TAG: GS 3: ECONOMY
THE CONTEXT: Indian coffee exporters are experiencing a significant surge in demand from European buyers.
EXPLANATION:
- This increase is largely driven by the impending European Union Deforestation Regulation (EUDR), which has created a push for European companies to build up their coffee inventories ahead of the compliance deadline.
European Union Deforestation Regulation (EUDR)
- The EUDR aims to curb the importation of products associated with deforestation.
- It mandates stringent due diligence and traceability for several commodities, including coffee.
- The regulation is set to take effect on December 30, requiring businesses to adhere to its standards to continue exporting to the EU market.
- Besides coffee, the EUDR covers other products such as cattle, cocoa, oil palm, rubber, soya, and wood.
Increased Coffee Demand and Front-Loading
- With the EUDR deadline approaching, European buyers are front-loading their coffee purchases to ensure they meet the new regulations.
- This has led to a notable increase in Indian coffee exports.
- Inventory Build-Up:
- European customers are stocking up on coffee ahead of the regulation.
- President of the Coffee Exporters Association, noted significant shipments to Europe as buyers prepare for the EUDR requirements.
- Export Statistics:
- Between January 1 and June 21, Indian coffee shipments rose by 16% to over 2.37 lakh tonnes compared to 2.04 lakh tonnes during the same period the previous year.
- This includes re-exports, which grew by 18.3% to 53,497 tonnes.
- Shipments of Indian-grown coffee increased by 15%, reaching more than 1.83 lakh tonnes.
- Inventory Build-Up:
Shift in Inventory Management
- The EUDR has influenced a shift in inventory management among European coffee roasters:
- Safety Stock:
- Roasters, who previously relied on just-in-time inventory management, are now building up their stocks.
- They prefer having coffee in warehouses to mitigate any supply chain disruptions caused by the new regulations.
- Early Shipments:
- European clients are requesting earlier shipments to ensure they have sufficient inventory before the EUDR takes effect.
- This shift has extended the peak export season for Indian coffee exporters beyond the usual February to May period into June.
- Safety Stock:
Challenges for Indian Exporters
- Despite the increase in demand, Indian coffee exporters face several logistical challenges:
- Container Availability: The aftermath of developments in the Red Sea region has led to a shortage of food-grade containers, impacting the availability of containers for shipping coffee.
- Freight Rates: Increased freight rates have further complicated logistics for exporters, adding to the cost and complexity of meeting the surge in demand.
European Market Focus
- India, ranked as the seventh-largest coffee producer globally.
- It is also the fifth-largest exporter, following Brazil, Vietnam, Colombia, and Indonesia.
- More than two-thirds of India’s coffee production is exported, with Europe being the primary market.
- About 60% of Indian coffee exports are destined for Europe, with Italy, Germany, and Belgium being the major buyers.
Coffee
- Coffee is a beverage brewed from roasted coffee beans. It is darkly colored, bitter, and slightly acidic, with a stimulating effect on humans primarily due to its caffeine content.
- The two main species commercially cultivated are Coffea canephora (predominantly a form known as ‘robusta’) and C. arabica, with C. arabica being the most highly regarded species.
- Coffee plants are evergreen shrubs or trees that may grow 5 m (15 ft) tall when unpruned, with dark green, glossy leaves and fragrant white flowers.
- Approximately 65% to 70% of the coffee produced in India is exported and remaining coffee is consumed domestically.
- India is the sixth largest producer of coffee in the world, after Brazil (largest producer of coffee), Vietnam, Colombia, Indonesia, Ethiopia and Honduras.