India’s instant coffee export is one of the few bright spots in the economic wreckage wrought by the pandemic, experiencing a huge jump so far in 2021. Instant coffee export vaulted by about 124% to 12,078 tonnes from January 1 to June 11 from a year ago, per the latest Coffee Board data. That makes it the star performer among the coffee exported from the country. India exports over 70% of its coffee production.
The Hyderabad-based company CCL Products (India) Ltd is the biggest instant coffee manufacturer and exporter from India. With two production units in Andhra Pradesh and one each in Vietnam and Switzerland, CCL Products accounts for over 50% of the instant coffee exported from the country. It has a total production capacity of 24,000 tonnes of spray-dried and 11,000 tonnes of freeze-dried coffee and currently exports to 90 countries.
With consolidated revenue at Rs 1246 crore and profit at Rs 182 crore in FY21 showing 9% growth over the previous year, the company is anticipating a growth of 10 to 15 % in both parameters in the current year.
In an interview with Moneycontrol, MD Challa Srishant spoke about the reasons for the increase in export, COVID-19 impact, consumption trends and rise in coffee prices. Edited excerpts:
Coffee Board figures show a sharp increase in instant coffee exports in 2021. Since you are the top exporter from the country, what has been your experience? Is it because people are consuming more coffee sitting at home after the spread of pandemic?
People who are used to drinking coffee every day don’t have the option of going out because of COVID-19. Drinking roasted and ground coffee at home is difficult and so the easier and faster solution is instant coffee.
Globally, instant coffee consumption saw a growth of 3.5 % last year compared to the normal annual growth of 2.5%. We have seen a jump in packed goods during the year and in first three months of 2021, there was a higher offtake of pending orders.
What has been the impact of COVID-19 on CCl Products’ performance?
Within India, the company could not operate to the optimum utilisation levels in view of lockdowns/imposition of containment zones for almost three months. Due to extended lockdowns in other countries like Russia, we were forced to accept dispatch postponements in FY 2020-21. However, thanks to Vietnam operations being normal, we were able to achieve a CCL Group consolidated growth of 10% in FY 2020-21. In most countries, coffee comes under the essential category and every one has special permission to keep the plant running.
A substantial part of our sales will go into the branded SKUs sold through various supermarkets and other supply chain system- hence are not affected by the reduction in institutional sales. Any reduction in institutional sales is compensated by the increase in retail products.
Was there an increased preference for speciality or niche products, especially those with herbs, after the spread of the pandemic?
We have been supplying functional coffees for several years - with Guarana, Ginseng, Turmeric, etc. The demand for these products has not really changed much. Not many people are willing to take the risk of introducing a new product during such a time.
There is however a higher demand for more speciality coffees and certified coffees – RFA, UTZ and Fairtrade. Starbucks started the movement for sustainable coffee by introducing QR code on the coffee cup which enables the consumer to identify the farm and farmer by scanning it.
As a result, a lot of people became aware of sustainable coffee. Certifications like Fairtrade enable 20% direct payment to the farmer which motivates them to grow more coffee. Hence such coffees come at a slight premium. They also follow protocols like child labour abolition in the farms.
How has been your operations in the domestic market last year? How did your premix coffee fare in the market?
The domestic market has seen a growth of more than 50% despite the pandemic with a sale of Rs 150 crore in FY21. The retail/brand sales have increased compensating for the reduction in the institutional segment.
The traction for premixes—which are a relatively new phenomenon—is quite good. It would have been a lot better in the normal circumstances if we were allowed to do sampling activities but last year since most of the hostels and hangouts were closed the product could not reach the targeted consumer group.
The coffee prices have increased in the last few months and are predicted to rise further with a low crop anticipated in Brazil and a revival in the economy which could push up demand. What will be the impact of the increased price on your margins?
Margins in absolute numbers will not get affected since we are a cost+ manufacturer. However, in the inflationary trend since the prices will be high, the percentages may vary depending on the range of price increase. However, as per our experience, it will get evened out normally over an annual period.
There seems to be a lot of fake news about production in Brazil, the largest coffee producer. According to our suppliers, the shortage in Brazil is likely to be 6 million bags instead of the projected 15 million bags. With the devaluation of the Brazilian currency Real, the farmers are getting good prices and are focusing on growing more coffee.
The only justification for the price increase is the long position taken by certain funds in speculative trading. A lot of other funds followed suit and the prices got artificially inflated.
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