BBA programme

Semester– I

Group Assignment

Market Analysis Of Coffee In India

Submitted to

Dr. Hrudanand Misra

On

(05/11/24)

By: Krishna Rathod [24BBA133]

Coffee Market Analysis: A
Microeconomic Perspective

1. Introduction
Known as a global commodity, coffee is not only a preferred beverage but
also an important economic stimulant in both producing and consuming
countries. The coffee sector displays competitive features because it
usually has numerous sellers and buyers operating in near-perfect
competitive conditions. This report will analyze the Indian coffee market
macroeconomically, paying special attention to the supply-demand
dynamics, market structures, production trends, and revenue estimates. It
weaves in major economic concepts such as elasticity, demand, supply,
and market structure to understand the behavior of the coffee market.

2. Coffee Market Overview

Coffee is roasted seeds of the coffee fruit, mainly Arabica and Robusta.
International coffee trade occurs in two forms: ground coffee and beans,
with the latter sold pre-brewed in the French press or drip brewing. Bottled
or canned ready-to-drink coffees would fall into the nonalcoholic drinks
group and are not the subject of this study.
India is the sixth largest producing country in the world for coffee. Of the
total contribution of this magnitude, India contributes around 3% to the
world's coffee production. It grows mostly Arabica and Robusta beans.
About 75% of India's coffee is exported as unroasted coffee, thus ensuring
a ready supply for freshly roasted coffee imports, thereby preserving its
flavor and aroma profile.

3. Market Structure and Competition

The coffee market is perfect, especially the Indian market, in terms of
competitive nature. This is because it is embedded with characteristics as
described in microeconomics.
 3.1 Numerous buyers and sellers: The Indian coffee market is
characterized by myriad small-scale producers and heterogeneous
consumers, whether within the domestic sphere or at the
international level. This prevents any entity from gaining a
stranglehold over the market.
 3.2 Homogeneous products: Though the types include many
(Arabica and Robusta), the offerings of both categories are relatively
uniform.
 3.3 No barriers to entry or exit: The market allows new producers to
enter without significant restrictions, maintaining competitive
pricing and innovation in the industry.
This structure of the market ensures no single seller has power over the
market prices, and so the forces of demand and supply determine prices.

Fig:1
4. Demand for Coffee

Demand is defined as the amount of a product that consumers are both

prepared and capable of acquiring at various price points. The law of
demand states that all else being equal, an increase in the price of a good
results in a decrease in the quantity demanded. Nevertheless, in recent
years, the demand curve for coffee in India has experienced an outward
shift, signifying an increase in demand, influenced by several critical
factors:
4.1 Changing lifestyles: With increased urbanization, consumers are
changing their preferences, thus making a niche beverage like coffee turn
into a mass beverage. The consumer group most affected by this change
has been the younger generation. Today, social and workspaces are fast
turning into coffee shops and cafes, thus raising consumption.
4.2 Increase in Disposable Income: Indian consumers are now more
than happy to shell out extra money for premium coffee experiences
given the increase in income levels. Gourmet and specialty coffees have
increased with a rise in consumer demand for higher-quality products.
4.3 Westernization: Media, traveling, and MNCs have disseminated
strong sections of the urban population to Western cultural values thus
influencing the tastes of the consumers. The latter assumed a very highly
visible face in the coffee shop.
4.4 Health Consciousness: Coffee is gaining a healthy drink image
because of its antioxidant properties and potential cognitive ability
enhancement. This has led to an increase in consumption by health-
conscious consumers.
4.5 Café culture: Out of the proliferation of coffee shops has come not
only ease of coffee' consumption but also sociocultural change.
Nowadays, cafes are very important social places where people can hang
out, relax, work, or meet others. Thus, drinking coffee is incorporated into
urban life.

Fig:2
Table: 1 Demand Table

YEA DOMESTIC DEMAND (metric Price/metric

R tons) tons

201 100700 ₹175,000

4

201 107000 ₹185,000

5

201 114500 ₹205,000

6

201 123660 ₹225,000

7

201 136000 ₹245,000

8

201 150200 ₹275,000

9

202 168200 ₹295,000

0

202 189200 ₹325,000

 1

202 213000 ₹375,000

2

202 242820 ₹425,000

3

Fig:3 graph of demand

demand (metric tonnes)

242820
213000
189200
168200
150200
136000
114500123660
100700107000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

demand (metric tonnes)

5. Supply of Coffee
Availability, in economic terms, means the quantity of a product that is available
with producers for sale at various prices. The law of supply states that all other
things being equal the quantity supplied moves upwards as the price of the good
moves.
In India, the supply of coffee is highly influenced by global prices, agricultural
productivity, and climatic conditions. India's coffee production has shown a
steady upward trend, with domestic production rising from 320,000 metric tons
in 2014 to 662,440 metric tons in 2023. This increase can be attributed to:
•5.1 Technological Improvements in farming techniques and better crop
management practices.
•5.2 Favorable Weather Conditions in key coffee-growing states like Karnataka,
Kerala, and Tamil Nadu.
•5.3 Government Support: Different programs have been launched by
the government to enhance the farming of coffee, particularly for the smallholder
farmers.
Table:2 Supply Table
YEA DOMESTIC Price/metric
R PRODUCTION (metric tons
tons)

201 320000 ₹175,000

4

201 325,000 ₹185,000

5

201 316,000 ₹205,000

6

201 312,000 ₹225,000

7

201 320,000 ₹245,000

8

201 319,000 ₹275,000

9

202 334000 ₹295,000

0

202 342000 ₹325,000

1

202 444600 ₹375,000

2

202 662440 ₹425,000

3

Fig:4 Graph of Supply

 Supply (in metric tonnes)
662440

444600

342000
320000 325000 316000 312000 320000 319000 334000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Supply (in metric tonnes)

6. Exports and Statistics

For the 2023-24 crop year, with Arabica and Robusta combined production
is expected to be at a record high of 3.74 lakh tonnes in India. This is
6.25% higher than the last estimate of 3.52 lakh tonnes for the current
season... TWO VARIETIES The Coffee Board of India expects another
bumper yield in production for both varieties.
Output from Arabica is estimated to be 1.13 lakh tonnes, against 1 lakh
tonnes in the previous season of 2022-23
Robusta output is also projected to rise by 2.61 lakh tonnes from last
year’s level of 2,52,000 tonnes
6.1 Revenue & Growth in Coffee Market by 2024
6.1.a Revenue (At-home market): $93.46 billion
6.1.b Revenue (Out-of-home market): $ 367.80 bn
6.1.c Total Combined Sales: $461.20 Billion (2024)
6.1.d In the home market, it is estimated to expand at a 3.01% CAGR
(2024-2029).

Fig: 5 Coffee export trends Fig:6 Country-wise share of

exports
7. ELASTICITY
Elasticity helps to make a more detailed elaboration of supply and
demand.
It illustrates the extent to which consumers and producers adjust their
activity to market circumstances.
Price elasticity of demand is defined as the measurement of the degree of
responsiveness of quantity demanded of a product to a change in the
price of the product.
Price elasticity of demand is the ratio of the percentage change in
quantity demanded to the percentage change in price

Price elasticity of supply is the degree to which the quantity supplied of a

specific product varies to change in the price of that product.
Price elasticity of supply may be defined as the ratio of a change in supply
to the corresponding change in price.
Table:3 Price Elasticity

YEAR Price Elasticity of Price Elasticity of

Demand supply

2014- 0.5224 0.2182

2015

2015- 0.3984 0.3767

2016

2016- 0.4534 0.1586

2017

2017- 0.5287 0.1731

2018

2018- 0.4637 0.0410

2019

2019- 0.6183 0.3960

2020

2020- 0.5500 0.1966

2021

2021- 0.4550 0.6522

2022

2022- 0.5135 0.7626

2023

Fig:6 graph for Price elasticity

 Price Elasticity
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2014- 2015- 2016- 2017- 2018- 2019- 2020- 2021- 2022-
2015 2016 2017 2018 2019 2020 2021 2022 2023

PE of Demand PE of Supply

8. Inferences

8.1 In the last few years coffee consumption has grown sharply in India
primarily due to changes in attitude, urbanization, and involvement of
income. This made coffee(coffee) popular because of Western influence
and awareness of healthy products.
Reason: This demand has been driven mostly by increased outposts of
cafes and coffee shops, which act as a social place to work and unwind,
especially among the youthful population(coffee).
8.2 Competitive Market Structure: The market for Coffee is ideal for
perfect competition as there are numerous traders involved and none of
them dominates(coffee).
Reason: This is so because having many players with no big seller makes
the market even more competitive than is expected of the perfect
competition markets.
8.3 Increase in Coffee Production: According to the latest estimates,
Arabica and Robusta production in India looks to increase by 6.25 percent
during the 2023-24 crop years(coffee).
Reason: It is suggested that favorable climatic conditions and expansion
of the area under coffee production could be the reason for this.
8.4 Elasticity of Demand and Supply: Although the price elasticity of
demand varies from one period to the other, it is in most cases below one,
and therefore can be regarded as inelastic. In other words, their analysis
reveals that even with a price increase their quantity demanded truncated
only slightly(coffee).
Reason: Another way of categorizing the type of product that coffee falls
under is a basic or what we refer to as the non-health hazarded products
that consumers cannot do without or those products which consumers
take as normal intake hence they cannot be influenced by the price of this
product.

8.5 Export Growth: It stands in sixth position as an exporter of coffee in

the world, coffee export has a seasonal character and is high between
March and June. The export has increased by 18 percent for the financial
year ending in 2023 for coffee.
Reason: The availability of Indian coffee in the global market has recently
enhanced, because of superior demand from other countries and
reasonable prices offered by the producers in India.

8.6 Steady Growth in Demand: Beverage consumption of coffee has

continued to rise from 100,700 metric tons in 2014 to 242,820 in
2023(coffee).
Reason: Some of the reasons include: a change in eating habits,
an increase in people’s income, the impact of the café environment, and
improved awareness of the effects of coffee on health. It has also become
a social beverage, which is consumed more by urban people.
8.7 Increase in Coffee Prices with Demand: The cost of a coffee per metric
ton has increased from ₹ 175,000 to ₹ 425,000 for the period 2014 to
2023 respectively(coffee).
Reason: When the demand for the product/ service increases and the cost
of production decides to hike the cost of labor, transportation, etc., then
the price also rises. This is also true by the law of demand and supply,
high demand also leads to high prices in case of a supply threat.
8.8 Supply Growth with Price Increase: The availability of coffee has also
increased over the years mainly reflecting an availability of 320,000
metric tons in the year 2014 to 662,440 metric tons in 2023 (coffee).
Reason: Tendering to the law of supply the availability of higher prices of
coffee that producers have ever generous in production over the years.
Nowadays the coffee market has grown due to improvement in yields in
coffee farming and the incentives for producers as a result of high prices
of coffee.
8. 9 Price Elasticity of Demand (Inelastic Demand): It is understood by
comparing with the table above that the PED of coffee has stayed mostly
below 1 thus corroborating the impression of Inelastic demand. For
example, the coffee was 0.5224 in the academic year 2014-2015 and
0.5135 in the academic year 2022-2023.
Reason: Coffee is a product that has a low degree of price elasticity of
demand due to the poor sensitivity of customers regarding price changes.
To many people, coffee is a necessity it is even called a drug and as such
even if the prices are going up the quantity demanded is relatively small.
8.10 Price Elasticity of Supply (Increasing Responsiveness): The price
elasticity of supply has not been stable but firms have shown higher
responsiveness, especially in the recent past years. For instance,
the estimated own-price elasticity of supply increased from 0.2182 in
2014-2015 to 0.7626 in the period 2022-2023 of coffee.
Reason: This may indicate that suppliers are equally sensitive to price
changes in the current years probably as a result of enhanced production
technology, improved yield, and increased investment in coffee production
as prices appreciate. The increase in the same parameter in a more recent
period reveals a high degree of producers’ capacity to alter their output in
response to price changes.
8.11 Outward Shift in Demand Curve: Analyzing the years of experience
data one can also clearly see that both demand and prices have increased
constantly and prove that the demand curve is shifting outward.
Reason: This outward step implies more willingness to purchase even
relatively expensive coffee due to changes in lifestyles, the upward trend
in demand for gourmet coffee, and rising income levels in urban areas.
8.12 Diminishing Marginal Returns to Demand:
On the cost side, although the prices are continuously rising with time,
this change in the percentage of quantity demanded is gradually
declining. For instance, the quantity demanded increased from 2014/2019
by 49,500 metric tons while the increase was from 2019/2023 by 92,620
metric tons; although the price has gone up, there is slow growth(coffee).
Reason: This implies that though consumers are taking more coffee, it
may just be possible to reach a point where more and more domestic
consumers, especially in urban areas may feel it sufficient enough hence
future growth will probably be in proportion rather than in geometric
progression.

9. Bibliography
1. Coffee Board of India. (2023).Annual Report on Coffee Production and
Exports.
2. FAO. (2023). Coffee Market Analysis: Global Trends and Forecasts. FAO
Statistics Database.
3. Statista. (2024). Coffee Market Revenue Worldwide: 2024 Projections.
Statista Research Department.
4. For the context of our study, we have considered the following coffee
organization: International Coffee Organisation (ICO). Coffee Market
Report 2023.
5. WCR. (), 2023. Coffee industry overview at the global level.
6. Mordor Intelligence. (2023). According to the author of a research study
titled India Coffee Market Growth Trends and Forecasts 2023 2028 ans, the
coffee industry in India will shrink in the following years.
7. Research and Markets. (2024). Market Analysis of Indian Coffee Industry
and its forecast 2024-2029.
8. Mankiw, N. G.(2020). PP: Microeconomics (9th Edition). Cengage
Learning.
9. Indian Coffee Export 2023. Trends in Indian Coffee Export for the Year:
FY23. The MOF fully supports and backs the extremely active Ministry of
Commerce, Government of India.
10. Lavazza India. (2022). Coffee Demand and Consumption in India: A
Market Overview. Lavazza Coffee Reports.
11. India Stat. (2023). Industry Profile: Coffee Production Industry in India
& Coffee Aroma.
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15. Economic Times. (2023). India Coffee Exports: Trends and Projections.
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