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Introduction

A tropical evergreen shrub whose beanlike seeds are roasted and ground to
produce a drink of the same name. According to legend, coffee was discovered in
Ethiopia. The first big coffee craze, though, occurred in Arabia, where by the 13th
century Muslims were brewing and drinking huge quantities of it. Travelers from
Arabia took the beans with them wherever they went – beans deliberately made
infertile, allegedly, by parching or boiling. Because of this strict export control
policy, it is claimed that no coffee seed sprouted outside Africa or Arabia until the
17th century.

The importance of coffee in the world economy cannot be overstated. It is


one of the most valuable primary products in world trade, in many years second in
value only to oil as a source of foreign exchange to developing countries. Its
cultivation, processing, trading, transportation and marketing provide employment
for millions of people worldwide. Coffee is crucial to the economies and politics of
many developing countries; for many of the world's Least Developed Countries,
exports of coffee account for a substantial part of their foreign exchange earnings
in some cases over 80%.

Production area:

In India, coffee bean cultivation is largely confined to the hilly regions of the
southern states of Karnataka, Tamil Nadu and Kerala.

Growth promotional activities:

Only one fifth of the coffee bean produced in India every year is consumed
in the domestic markets, while rest of it is exported.
Most of the exports are to Russian Federation, Germany, Italy and US. Till
recently, the Coffee Board directed coffee sales in India. Coffee growers with a
total coffee cultivation area of above 10 hectares were required to sell a minimum
of 30% of their production to the Coffee Board. This quota system has now been
abolished to encourage exports and now growers can export 100% of their produce
In order to boost the coffee consumption the coffee industry has started
emphasizing on three channels of distribution, namely Cafe chains, vending
machines and ready to drink products. While the industry expects vending machine
to contribute 45% of the volume followed by cafe chains with 40% of the
consumption market.
Coffee Marketing

Coffee market can be segmented as instant and filter coffee. Filter coffee can
further be segmented into pure and chicory blend coffee. Coffee is a major export
commodity in many developing countries. Many countries like India, USA
depends heavily on coffee as a source not only to foreign exchange but also of
employment in rural areas. Before liberalization heavy taxation made coffee an
important source of government revenue. Governments of developing countries
regulated coffee marketing not only because coffee was so important as a source of
export earning and foreign exchange, but also for institutional and political
reasons. The main intergovernmental organization for coffee, bringing together the
world coffee sector through international cooperation is The International Coffee
Organization (ICO).

ICO:

The International Coffee Organization was established in London in 1963. It


makes a practical contribution to the world coffee economy by:
 Enabling government representatives to exchange views and co ordinate
coffee policies and priorities at regular high-level meetings.

 Improving coffee quality through the Coffee Quality-Improvement


Programme and specific projects.

 Increasing world coffee consumption through innovative market


development activities.

 Initiating coffee development projects to improve quality and marketing.

 Encouraging a sustainable world coffee economy.

 Working closely with the private sector through a 16 strong Private Sector
Consultative Board which tackles issues such as food safety.

 Providing objective and comprehensive information on the world coffee


market; and;

 Ensuring transparency in the coffee market through statistics.

International Coffee Agreement (ICA):

International Coffee Agreement (ICA) entered into force in 1962 for a


period of five years, and it has continued to operate under successive Agreements
negotiated since then. The main objective of the agreement was to raise and
stabilize the world coffee prices and hence the governments of all major coffee
producing countries came together to take some joint market controlling measures
and doing so would have been difficult and costly, so they liberalized coffee sub
sector.
Pre – Liberalization Marketing Chain:

Producers

Coffee Board

Domestic Market Export


(30%) (70%)

Before liberalization, the producers of coffee were selling their coffee


production to Coffee Board, a regulatory body at fixed price. On the basis of
curing works like cleaning, sorting and grading, Coffee Board decide to market
this goods in market in proportion of 30 % to Domestic Market and 70 % for
Exportation.

The Coffee Board of India is an autonomous body, functioning under the


Ministry of Commerce and Industry, Government of India. The Board serves as a
friend, philosopher and guide of the coffee industry in India. Set up under an Act
of the Parliament of India in the year 1942, the Board focuses on research,
development, extension, quality upgradation, market information, and the domestic
and external promotion of Indian coffee.
Till 1995, the Coffee Board had a monopolistic control over the marketing
of coffee in India. However, the winds of liberalization swept the Indian coffee
industry and since 1995, marketing of coffee is strictly a private sector activity. In
fact the Coffee Board went through a massive down- sizing and two- thirds of its
employees were retired under a voluntary retirement scheme.

Post – Liberalization Marketing Chain:

Producers
AUCTION

Exporters

Domestic Market Export

After liberalization, producer started to sell their product in domestic and


international (export) market on auction basis and role of coffee board was shifted
from marketing to research, extention & promotion.

Thus producers were satisfied after liberalization of marketing chain because


that made Export to customers directly, avoiding implicit taxes (despite the fact
that exported commodities were exempt from taxation, the board had effectively
been paying a sales tax.)
Medium Term Export Strategy for Coffee

To boost Indian coffee exports as well as to maximize export earnings, the


Coffee Board is implementing a Medium Term Export Strategy during the current
plan period. The key initiatives identified in the strategy to improve coffee exports
from India are as under:

 Shifting product mix in favour of Arabica.

 Cost reduction to improve competitiveness.

 Improving quality perception of Indian coffee.

 Integrating Indian coffee with the global coffee trade.

 Guarantee reliability of exporters.

 Carryout a major communication initiative in key overseas markets to


enhance the image of Indian coffee as well as to improve market share.

 Participation in important overseas trade fairs involving exporters and


grower exporters.
 Organizing buyer-seller meets between Indian exporters and overseas buyers
in key markets.

 Hosting visits of roaster/buyer delegation from leading consuming countries


to Indian coffee tracks and facilitating interaction with the industry
representatives.

 Organizing "cupping" of Indian coffees by international coffee experts to


evaluate and propagate the finer attributes of Indian coffees.

 Institution of Export awards to encourage exporters.

Future Strategies for New Market:

 Establishment of Export Promotion Council for Coffee.

 Government Regulation in Quality Testing and Processing.

 Duty Free Import for Processing Equipments.

 Extensive Marketing and Promotional Activities.

 Sponsoring Trade Fairs and Global Coffee Summits.

 Attractive and Durable packaging and Transportation.

 Regular Market Survey for Customer Satisfaction and Preferences.


Financial Assistance in Exporting Coffee

Export finance refers to the finance of the goods from the home country to
the importers port. The export financing begins with as soon as export order is
received and accepted. The exporter needs finance for transportation, taxes,
documentation, insurance, packing, clearing and forwarding and payment of
freight. Most of the export trade is carried out on credit basis. It takes 3 to 6
months to realize the export bills. Meantime the exporter has to execute further
orders for which additional working capital is required. The export finance
mechanism and institutional support are vital for the promotion for international
business. India, is the first among the developing countries to design an integrated
export financing scheme. The various agencies involved in provision of finance are
RBI, Exim Bank, Commercial Banks, ECGC and other financial institutions.

Export finance in India:

The nature of export finance may be short term or long term credit. Short
term credit facility is extended for a period from 30 days to 180 days which is
granted by commercial banks. The long term finance is provided for a period from
5years to 2o years which is provide by EXIM, ECGC and IDBI bank. The
irrevocable letter of credit is generally used in export of coffee.
Pre – Shipment Finance:

Pre – shipment finance is defined by Reserve Bank of India as “Any loan to


an exporter financing the purchase, processing, manufacturing, packing of goods.”
It is an interim advance provided by bank for helping the exporter to purchase
process, packing & shipment of the goods for exports. It is also known as Packing
Credit. It is provided by any bank or financial institution. The exporters generally
require finance at the pre-shipment stage for the following purpose:

 To purchase raw materials, components, machinery equipment &


technology.

 To pay for transportation & warehouse expenses.

 For specialized export packing of goods.

 To pay insurance premium on shipment of goods.

 To clear the goods after inspection, customs & excise authorities.

 To pay commission to overseas agents & freight for shipment of goods.

 To provide additional working capital from time to time.

Post – Shipment Finance:

When the exporter needs an advance after completing the process of


shipment of goods is called as post-shipment finance. The exporter needs finance
at the post-shipment stage for the following purposes:

 To pay ECGC premium, freight, insurance premium on shipment & other


shipment expenses.
 To participate in the fairs & exhibitions.

 To pay to overseas agents and various authorities such as customs, port,


inspection etc.

 To pay regular expenses between the shipment of goods & realization of


exports bill.
Coffee Schemes

The important function of the development department is to render


financial assistance coupled with the technical assistance to the coffee growers for
the overall development and improvement of their estates through increase in
production. In this section the board is implementing 6 types of loan schemes and 3
types of subsidy schemes. They are:

 Intensive cultivation loan.

 Replanting loan.

 Extensive cultivation loan.

 Special purpose loan.

 Interest subsidy.

 Expansion subsidy.

The tribal coffee growers are given 4% interest on Intensive


cultivation loan, Replanting loan, Extensive cultivation loan, Special purpose loan.
Interest Subsidy Scheme for Large and Small Growers:

To provide financial relief to small coffee grower sector on the interest


charged by the financial institutions on extending the working capital/crop
hypothecation loans, Interest Subsidy Scheme has been introduced on year on year
basis subject to the approval of government @ 5% for small growers and 3% for
large growers.

Expansion subsidy scheme:

The Coffee Board expansion subsidy scheme implemented between 1978


and 1989 had given fillip to the coffee expansion among the tribal growers. The
interest shown by the tribal farmers had forced Government to create an
independent agency for coffee development. Accordingly, M/s. Girijan Coffee
Plantation Development Corporation Limited, has been formed to develop coffee
in tribal sector. This agency developed coffee in an extent of another 1000 Ha, in
the tribal holdings. The ITDA, Paderu, has taken over the development of coffee in
the State of Andhra Pradesh, among the tribal sector from the year 1995 and is the
only agency, currently involved in coffee development.

Incentives Scheme for Organic Coffee Growers:

Coffee Board is providing financial assistance (grant) to organic coffee


growers towards the cost of Inspection & Certification of organic coffee. The
eligibility norms for providing financial assistance are as follows:

 The grower/growers association/SHG has to produce organic coffee as per


the National Standards of Organic Production (NSOP).
 The Coffee should have been certified by an accredited Inspection &
Certification agency recognized under National Programme for Organic
Production (NPOP). Visit www.apeda.com for the list of inspection &
certification agencies.

 In case of The Self Help Groups, Growers associations/ Cooperatives and


NGO’s they should have been registered under Co-operative Societies Act
or Societies Registration Act of their respective state.

 The financial assistance towards Inspection & Certification cost will be


released only after evaluation of application by Coffee Board.

Support to Small Grower Sector Scheme:

Financial incentives are given for taking up the following Capital


Investments in the farms of the Small Coffee Growers:

 Replanting.

 Water Augmentation.

 Quality Upgradation.

 Pollution abatement measures.

Objectives:

 To augment Arabica coffee production through new planting,


replacement/renewals of old plants and replanting of robusta into Arabica in
suitable locations.
 To enhance farm productivity in robusta holdings through systematic
harnessing of water resources and irrigation methods.

 To establish/set up appropriate infrastructure in the farms, to prepare washed


coffees, to achieve value additions.

Subsidy component:

The subsidy is provided subject to ceiling limit prescribed for the above said
activities. While the subsidy is generally linked to credit provided by financial
institutions, the Board may extend subsidy also in select cases where growers are
able to provide details of funds procured from other sources. A subsidy of 20% on
the capital cost is provided for replantation, quality upgradation and pollution
abatement measures and 25% for water augmentation.

Eligibility:

 Registered coffee growers having holding up to a maximum of 10 ha.

 Individual/Joint applicants (family members/growers) are eligible to avail


the benefits of the scheme provided the coffee holdings are contiguous under
common management and does not exceed 10 ha.

 Applicants shall produce revenue records as proof of area/ownership.

 An applicant can avail subsidy benefit for one or more than one component
of the scheme provided the grower gives undertaking of the sources of
finance.

 Defaulters under Board's (old) scheme of Development loans are not eligible
to avail the benefits of the scheme.
Conclusion

Coffee is a major export commodity in developing country like India and


liberalization of coffee market has given rise to competition and to survive in this
competitive market newer and newer strategies are need to be formed to take the
advantage of opportunities arising in this market. Simultaneously Financing also
plays an important role in developing coffee market and coffee export.

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