Swot Analysis of Indian Coffee

Topics: Coffee, Starbucks, Retailing Pages: 5 (1718 words) Published: August 30, 2012
A SWOT analysis on Indian coffee 
Pravin Palande  
Mumbai: Understanding the strengths, weakness, opportunities and threats (SWOT) of an industry is paramount for its survival and growth. To understand the coffee market in India we must first analyse the industry environment. What may be perceived as a strength in one situation may turn out to be otherwise in another. Also, what must be considered is that the domestic coffee industry is going through a period of transition. It is metamorphosing from a controlled to a free market. Hence, there will be temporary travails which can be rectified in due course. With this in mind, we can proceed to make a SWOT analysis.

Coffee production in India has risen from a meagre 17,000 tons at the time of Independence to the existing 270,000 tons. This proves that core infrastructure such as technology, finance, agricultural inputs, etc., are in place and growers have made use of them. Harmonious labour relationship, particularly in Karnataka, the largest coffee producing state. Widely dispersedownership of coffee farms which reduces the risk of industry crippling strikes. Over 98% of the farms are of an area of 10 acres or less. Coffee is not a perishable commodity. Thus, the risk of crop wastage is non-existent. Coffee crop is rotated with other crops, thus, supporting the grower during periods of low prices. Weakness

The price realisation of Indian coffee is low. This is because India, being a minor player in the global coffee market, is not in a position to influence prices. Domestic coffee consumption is very low, making coffee produced in the country highly dependent (more than two third of domestic coffee produced is exported). This puts a heavy risk on growers as their revenues are highly dependent on global prices. Historically, it has been proved that there are hardly any linkages between global and domestic coffee prices. Domestic prices have remained high despite a crash in global coffee prices. Myopic view of coffee exporters who rush to cancel export contracts atthe first sign of higher domestic prices. This results in a negative image of India as an unreliable supply point. Opportunities

India being a minor player in the global market has great potential to improve its marketshare through higher yields and improved quality. Also, domestic consumption being very small, there lies a huge opportunity to expand the market with the help of intensive coffee promotion. After the introduction of free sale quota (FSQ), there is adequate capital formation. This improves the prospects of growth in productivity as growers can reinvest proceeds in that direction. Although coffee consumption in the US is declining, it continues to rise in Asia. India, being strategically situated, can cash in on this opportunity and become a major supply point.The decision (if taken) to join the Association of coffee producing countries (ACPC) will help India in the long run. Presently, the export quotas dictated by ACPC is something that Indians are not agreeing. After all, much ofthe coffee from India is exported. Threats

Cheap labour is one of the most critical cost factors in coffee production. Substantial increase in labour cost can erode competitiveness of Indian coffee in the international markets. Coffee is one of the few agricultural crops in India which is subject to taxes. Hike in taxes can substantially reduce margins to growers and serve as major disincentive. Competition from tea, a cheaper and more popular beverage locally, can reduce its minuscule domestic consumption. Russia, the largest importer of coffee from India, is undergoing an economic crisis. As a result, it has suspended coffee imports. This threatens to severely dent our export volumes. India Develops a Taste for Coffee

Priyanka Bhardwaj

From scruffy roadside chai (tea) shops and government-run coffeehouses to swanky, air-conditioned, branded coffee bars and lounges, Indians, especially those...
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