In today’s Finshots, we discuss whether India can step up and fill the gaps left by global coffee producers to become one of the leading coffee exporters.

But before we begin, if you love keeping up with the buzz in business and finance, make sure to subscribe and join the Finshots club, loved by over 5 lakh readers. Already a subscriber or reading this on the app? You’re all set. Go ahead and enjoy the story!

The Story

Indian coffee exports are brewing up a storm!

For context, in FY24, India exported a whopping $1.2 billion worth of coffee. That’s close to an impressive 10% growth over the previous year. And now, in just the first few months of FY25 until October, Indian coffee exports have already crossed the $1 billion mark.

Sounds promising, doesn’t it?

But what’s really behind this impressive surge, you ask?

Let’s take it from the top.

India produces two main coffee varieties ― Arabica and Robusta. Robusta accounts for the lion’s share, accounting for over 70% of India’s coffee production. Naturally, it’s also the star player in India’s export game. 

To add to this, Robusta beans are a favourite for instant coffee manufacturers worldwide, thanks to their strong flavour and affordability. Some premium brands even blend Robusta with Arabica to create their instant mixes. For instance, recently, the demand for instant coffee has soared in markets like Russia and Turkey. And since about a third of India’s coffee exports consist of instant coffee, this surge in demand has directly boosted our numbers. 

However, the steep rise in global coffee prices is the real game-changer. Robusta prices have touched multi-decade highs this year, climbing more than 60% in 2024 alone.

If you’re wondering why, it’s because of supply issues in major coffee-producing countries. Just look at Brazil, the world’s largest coffee producer. It has been dealing with erratic weather patterns — droughts and extreme heat, thanks to climate change.

Meanwhile, Vietnam, the second-largest supplier, is hedging against unpredictable climate risks by shifting some of its focus to growing Durian, a pungent fruit that’s seen a 400% surge in global demand. With profits like that, it’s hard to blame them for the switch.

So, with these giants struggling, Indian coffee has stepped in to fill the gap.

But the real question is, can we keep this upward streak going?

It turns out there is scope!

Look, Indian coffee has a uniqueness that sets it apart from its global competitors. It’s grown in natural forests using traditional methods. In fact, India is the only country where all coffee is grown under shade, hand-picked and sun-dried. Elsewhere, coffee farming often involves chopping off existing vegetation, but in India, the forest canopy stays nearly intact.

This eco-friendly approach aligns perfectly with the European Union’s Deforestation Regulation (EUDR), which bans coffee imports from regions deforested after 2020.

And let’s not forget, India’s sun-drying process is way greener than the mechanical dryers used in Europe that contribute to carbon emissions.

But it’s not all smooth sailing.

Now, even though Indian coffees are the most sustainably grown, the EUDR compliance burden on growers can be huge as it requires technological and financial resources. It demands precise proof that no deforestation is linked to the coffee beans entering the EU markets.

This simply means Indian growers will now need expensive tech upgrades like GPS mapping and digital traceability systems, which small farmers can barely afford. And when you throw in endless paperwork, audits, certifications and compliance, it quickly starts to look like a nightmare!

To tackle this, the Coffee Board is working on a platform to help Indian coffee producers comply with EUDR. But since it’ll take some time to roll out, our coffee exports to the EU might face some bumps in the road in the meantime.

Also, India is not the only country producing sustainable coffee. Ecuador, a South American nation, is far ahead of us in this respect. In July 2023, it exported its first container of sustainable coffee with deforestation-free certification to Italy. The coffee was certified through rigorous monitoring and enforcement using satellite imagery and third-party verification. 

So yeah, we really need to ramp up our efforts before other nations rally ahead of us!

Plus, India is not immune to the effects of climate change. Erratic rainfall patterns harm the yield and quality of coffee. And sudden or unseasonal rains complicate the drying process, as all our coffee is sun-dried.

Another big challenge for Indian coffee farmers is the rising cost of production. Over the years, their expenses have shot up, mainly because of rising labour costs. You see, almost the entire cultivation process here is manual. There’s no fancy machinery like in other coffee-growing countries. To put things in perspective, in Brazil, labour makes up just 25% of the total production cost, but in India, it’s a whopping 65%. That doesn’t leave much room for profits.

That’s also why many farmers are walking away from coffee cultivation altogether. They probably feel like it’s just not worth it with rising labour costs and shrinking profits.

And if that wasn’t enough, rising shipping costs are adding to the headache. The Red Sea, which offers the shortest and cheapest shipping route through the Suez Canal, has been disrupted by tensions in the region. When a rebel group based in Yemen called the Houthis started targeting commercial vessels, exporters had to take longer routes, which hit their profit margins hard.

So yeah, there are quite a few hurdles to tackle before India can truly become one of the top coffee-exporting nations.

But then, even with these challenges, there’s room for optimism. Right now, India’s global coffee export share is just around 4%. And one way to boost this is by increasing exports to China. Just think about it. China was once mainly a tea-drinking country, but now, instant coffee cafes are popping up everywhere as more people develop a taste for coffee. In fact, China’s coffee imports have nearly tripled over the last 10 years.

If we can expand our presence in markets like China, which is home to nearly 50,000 branded coffee outlets and growing fast, we could grab a bigger slice of the global coffee market pie.

And maybe that’s one way India could step into the shoes of the top coffee exporters.

Until then…

Don’t forget to share this story on WhatsApp, LinkedIn and X.

📢Finshots has a new WhatsApp Channel!

If you want the sharpest analysis of all financial news without the jargon, Finshots is the place to be! Click here to join.

Your ultimate Term Insurance checklist!

Secure the future of your family today!

Click here to book a FREE call with our IRDAI-certified advisors to understand the importance of Term Insurance.