, Indian Arabicas' sweetness and full body recommend them to espresso blenders, who may use them as a base component in blends.

Brazil

Vietnam

Colombia

Indonesia

Ethiopia

India

Mexico

Guatemala

Honduras

Volcafe NKG Ecom Olam

Table 10: Presence of large international coffee trading firms in top producing countries (source: firms' websites)

3.1.3. EXPORT DESTINATIONS, EXPORT MARKETS Around 75% of the total Indian production is exported. The rest is used for domestic consumption. Figure 3 shows that approximately half of total exported coffee is of Robusta variety whereas instant coffee and Arabica makes around a quarter of the total exports. This is an evidence of the importance of the instant coffee industry in India. Destinations of instant coffee exports include countries of the ex-communist block that make up to 58% of the total exported instant coffee (Coffee Board, 2008). Historically, the ex-communist block has always been one of the largest buyers of Indian coffee due to bilateral intergovernmental agreements. Russia has remained for long the main buyer of Indian coffee. In the 1980s, Russia was taking up to 80% of India's total production. It was only after liberalization was completed that other countries started importing from India (Coffee Origin’s encyclopedia, Supremo’s website). The significance of ex-communist countries in Indian coffee exports has also to be related with the last years of the ICA regime in the late 1980s. These countries did not sign the agreement. Thus India could export its surplus production to these countries. Indeed, its production then exceeded from far the quotas imposed by the ICA, Akiyama (2001) estimating that India’s production was almost 50% superior to its quota under the ICA.

49

Ar. Plantation 21%

Instant coffee 24%

Ar. Cherry 5% Rob. Parchment 10% Rob. Cherry 40%

Figure 17: Exports of Indian coffee per type (source: Coffee Board, 2008) Italy has now emerged as the major buyer of Indian coffee. First buyer for all the different kinds of green coffee, Italy purchased more than the third of Arabica Cherry (44%), Robusta Parchment (53%) and Cherry (36%) in quantity for crop year 2006/7 (Coffee Board, 2008). Italy has always needed Indian Robusta coffee since it is a crucial component of the Italian espresso. Indian Arabica Plantation (washed Arabica) seems to be demanded all over the world and the competition is more balanced between countries: none of the country purchases more than 14% of the total exports. Because of the price differential on London futures market and the freight costs that are expensive for some countries, Indian coffee is not competitive in some markets. Competitors for Indian Arabica are origins under the ICO’s “Other Mild Arabica” classification. These origins include Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, and more generally Central America’s coffees, Jamaica and Zimbabwe. For instance, American market is difficult to approach for Indian coffees. Indian Arabica is too expensive compared to similar quality Arabica from Central and Latin America because of the freight costs (source: interviews and McKinsey, 2000). Moreover, Robusta is in low demand in these markets and mainly intended for cheap blends.

50

Mysore Nuggets EB 11%

Robusta Kapi Royale 42%

Monsooned Malabar AA 27%

Monsooned Basanally 3%

Monsooned Robusta AA 17%

Monsooned Triage 0%

Figure 18: Exports of specialty grades per type, 2006/7 crop (source: Coffee Board, 2008)

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3.2.DIFFERENTIATION SCHEMES IN THE INDIAN COFFEE INDUSTRY Beside the grades set up by the Coffee Board which mainly refer to “generic quality” since it applies for all the exported coffee (except for the monsooned coffees), some other differentiation schemes need to be paid attention. Differentiation schemes are actually somehow opposed to the mainstream market’s quality requirements. They actually try to add other “qualities” to the basic physical features required by the export grades. Furthermore, they shape a market that is nowadays growing rapidly worldwide. Thus they help us understanding the dynamics of the global market. And more interestingly, they result from private or voluntary initiatives while Coffee Board’s grades are mandatory. These differentiation schemes include sustainability standards and estate-branded coffee. As far as India is concerned however, differentiated coffee resulting from these schemes is not yet very developed. Sustainability standards are not broadly used in India. Though the country shows great potentials regarding environmental standards, certified coffee market remains small. Actually, Indian coffee is virtually entirely shade-grown under a dense canopy and intercropped with other plants in order to diversify plantations’ income. The fact that sustainable certifications have not gained importance in India can be due to practices regarding the use of pesticides and insecticides which are broadly used to fight against the diseases and pests like the white stem borer, which has recently been a disaster in the main coffee growing regions. Moreover, fair-trade is still marginal in India: only one co-operative has been so far fair-trade certified, in Araku Valley (Andhra Pradesh, see box below), and one other in Kerala is said to be working to get the certification. Rainforest Alliance has not yet been implemented in India, though Tata Coffee has started working with them. India is also reluctant to get involved in

Coffee in Araku Valley: the story of the only Fair-Trade certified coffee in India Coffee has been cultivated in the Eastern Ghats as early as 1898. However, large scale cultivation of coffee really took off as a scheme for coffee cultivation in Vishakhapatnam and East Godavari districts was adopted by the Government of Andhra Pradesh following a feasibility study conducted during the 1950s by the Coffee Board. This scheme, implemented from 1960-61, received the technical support of the Coffee Board. The government's Integrated Tribal Development Agency (ITDA) leased an acre of semi-wasteland to each family for the cultivation of coffee. These families were given training in all aspects of plantation maintenance, organic farming methods, harvesting techniques, and sound financial practices. Due to the existing special land tenancy act, only tribals can own the lands for cultivation. Hence, two alternatives to develop coffee plantations have been developed: in tribal sector and in the government-owned lands (Forest Department). From then, government agencies have been significant in laying a strong foundation for development of coffee cultivation in the region. Coffee expansion continued up to 1985 with the support of the Forest Department initially and later the Andhra Pradesh Forest Development Corp Ltd. A total area of 4,100ha was put under coffee cultivation in the Forest Department’s land. In the tribal sector, a pilot project was initiated with the financial assistance of ITDA and the cultivation slowly took off. Subsequently, the Girijan co-operative was created and 700 ha were then brought under coffee between 1975 and 1987. Today, the program covers several thousand coffee farmers, and has reclaimed 3,000 acres of semi-wasteland. Araku Valley farmers exercise resource management, water and soil conservation, and 100% organic farming methods. The cooperative has also been Fair Trade certified. This assists the co-op in creating direct trade relationships along with the support of the Naandi Foundation which has helped them to find direct output for their product thanks to a variety of marketing tools, including branding (Araku Emerald) and certifications (organic and fair-trade)

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the 4C (Common Code for the Coffee Community) initiative (Neilson, 2007). Only two sustainable standards are being implemented in India: organic and Utz certified. Another reason for the low penetration of such certifications in India is that there are no active co-operatives despite the large number of small or medium growers (Achoth, 2005). 98.8% of the producers indeed own plantations covering less than 10 ha (Coffee Board, 2008), thus making it difficult to create the scale of standardized production. And the only active Indian coffee co-operative (Araku Valley) seems to be heavily government supported. The Coffee Board indeed provides technical assistance since the beginning of the coffee cultivation development scheme in the 1950’s, and governments’ agencies are also strongly involved. Another reason has also been mentioned by some exporters. Since India’s production systems are estate-based (or plantation-based) there is no chance for fair-trade initiatives to take place. Such initiatives actually support household-based coffee cultivation, which means that the owner of the land is also the one who cultivate it. The current structure of Indian plantations, including owners, writers, and plantation workers follow former colonial models that do not allow getting fairtrade certified. Utz Certified 6 10,428

Organic 38 Number of certified producers and organizations 2,736 Total certified area (ha) 1,710 Certified production (MT) Utz certified Coffee Board Source website (2008) Table 11: Coffee sustainable certifications in India

Fair Trade 1 1,200 59 Transfair USA

3.2.1. UTZ CERTIFIED Utz certified is the most widespread sustainable certification scheme in India after organic certification. Six producers have been Utz-certified so far: ABC Group (Coffee Day); Ottumani Estate (BCK Plantations); Carrara group of estates; Elkhill group of estates (Bombay Burmah Trading Corp); Manamboli-Savamalai Estate and Tata Coffee. As shows table 8, all of them own large plantations. Furthermore, all of them are large corporate plantations. The smallest group of estates has indeed a total certified area of 107 ha. This reflects the need for certification to be implemented in large areas. Usually, only co-operatives or large planters can be certified for the reason that certification costs are too heavy to carry for small producers and that there is a need of producing a minimum amount of standardized products. Furthermore, upgrading (or compliance) costs to meet certification requirements make up another financial barrier for small growers. Small growers would have to join themselves in order to create the scale of standardized product and that needs a previous training and financial support. In some cases buyers are able to assume these costs (Freshplaza, Jimenez). However, Indian producers have not yet come to these schemes. 8 exporters are registered: Allanasons; ABC Trading Corporation; ECOM Gill Coffee Trading; ITC; General Commodities; Ramesh Exports; The Bombay Burmah Trading Corporation and Tata Coffee. Out of these 7 exporters, 4 are also producers: BBTC which owns Elkhill group of estates, Ramesh exports, owned by Mr Ramesh Raja who owns Manamboli-Savambalai and Carrara estates, ABC Group, and Tata Coffee. The others, namely Allanasons, ECOM Gill and ITC are among the top Indian exporters. Therefore, they registered to gain even more importance in the export market. Producer

Certified Area Location (ha) Tata Coffee 6672 Coorg, Chikmagalur, Hassan ABC Group 2022 Chikmagalur BBTC 912 Coorg Carrara Group 447 Shevaroys, Tamil Nadu Manamboli-Savamalai 268 Anamalais, Tamil Nadu BCK Plantations 107 Coorg Table 12: Utz certified producers 53

3.2.2. ORGANIC COFFEE Organic agriculture has been the focus of a number of studies in India, showing the growing interest for this type of production systems (see for example Garibay and Jyoti, 2003). However, coffee has not been so far the main focus of these studies. Indian production of organic coffee is still low (table 8). Conversely, tea has been more permeable to organic cultivation methods (as is also the case for fair-trade). Nevertheless, organic certification is the most widespread one in India regarding coffee. Indian organic coffee production is now regulated under the National Program for Organic Production (NPOP). This program delivers accreditation for certifiers and set up the standards that are to be applied. Two certifiers dominate the organic certification: SKAL International and IMO (see annexes for all the accredited agencies and the scope of their accreditation). Costs of certification are significant. A subsidy of 50% of the certification costs for the first year is however provided by the Coffee Board to encourage planters to shift to organic production. As a result, some of them are getting into it. Moreover, some planters create groups in order to reach the scale of standardized production and get the subsidy from the Board. These groups can be supported by some companies, such as Phalada which works with a group of farmers in Coorg district. Despite the fact that organic coffee is the most common “sustainable” coffee in India, some planters doubt about the need to upgrade their plantation to organic cultivation. Most of them actually expect high premiums from it, or at least a market that is now not growing a lot or even stagnating. Organic coffee has been attacked recently for the reason that it was not buyer-driven, or in other words, because production now exceeds a limited demand from consuming countries. Consequently, premia for organic products have dramatically shrunk over the last 20 years, thus making the certification less attractive for producers (Ponte, 2004). Moreover, the need to change cultivation methods has been underpinned by the fact that organic manure is not available everywhere, so some organic producers would have to send trucks far away to get this manure. Location

Number of certified Certified Area Certified producers (ha) Production (MT) Andhra Pradesh 1 351 219 Karnataka 12 574 358 Kerala 19 904 565 Tamil Nadu 6 907 567 Total 38 2,736 1,710 Table 13: Features of organic coffee in India (source: Coffee Board, 2007)

3.2.3. ESTATE-BRANDED COFFEE Estate-branded coffee is a coffee that shows firstly excellent generic qualities, physical attributes and cultural practices (see glossary). However, this is necessary but not sufficient to define estate-branded coffees. It indeed needs to have a “personality” on which branding strategies can be based. This personality can be built on several attributes and does not necessarily refer to “high quality”. Any characteristic attached to the coffee and contributing to its uniqueness can be used in this regard. But a special cup profile (aroma, fragrance, body, etc.) comes first of those. The cup profile is indeed the revelator of the uniqueness of an estate coffee and the distinctive characteristic that summarizes all the other factors contributing to its uniqueness. In order to reveal those factors, cultural practices must be irreproachable. These conditions that help in defining estate-branded coffee do not suffice to understand exactly what estate-branded coffee is. Indeed, estate-branded coffees are also the result of dynamic promotion strategies that aim at climbing up the value chain. With regard to this, all the estate coffees are not automatically estate-branded ones. For example, IllyCaffe purchases its coffee from particular estates because of their excellent generic attributes, because it matches with their expectations for their final blend. But Illy does not purchase a coffee because of its intrinsic and specific characteristics, thus negating the uniqueness of an estate coffee. Moreover, the strategy of IllyCaffe is to go far upstream in 54

the chain in order to detect coffees that could match with their requirements. This tactic aims at securing their supply chain in terms of generic quality. Illy is one of the very few roasters who do so. It is however rather a top-down strategy than not, while estate-branding appeals rather to bottom-up strategies. Nowadays, estate-brands are flourishing in India. Butter Cup Bold, Balehonnur Corona, Balanoor Bean, Araku Emerald, Meerthi Mountains, Dark Forest, Temple Mountain, Elkhill and Jumboor are some of a long list of Indian estate-branded coffees, each of them being unique. According to Mrs Sunalini Menon, member of the Specialty Coffee Association of India and owner of Coffee Lab Pvt Ltd, there are nowadays around 25 estate brands in India. For G.V. Krishna Rau, chairman of the Coffee Board, cited by the Financial Express states that “a lot of people are getting into estate branding [...] It’s the way of the future”. This shows how important estate-coffees are becoming in the Indian coffee sector. For the moment it does not represent a significant part of Indian production or exports but it is certainly the most dynamic segment in the Indian coffee industry. Currently, it is indeed generally accepted that India’s total production of estate-branded coffee is around 200 MT/year, i.e les than 0.1% of the total production. Furthermore, these brands have an indirect impact on Indian coffee as a whole since they indirectly promote the reputation of Indian coffee and attract roasters’ attention on India as a specialty origin. Estate-branded producers typically own middle to large plantations, say from 50 acres. These plantations can be either private or corporate plantations. For instance, Tata Coffee, the largest corporate plantations in India, is trying to sell as much as possible of its production under estatebrands. This is not an easy task. In 5 to 6 years, Tata’s exports reached a 200 MT of estate-branded coffee out of their 8-10,000 MT yearly production, and IllyCaffe alone purchased around 130 MT out of these sales (source: interview). Building a brand on green coffee is both expensive and time consuming. It needs first to upgrade the production practices. Then, promotion among roasters through international competitions and/or direct contacts with roasters can be very tough. Indeed, at least 4 to 5 years are needed to get name recognition. This is mainly because of two interconnected factors. Firstly, the producer has to prove that he fulfills supply consistency requirements of the typical small to medium roasters operating on this market. And secondly, most roasters are allegedly reluctant to brand loyalty. Considerable means are to be invested downstream in the chain, and that is one of the reasons why smaller estates cannot afford to build estate-brands. Estate-branded coffee exclusively comes from middle to large estates. As shows a company with as significant means as Tata Coffee, the task remains very challenging. But the trend is taking off, and a significant number of producers try to reach these markets. In this regard, Geographical Indication could be a good mean for producers to penetrate specialty markets with a similar strategy to estate-branded producers. It could indeed increase their negotiation power and allow the production scale to reach these markets. However, most estate-branded producers were reluctant to get into this type of strategy at the time of study, reportedly due to the efforts they did to build brand loyalty so far and a lack of trust in the sharing of benefits between possible stakeholders. Means to build brand loyalty are very diverse. For estate-branded producers, it ranges from promotion through international cupping competitions to direct individual and face-to-face contacts with roasters and/or specialty trading firms, working with sustainable certifiers, etc. Regarding sustainable certifications, estate-branded producers consider getting certified in order to promote their name. These producers do not aim at entering the “sustainable market”. These certifications would indeed certify that production practices are excellent, but it will only be a logo on the bag of green coffee after their name, just as roasters would use sustainable labels to promote a trademark on their packages of filter coffee. But more than sustainable certifications, international conferences and gathering of specialty actors and cupping competitions are the most important promotion tool used by the producers.

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Figure 19: Estate-branded coffee outlets Estate-branding is also a strategic positioning in terms of targeted country. It can be used for two different purposes. It can be sold as a single-origin coffee directly to the consumer, but it can also be used in a blend because of its constant or unique characteristics (volume, taste and physical quality). In other words, estate brands can be used in high-quality blends or as single-origin (figure 5). Important is however to bear in mind that very few estate-brands are used for making single-origin coffees. The brand name is applicable firstly for green coffee, and producers are often unaware of what it is used for afterwards. These two strategies also imply different markets. While estate coffee may have some market significance in the US, it makes a very small share of European markets. Roasters interested by these kinds of coffee are mostly small to medium roasters. The typical unit for such roasters will be a bag (60 kg) whereas it would be a container (18 MT or 300 bags) for an estate-branded producer. Consequently, these roasters do not purchase large quantities of coffee, and specialty trade houses are therefore important intermediaries to solve scale problems between producers and roasters. To summary at this point, entry barriers for estate-branded coffee include: • • • •

Excellent production practices from planting, harvesting an then post-harvesting process resulting in: Excellent physical attributes: number of damaged beans, shape, color, moisture content and size Personality of the coffee or sensorial attributes: unique cup profile Ability to promote coffee far downstream in the chain

All these barriers require accurate knowledge of the production methods as well as the coffee sector. According to Mrs Sunalini Menon, this is the first condition that is lacking for now for a larger development of this trend in India. Very few producers really “know the coffee they produce”. A reason for this is that very few producers are “proud of their product”. The knowledge concerning coffee quality as a whole is generally limited to the knowledge of the grades for a large number of growers, and the relation between production practices and physical quality remains blurred. Moreover, the fact that lots of Indian producers are disconnected from the marketing of their coffee results in a poor knowledge of the valuable quality attributes. A pre-requisite to build a brand – on coffee or on another product – is to know the product as well as his customers. Most of the producers evolving in this sector have face-to-face or direct contact with their customers and this is how confidence is built; they are evolving in what we can refer to as the “relationship coffee market”. 56

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CONCLUSIONS

We can finally summarize key facts concerning the main outputs of Indian coffee as follow: •

The bulk of Indian coffee is intended for exports.

•

On export market, mainstream quality defined by commercial grades contributes to the approximately 90% of the exported production.

•

India is well known for its quality washed Robustas. Monsooned coffees are the flagship of India’s coffees. Conversely, India is not famous for its Arabicas except some high-altitude regional coffees.

•

Main export destinations include Italy for green coffee and the ex-communist block for instant coffee, which is made from cheap Robusta from Vietnam and Indonesia. Italy is said to be interested in Indian coffees because they constitute an obligatory ingredient for making espressos.

•

Sustainable standards have a low penetration in the Indian coffee industry. Only organic, fairtrade and Utz certified are being implemented, and they are marginal

•

Utz certified is being implemented by large integrated corporate plantations, while organic production does also involve groups of small planters supported by the Coffee Board. Fairtrade coffee has a limited impact: the only fair trade certified co-op is located in Araku Valley.

•

Another differentiation strategy includes estate-branded coffee. This sector is growing, pushed by planters who have aggressive branding strategies, high knowledge of their product and direct relationships with their buyers.

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4. DOMESTIC MARKET

4.1.GENERAL FEATURES OF COFFEE CONSUMPTION IN INDIA

Due to import taxes, consumption of coffee in India is almost exclusively a consumption of Indian coffee.

Importations of coffee are taxed by the Indian government in order to guarantee an internal stability of prices for domestic coffee production: 30% of taxation on imported coffee when re-exported, 100% of taxation when sold on Indian Territory. As a result, coffee found in retail price is almost exclusively Indian coffee. Only some famous coffees are imported in luxurious establishments. Coffee is mainly consumed near the traditional coffee growing regions: Tamil Nadu, Karnataka, Kerala. Home consumption in India differs widely between the north and the south. The 4 southern states (Andhra Pradesh, Tamil Nadu, Karnataka and Kerala), where coffee has been traditionally grown in India, account for 80% of the country’s 80,200MT consumption (Coffee Board, 2005). In the North, penetration of coffee remains low. While most of the coffee consumed in the north is instant coffee, filter coffee is consumed in similar quantities as instant coffee in the southern states. Nearly 30% of Indian coffee production is consumed in the country today. Coffee consumption is slowly growing in India, but some market segments (café bars) have been experiencing a spectacular growth. Estimations of the share of Indian coffee going to the domestic market are generally around 30%. Coffee consumption has always been growing, and more or less at the same cadence. Figures of domestic consumption are given by the coffee board year per year. However, between 1990 and 2000, figures seems to be purely indicative as they show the same value for each the years. However, these figures do not take into account the growth in the different segment markets of domestic consumption. Consumption of coffee has been evolving very fast in big cities for the last decades, and the consumption of coffee in café-bars is experiencing a strong growth.

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100000 90000 80000 70000 60000

Arabica

50000

Robusta

40000

Total

30000 20000 10000 0 1950

1960

1970

1980

1990

2000

Figure 20: Coffee consumption since 1951 in MT (source: Coffee Board) Consumption of coffee is mainly an in-home consumption: 80% at home against 20% out-of-home (Coffee Board, 2005). Coffee is mainly consumed at home and except for the regions close to coffee growing regions, the coffee consumed at home is mostly instant coffee. Out of home coffee is consumed in different types of places: restaurants, canteens, machines, cafés-bars, hot tea stalls. Coffee is mainly mixed with chicory, and drunk with milk and sugar. One of the main features of the coffee consumption in India is the habit of coffee consumer of a mix between chicory and coffee. As the graph shows below, more than 63% of Indian coffee consumers consume a mix of coffee and chicory. According to interviews with local roasters, people in Tamil Nadu especially are particularly used to chicory in their coffee and do not like when there is no chicory. Instant coffee generally contains less chicory than filter coffee. Consumers are not used with espresso coffee, and few places offer espresso with only scarce places where it is made and served correctly. Coffee is usually consumed on the same mode as chai: with milk and sugar in small tin glasses. The latitude let for coffee taste appreciation is then very narrow in comparison with a coffee consumed black, without sugar and without chicory. Another point to note is the specific attraction of Indian coffee consumers towards peaberry. Several studies on the coffee consumption patterns have been conducted in India, including from the coffee broad. These studies usually divide the domestic market into in-home an out-of-home consumption categories. The first one includes instant and filter coffee, while the second is made of coffee consumed in coffee shops, in cafés and in hostels. However, interviews with key domestic actors revealed that the most relevant segmentation in the coffee market, according to coffee quality criteria is instant coffee, ground coffee for supermarkets, for free-service machines for cafés and for hotels.

4.2.IN-HOME CONSUMPTION

In-home consumption represents 80% of coffee consumption in India. Most of the coffee consumed in Indian homes is instant coffee. 60

The instant coffee market is mainly brand driven and highly concentrated. The instant coffee market is the biggest market for in-home consumption. We can find 4 brands of instant coffee in India: BRU, NESCAFE, Continental Café, Narasus Coffee. The table in annex 1 shows the main instant coffee packages that can be found in supermarkets in Bangalore (Narasus Coffee can only be found in Tamil Nadu, and is then not available in Bangalore’s supermarkets). These coffees can be found in supermarkets in packages of 13 to 300g, they can also be found in small shops on the road sides in the form of sachets in strips for single use. The main sign present on the package in the Brand. Consumers have to refer to the name (mainly BRU and Nescafe) that they associate to a quality and a price, to choose their product. There are 5 companies in India able to process instant coffee: Nestle, Hindustan Unilever, CCL, Narasus and Tata Coffee. SLN is also planning to enter the market in a few months. However not of them supply the instant domestic market. Tata Coffee does not operate on the domestic market, but only at an export level. The strategy of instant coffee export is different, as coffee is imported from Vietnam and Indonesia at lower prices to provide a cheaper product. The Indian instant coffee market is highly concentrated in comparison with the filter coffee market. The two leading companies that operate in this market have a unique brand and invest a lot of funds in the advertisement of their brand (Nescafé and Bru). This is a big entry barrier for this sector. However, these companies do not have the same supply strategy. Nestle India takes the coffee uncured from agents located in the entire southern growing region. They do not take the lowest grades of coffee. According to them, they are the only ones in the sector to proceed this way. Others take the lowest grades of coffee at the ICTA auction or in curing works. Most of the coffee going to the instant coffee industry is made of the lowest grades, the non-exportable part of coffee beans. The process of dehydrating, except maybe for the state-of-the art new technologies, do not permit afterwards to distinguish the good coffee beans from the bad ones. These industries try then to minimize the cost of the primary product. Instant coffee is also bought by restaurants and hotels including some good standing hotels in Bangalore; coffee being mixed with milk, fat and sugar afterwards for clients who generally won’t be able to notice the quality of the coffee in their cup. The ground coffee market is few concentrated and highly dominated by chicory-coffee mix. In comparison with the instant coffee market, the filter coffee market is more diversified both in the retail points and in the brands. The first segmentation is done according to the freshness of the product purchased by the consumer: 80% of coffee consumers buy pre-packed coffee while 15% buy freshly ground coffee (coffee board, 2005). Freshly ground coffee can be found in shops such as Coffee day fresh & ground, present in major cities of the 4 southern states. Else, it is mainly available in cities edging the coffee growing areas, such as Mysore. The cities are hubs for coffee trade and then shops owners have direct and often private links with local trading agents or planters. Some small roasters shops can be found in big cities. Pre-packed coffees can be found in supermarkets, in some street shops or for sale in cafés where it is also served. The main brands of filter coffee available in Bangalore are given in the table 2 (Annex 1). These brands are only a small part of what might be available all over India, given that many small 61

roasters sell their coffee under the name of their company, in their shops and to some neighboring restaurants in coffee growing regions. Some roasters distribute their product in the state. Among all these brands available, we notice that only 3 of them do not contain any chicory. Most of the brands of filter coffee found in supermarkets target traditional coffee consumer households. The roasters have direct contacts with agents or get supplied at the ITCA Auction. The grades taken by roasters go from C to A, depending on the company but also on the market segment they target. Some roasters supply restaurants, hotels, cafés or vending machines. The quality of the basis product turns out to be different from one segment to another. Most supermarkets brands are with Chicory, only a few brands of filter coffee available in supermarkets are without chicory. It seems that coffee with chicory is much more popular for in-home consumption than coffee without. In-Home coffee consumers are very few sensitive to coffee origins: Mention of an origin of the coffee is rarely given for filter coffee and never given for instant coffee. The main reason for this fact is that coffee used to produce instant coffee or filter coffee packets is generally likely to come from the whole Western Ghats’ region. The broad majority of actors interviewed (curers, roasters, industries) claimed not to give any importance to the origins of the coffee they purchase. As a matter of fact, few consumers might be aware of Indian coffee origins. Origin might be a criterion of quality for those who buy their coffee directly in the coffee growing area or from roasters who can bring them the information about the product origin. Out of the 15% of consumers who buy fresh ground coffee, Three packages of Coffee branded as “Coorg” and “Coorg Coffee” can be commonly found in the supermarkets shelves, but none of them uses the name Coorg as a veritable indication of provenance of their product. Tata coffee had a brand named “Coorg” that was 100% coffee (not necessarily only from Coorg). There curing works being located in Kushalnagar in Coorg district, the name of the coffee reflects rather the industry location than the provenance of the raw material itself. The company said in 2 interviews that they had stopped the production of their “Coorg” coffee, due to rentability problem with the product. They created a new brand (M. Bean) that contains 47% of chicory to replace the former one. However, packages of Coorg coffee are still available for sale in supermarkets. Some packages have been found in RT Nagar, with the mention of June 2008 as date of packaging. The second brand, from the company Coorg Coffee Supplies Pvt Ltd is named Coorg for an historical reason: the company has been launched by Coorgi planters, who were roasting and selling their coffee directly. The company has then be acquired by the current owner several decades ago, and the name remained the same. Their coffee does not come exclusively from Coorg, but more from Chikmagalur district (interview with Coorg Coffee Supplies, 2008). A new brand “Coorg” for coffee has been found in Pondicherry. It is apparently commercialized by Auroville…

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4.3.OUT-OF-HOME CONSUMPTION

Consumption of coffee out of home is diversified and patterns are different between cities, countryside, northern country and southern country.

According to the coffee board, 20% of coffee would be consumed out-of home. It term of quantity, it represents nearly 18 000 MT. The categories chosen by the coffee board to classify out-of-home consumption in the 2005 study are the following ones: Restaurants, Canteens, cafés, “hot tea shop”, and machines (coffee board consumption study, 2005). Canteens are small restaurants with a unique meal where laborers come to take a quick and cheap lunch. Hot tea shops are small stalls on the road sides and in market places where people stop to take a Chai usually. In southern India, Milk coffee is also broadly available in these small shops, while in northern India, major street drink remains mainly tea. The proportion for each category is given in the graph in Annex 3. Restaurants and tea stalls represent the majority of coffee consumption. Nearly 85% of coffee consumption (in hot tea shops and in restaurants) consists in a small tin glass of coffee-chicory with milk and sugar. The coffee used for this does not need to own a high gustative quality as the taste is blurred by these other components. Coffee available in restaurants is in its large majority milk coffee. The coffee used for the beverage is instant coffee mainly and sometimes filter coffee. There is almost always chicory in this coffee. The higher standard restaurants take coffee from Nestle that is known for having a quality politics in regard to other roasters. Vending machine segment is very particular in the sense that the company that imports the machines are mainly the ones who supply the coffee for the same machines. Nestle, Coffee Day, Fresh and honest have vending machines. Very few establishments possess espresso machines. Even good restaurants and 3 or 4 stars hotels generally do not offer the possibility of having an espresso. A quick survey of hotels and restaurants reveal that coffee consumed in establishment that pretend providing best food products is either the espresso mix from Fresh and honest (Oberoi hotel, Aunty Maria, …), Illy caffè imported from Italy (Le Meridien…), or Dark Forest from ABC Coffee Day (Hard Rock Café). Cafés chains, cafés or bakeries represent today only 1080 MT of coffee per year. Cafés still represent only a minor percentage of out-of home consumption of coffee in India: 6% of 20%, that is to say 1,2% of coffee consumption in India (Coffee Board, 2005). However, in big cities of southern India (Bangalore, Mumbai and Chennai) there is a boom of this kind of coffee consumption. Bangalore especially, being close to coffee growing regions, have been the experimentation place for a new trend of cafés open by estate owners. Coffee Day opened its first café in Bangalore on Brigade Road in 1996 (livemint, 2007), and since then has been continuously expanding in the city and all over the country. It has now 570 cafés throughout the country. Coffee Day has also extended abroad and opened 3 cafés in Vienna (Austria) and in Pakistan. Nowadays, Coffee Day is opening café bars at the rate of approximately one café every day according to Mr. Rajeev Gupta, Managing Director of the company. Other cafés such as Kalmane, QWERT, Flava, Hunkal Heights are also cafés opened by planters but with a limited number of outlets (from 1 to 4) 63

and exclusively in Bangalore. Other cafés and bakeries get directly supplied from estates, mainly located in Chikmagalur or import their coffee (Mocha in Bangalore Mumbai and Pune for instance has displays an impressive set of coffees from African, Indonesian and American origins; but the preparation of the coffee in itself and the freshness of the beans are doubtful). What has been underlined by the interviews is the fact that these outlets are generally not interesting in promoting Indian Origins. According to the president of Coffee Day for instance, it is not in agreement with the philosophy of the company. The company would rather promote the best origins in the world than national origins. And especially not Coorg, because the majority of the coffee they use for their beverages come from Chikmagalur and Hassan districts. However, thanks to these café-chains which promote the taste of the coffee, the “gourmet” coffee market is a very fast growing segment. As Mr Illy said in 2005 to the Hindu Business Line, “the gourmet coffee boom which started from the US a few years ago is coming to India as well and is set to trigger coffee consumption”. Aggressive brand extension by selling a variety of different branded products, from mug to mineral water, has accompanied the growth of these chains. As a consequence, café bars do not sell only coffee. The reason for the success of these outlets has to be found in the ambience they offer and the possibility for the wealthy young generation to chat and hang out. As a result, coffee does not represent an important share of the total sales of these café chains. However, they also promote a new way of consuming coffee in India. Cappuccino, espressos, milk shakes, cold coffee, lattes, café crème are some of a long list of these new coffee-based products. Doing so, café bars act as discovery places for coffee taste. Important features driving domestic consumption include the growth of a wealthy socio-economic class that is permeable to western way of consumption

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REFERENCES

Achoth L. (2005). Report on surveys on coffee holdings and coffee market chain in India in relation to mould contamination in coffee. Submitted to Coffee Board of India, Bangalore & Food & Agricultural Organization of United Nations, Rome. Akiyama T. (2001). Coffee Market Liberalization since 1990. In T. Akiyama, J. Baffes, D. Larson, and P. Varangis, eds., Commodity Market Reforms: Lessons from Two Decades. Regional and Sectoral Studies. Washington, D.C. The World Bank Ambinakudige S. (2006). Differential Impacts of Commodification of Agriculture on People’s Livelihoods and the Environment in the Western Ghats of India: an Extended Environmental Entitlement Analysis. Dissertation submitted to the Department of Geography. The Florida State University, College of Social Sciences. Chattopadhayay S. and John P. (2007). Bitter Beans: An Analysis of the Coffee Crisis in India. Partners in Change (Organization : New Delhi, India), Dutch Coffee Coalition Coffee Board of India. (2008). Database on Coffee. March 2008 issue. Bangalore: Economic & Market Intelligence Unit, Coffee Board of India. Coffee Board of India. (2007). Database on Area and Production of Organic Coffee in India. Coffee Board of India. (2005). Coffee Consumption in India – 2005. Economic and Market intelligence Unit, Bangalore Daviron B. (2003). "Qualités du café et territoires : une perspective historique." CIRAD The Financial Express. Feb 15, 2008. Coffee growers brand crop for better prices. The Financial Express. May 23, 2008. Auctioneer's exit weakens coffee trading platform. Galland J.C., Avelino J., Larraín A., Montagnon C. (2003). "Origin Coffees. Are Appellations of Origins on the horizon?" CIRAD Garibay S. and Jyoti K. (2003). Market Opportunities and Challenges for Indian Organic Products. The Indian Institute of Planning and Management. Barista vs Café Coffee Day – A Comparative Study. (available at http://www.iipmthinktank.com/functions/marketing/compartive.pdf) International Trade Centre. (2007). Coffee: an exporter's guide. UNCTAD/WTO, Geneva. Internet version available at: http://www.intracen.org/thecoffeeguide/ Kop. P. v. d., Sautier, D., Gerz, A. (2006). Origin-based Products, Lessons for pro-poor market development. CIRAD. Neilson J. (2008). Environmental Governance in the Coffee Forests of Kodagu, South India. Transforming Cultures eJournal Neilson J. and Pritchard B. (2007). Green Coffee: Contestations over global sustainability initiatives in the Indian coffee industry. Development Policy Review, 25(3), pp 311-331. Menon S. (2005). Quality Coffee Regions in India. Tea & Coffee Journal, Vol. 177, No 6, June/July 2005 Perriot J.J., Ribeyre F., Montagnon C. (2003)."Les qualités d'un café". CIRAD 65

Ponte S. (2002). Standards, trade and equity: lessons from the specialty coffee industry. CDR Working Paper 02.12.Copenhagen, Denmark: Centre for Development Research. Ponte S. (2004). Standards and Sustainability in the Coffee Sector: A Global Value Chain Approach. International Institute for Sustainable Development (IISD) and UNCTAD. 49p. UNCTAD. (2007). Development Impacts of Commodity Futures Exchanges in Emerging Markets. Report of the UNCTAD Study Group on Emerging Commodity Exchanges

The Wall Street Journal. Feb 19, 2008. Coffee planters climb up value chain in a bid for better returns. (available at http://www.livemint.com/2008/02/19011248/Coffee-planters-climb-up-value.html?d=1) The Wall Street Journal.Nov 28, 2007. Café Coffee Day eyes overseas markets; plans 50 outlets in 2008. (available at http://www.livemint.com/2007/11/28235623/Caf%C3%A9-Coffee-Day-eyesoverseas.html)

Websites Herkunftsreiner Terroir-Kaffee im Trend: www.swissscae.ch/news1.cfm?ID=BFFEFA84-0C27-0CC9-9C2387FEFB2CB970 Coffee Review website: http://www.coffeereview.com/ Coffee Board of India’s website: http://indiacoffee.org/ Supremo’s website: Coffee Origin’s encyclopedia: http://www.supremo.be/home.nsf/WorldMap?OpenForm Utz certified website: www.utzcertified.org Cafe Coorg: www.cafecoorg.com/coorg.htm Joshuma Coffee Company: www.josuma.com/special-features.html Tata Coffee, Coorg Pure: www.tatacoffee.com/products/conventional_coffee/coorg_pure.htm

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ANNEXES

ANNEX 1: ICO CERTIFICATE OF ORIGIN

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ANNEX 2: MOISTURE CONTENT PER TYPE OF COFFEE AS SPECIFIED BY THE COFFEE BOARD Type of Coffee

Moisture Content (%)

Plantation

10.0

Arabica Cherry

10.5

Robusta Parchment

10.0

Robusta Cherry

11.0

Mysore Nuggets EB

9.0 - 10.5

Robusta Kaapi Royale

9.0 - 10.5

Monsooned Coffee

13.0 - 14.5

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ANNEX 3: SPECIFICATIONS OF COMMERCIAL GRADES Name

Description

Tolerance

Sieve requirements

Arabica Plantation Plantation PB

Clean garbled

Flats (A/B): 2% PB Triage: 3%

No sieve requirement

Plantation A

Clean garbled

PB : 2% Triage : 2%

90% > 6.65 mm (screen 17) 1.5% < 6 mm (screen 15)

Plantation B

Consists of “triage” and small whole beans; shall include light beans, boat-shaped beans and spotted beans ( 6 mm (screen 15) 1.5% < 5.5 mm (screen 14)

Plantation C

Consists of “triage” and small whole beans; shall include light beans, boat-shaped beans and spotted beans ( 5.5 mm (screen 14) 100% > 5 mm (screen 13)

Plantation Blacks

shall contain blacks (>25% of the bean surface black, deep blue or dark brown); shall include damaged beans such as bleached beans, spotted (>25% of the bean surface) beans, stinker beans, sour beans and insect-damaged beans.

Plantation Bits

shall be ungarbled and could contain blacks/browns and defective beans

Plantation Bulk

shall be ungarbled

Robusta Parchment Parchment PB

Clean garbled

Flats (A/B): 2% PB Triage: 3%

No sieve requirement

Parchment AB

Clean garbled

PB : 2% Triage : 3%

90% > 6 mm (screen 15) 1.5% < 5.5 mm (screen 14)

Parchment C

shall consist of “triage” and small whole beans; shall include light beans, boat-shaped beans and spotted beans (25% of the bean surface) beans, insect-damaged beans, sours and stinker beans

Parchment Bits

shall be ungarbled and could contain blacks/browns and defective beans

Parchment Bulk

shall be ungarbled

75% > 5.5 mm (screen 14) 100% < 5 mm (screen 13)

Arabica Cherry Cherry PB

Clean garbled

Flats (A/B): 2% PB Triage: 3%

No sieve requirement

Cherry AB

Clean garbled

PB : 2% Triage : 3%

90% > 6 mm (screen 15) 1.5% < 5.5 mm (screen 14)

Cherry C

shall consist of “triage” and small whole beans; shall include light beans, boat-shaped beans and spotted beans ( 5.5 mm (screen 14) 100% > 5 mm (screen 13)

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Cherry Blacks/Browns

shall contain black/dark brown beans; shall include damaged beans such as bleached beans, spotted (>25% of the bean surface) beans, insect-damaged beans, sours and greens.

Cherry Bits

ungarbled and could contain blacks/browns and defective beans.

Cherry Bulk

shall be ungraded and ungarbled.

Robusta Cherry Cherry PB

Clean garbled

Flats (A/B): 2% PB Triage: 3%

No sieve requirement

Cherry AB

Clean garbled

PB : 2% Triage : 3%

90% > 6 mm (screen 15) 1.5% < 5.5 mm (screen 14)

Cherry C

shall consist of “triage” and small whole beans of the prescribed sieve size; shall include light beans, boat-shaped beans and spotted beans ( 5.5 mm (screen 14) 100% > 5 mm (screen 13)

Cherry Blacks/Browns

shall contain black/dark brown beans; shall include damaged beans such as bleached beans, spotted (>25% of the bean surface) beans, insect-damaged beans, sours and greens

Cherry Bits

shall be ungarbled and could contain blacks/browns and defective beans

Cherry Bulk

shall be ungarbled

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ANNEX 4: SPECIFICATIONS OF PREMIUM GRADES Name

Description

Tolerance

Sieve requirements

Arabica Plantation Plantation PB Bold

Clean garbled

Flats (A/B): 2% PB Triage: 2%

100% > 4.75mm (screen 12)

Plantation AA

Clean garbled

PB: 2%

90% > 7.1mm (screen 18) 100% > 6.65mm (screen 17) Only whole beans between 6.65mm and 7.10mm

Arabica Cherry Arabica Cherry PB Bold

Clean garbled

AB: 2% PB Triage: 2%

100% > 4.75mm (screen 12)

Arabica Cherry AA

Clean garbled

PB: 2% Triage: 1%

90% > 7.1mm (screen 18) 100% > 6.65mm (screen 17)

Arabica Cherry A

Clean garbled

PB: 2% Triage: 2%

Only whole beans between 6.65mm and 7.10mm 90% > 6.65 mm (screen 17) 100% > 6 mm (screen 15)

Robusta Parchment Robusta Parchment PB Bold Robusta Parchment A

Clean garbled

Flats (A/B): 2% PB Triage: 2%

100% > 4.50mm (screen 11)

Clean garbled

PB:2% Triage: No Tolerance

90% > 6.65 mm (screen 17) 100% > 6.00mm (screen 15) Only whole beans between 6.00mm and 6.65mm

Robusta Cherry Robusta Cherry PB Bold

Clean garbled

Flats (A/B): 2% PB Triage: 2%

100% >4. 50mm (screen 11)

Robusta Cherry AA Robusta Cherry A

Clean garbled

PB: 2% Triage: 1%

90% > 7.1 mm (screen 18) 100% > 6.65 mm(screen 17)

Clean garbled

PB: 2% Triage: 2%

90% > 6.65 mm (screen 17) 100% > 6 mm (screen 15)

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ANNEX 5: SPECIFICATIONS OF SPECIALTY GRADES Name Description Arabica Plantation Mysore Nuggets EB (Extra Bold )

Tolerance

Sieve requirements

Free from: PB, Brokens (inclusive of Triage and Elephant beans) or any extraneous matter. Defectives including bleached and spongy beans, blacks, browns, insect or fungal damaged beans and pulper cuts.

90 % > 7.5mm (screen 19) 100%> 6.65mm (screen 17)

Clean garbled

PB: 2% Triage: 2%

90% > 7.25mm (between screen 18 and 19)

Clean garbled

Triage: 3%

75% > 6.50 mm (between screen 16 and 17)

Clean garbled

BBB: 3%

90% >6.00 mm (screen 15)

Free from : PB, Brokens (inclusive of Triage and Elephant beans) or any extraneous matter. Defectives including bleached and spongy beans, unwashed beans, blacks, browns, insect or fungal damaged beans and pulper cuts.

90 % > 6.70mm (screen 17) 100%> 6.00mm (screen 15)

Medium to well-polished Clean garbled

Only whole beans between 6.65mm and 7.5mm

Arabica Cherry Monsooned Malabar AA Monsooned Basanally Monsooned Arabica Triage

Robusta Parchment Robusta Kaapi Royale

Medium to well-polished Clean garbled

Only whole beans between 6.00mm and 6.70mm

Robusta Cherry Monsooned Robusta AA

Clean garbled

Triage: 3%

90% > 7.10 mm (screen 18)

Monsooned Robusta Triage

Clean garbled

BBB: 3%

75% >6.00 mm (screen 15)

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ANNEX 6: ACCREDITED CERTIFICATION AGENCIES FOR ORGANIC PRODUCTS IN INDIA (Source: APEDA's Website)

Name of the Certification Agency

Scope of Accreditation

NPOP USDA (NOP) NPOP USDA (NOP) NPOP IMO Control Pvt. Ltd. USDA (NOP) NPOP Indian Organic Certification Agency (INDOCERT) USDA (NOP) NPOP Lacon Quality Certification Pvt. Ltd. USDA (NOP) NPOP Natural Organic Certification Agency (NOCA) USDA (NOP) NPOP OneCert Asia Agri Certification Pvt. Ltd. USDA (NOP) NPOP SGS India Pvt. Ltd. USDA (NOP) NPOP Control Union Certifications Formerly known as Skal International (India) USDA (NOP) Uttarakhand State Organic Certification Agency NPOP (USOCA) USDA (NOP) NPOP APOF Organic Certification Agency (AOCA) NPOP Rajasthan Organic Certification Agency (ROCA) Bureau Veritas Certification India Pvt. Ltd. Formerly known as BVQI (India) ECOCERT India Pvt. Ltd.

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ANNEX 7: SURVEY OF COFFEE BRANDS AVAILABLE IN BANGALORE Instant coffee products available in Indian supermarkets in 2008 (survey of Bangalore retail shops)

Brand Name

Company Name

Bru Instant Bru Instant Bru Instant Nescafe Sunrise Premium Nescafe Sunrise Premium Nescafe Sunrise Premium Nescafe Sunrise Special Nescafe Classic Nescafe Classic Continental Speciale Continental Speciale Continental Speciale

Hindustan Unilever Hindustan Unilever Hindustan Unilever Nestlé India Nestlé India Nestlé India Nestlé India Nestlé India Nestlé India CCL Products Ltd. CCL Products Ltd. CCL Products Ltd.

Weight (g)

Price (INR)

50 200 300 50 200 13 50 25 200 50 100 200

44 173 246 44 173 10 31 35 240 43 85 165

Chicory content (%) 30 30 30 30 30 30 40 0 0 0 0 0

Filter coffee products available in Bangalore’s supermarkets in 2008 (Survey of Bangalore’s retail shops)

Brand Name More. More. Fresh'n Ground Fresh'n Ground Coorg Coffee Coorg Coffee Cothas Coffee Cothas Coffee Cothas Coffee Alive! Alive! Alive! Bayar's Coffee Gold label Bayar's Coffee Gold label Bru Green Label Bru Green Label

Company Name

Weight (g)

Price (INR) Chicory content (%)

Aditya Birla Retail Aditya Birla Retail Coffee Day Coffee Day Coorg Coffee Supplies Coorg Coffee Supplies Cothas Coffee Cothas Coffee Cothas Coffee Fresh & Honest Fresh & Honest Fresh & Honest Ganesh Food products

100 500 100 200 100 500 100 200 500 100 200 500 100

17 80 20 34 20 105 22 44 110 22 41 105 19

45 45 15 15 30 30 15 15 15 30 30 30 35

Ganesh Food products

200

38

35

Hindustan Unilever Hindustan Unilever

100 500

22 99

47 47

74

Sree Balaji Coffee Sree Balaji Coffee Mr. Bean Mr. Bean Mr. Bean Coorg Nilgiris Pure Coffee Nilgiris Pure Coffee Peaberry Coffee Peaberry Coffee Modern Coffee Modern Coffee Modern Coffee Darshan Coffee Sri Suma Coffee Sri Suma Coffee Sri Suma Coffee

Shree Balaji Coffee Works Shree Balaji Coffee Works Tata Coffee Tata Coffee Tata Coffee Tata Coffee Nilgiri Dairy Farm Nilgiri Dairy Farm Aditya Birla Retail Aditya Birla Retail Modern Coffee Co. Modern Coffee Co. Modern Coffee Co. Radha Krishna Agencies Sri Suma Coffee Works., Sri Suma Coffee Works., Sri Suma Coffee Works.,

75

100

16

20

200

31

20

100 200 500 100 100 500 100 200 100 250 500 200 100 200 500

20 36 91 20,5 30 130 28 55 20 55 110 40 22 44 110

47 47 47 0 0 0 0 0 15 15 15 30 15 15 15

ANNEX 8: COFFEE BOARD STUDY RESULTS

Results to the answer: "does the coffee you buy have chicory in it? (source: coffee board 2005)

Share of each type of out-of home consumption (source: Coffee Board of India, 2005)

Out-of-home coffee consumption

"Hot tea shops" 40%

machines Cafés 1% 6%

Restaurants 46%

Canteens 7%

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