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Trouble brewing: India losing Italian coffee market to Uganda

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There’s more trouble brewing for Indian coffee exporters, who are not just facing a slump in overall demand due to the Covid-19 pandemic, but also staring at a loss of share in Italy, their largest export market, to exporters from Uganda.

Indian coffees are facing stiff competition from low-cost producer Uganda in the Italian market, which they have been dominating for over past three decades now. Italy accounts for about a fifth of India’s coffee exports.

Indian coffees in Italy are largely sold in the premium segment, such as in cafes and coffee bars. Brazil, the largest coffee producer, dominates the Italian market with half the market share, followed by India, which has a share of around 20 per cent, and other major producers such as Vietnam and Uganda.

“The Ugandans are trying to get as much as possible in the Italian market in the current scenario and that’s a big worry for us,” said Ramesh Rajah, President of the Coffee Exporters Association.

The Ugandan robustas, which are comparable to the Indian variety in terms or quality, arepriced cheaper by at least $200 per tonne or about 20 per cent, which is attracting buyers’ interest in Italy, he said.

“During normal circumstances, consumers want quality and are willing to pay more. As the Italian economy is facing a tough times due to the pandemic, consumers are starting to look for better-value coffee. They now see Uganda, which is 20 per cent cheaper than India, as a good value proposition. Vietnam is even cheaper but because of taste and other factors, it is mainly sold commercial packaged coffee segment and not in the premium segment of Italy. The premium segment got more affected during the pandemic than the commercial coffees and is hitting us the most,” Rajah said.

Shipments drop 27%

Coffee shipments to Italy in the first half of calendar 2020 have dropped 27 per cent at 36,547 tonnes, compared to 50,513 tonnes in the same period last year. The arabica shipment to Italy was 14 per cent lower at 4,774 tonnes (5,577 tonnes), while robusta exports took a major beating as shipments were lower by 27 per cent at 31,134 tonnes (42,658 tonnes). During the same period, total coffee exports from India were down 16 per cent in volume terms and value at 1.78 lakh tonnes (2.11 l t) and $404 million ($482 m) respectively.

“For the unwashed robustas, India is facing competition from lower-priced origins like Uganda. Although the Indian quality is sought after, importers do consider more price-efficient coffees. This is more evident under the current Covid-19 circumstances, where more competitively priced coffees are likely to find favour with buyers,” said Anil Ravindran, Partner at RV Commodities, an exporter in Bengaluru.

In fact, the Ugandans are trying to regain their market share in Italy from the India exporters, to whom they had lost market share about three decades earlier. “We took the market 30 years ago, and they are trying to come back now,” Rajah said.

Logistical challenges

Indian exporters had displaced the Ugandans in Italy as the land-locked African producer had faced logistical challenges in shipping out its coffees then. “We never tried to undercut others when we gained the market in Italy. Our selling proposition was reasonable price and reliable supplies throughout the year and our coffees are better prepared and have less imperfections. We gave better products and started getting premiums. As the customers started getting used to our coffees, the premiums started going up,” Rajah said.

So, it is these premiums that are proving to be a challenge for the exporters in retaining their markets. Though the quantum of premium has come down, the Indian robustas still attract a higher price over the London terminal (LIFFE). At present, the Indian robusta cherry is attracting a premium of $500-$600 per tonne over the LIFFE, while a buyer in Italy can get Ugandan coffee at $250-300 above the terminal price. “We are seen as unreliable now as our premiums are too high. Losing the market to Ugandans will have a long-term impact,” Rajah said.

Further, Indian exporters are finding it difficult to match Ugandan prices as that would mean having to source cheap and reduce the prices, which would hurt the growers’ realisations at the back-end. This, when growers are already reeling under the impact of multi-year low prices.

Rajah said the Government should step in and immediately support the exporters to defend their markets, either by increasing the incentive under the Merchandise Exports from India Scheme (MEIS) to 5 per cent, or implementing the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme at the earliest, while ensuring credit facility at reduced interest rates.

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