Coffee production and consumption are polarized. This is evident from the fact that producing countries consume hardly about 27% of production while the rest is consumed by the developed consuming countries. Coffee is predominantly an export-oriented commodity for majority of the coffee producing countries. As such domestic consumption in producing countries has always taken a back seat. The all time low green coffee prices in the past few years due to huge annual surpluses did not translate into lower retail prices nor much of promotional efforts to increase the consumption of coffee worldwide. This could be gauged from almost stagnant annual consumption growth of just about 2% in the last one decade.

This paper briefly outlines the status of world coffee consumption and trend in coffee consumption in India and broader focus areas for further growth in consumption. A note on the data and analytical techniques used is given in

Global coffee demand

Global coffee consumption in 2003 is estimated to reach 111.7 mln bags, up from 109.3 mln bags in 2002. The consumption in coffee importing countries is estimated at 84.2 million bags in the calendar year 2003. A major proportion is consumed in E.U (44%), U.S.A (25%) and Japan (9%). The average per capita consumption in importing countries was 4.33 kg in 2002. Consumption growth in importing countries in recent years has also been disappointingly slow-considerably slower than might have been expected, given the collapse of world prices. Among the producing countries, only in Brazil and Ethiopia domestic consumption accounts for a significant share of their total production. Brazil is not only the world's largest producer but it is also the world's second largest consumer after the US. It currently consumes around 13 mln bags a year (with a per capita consumption of 4.9 kg a year) Indonesia, Mexico, Colombia and India are the other producing countries which shows a consumption level of over lmillion bags (Table 1).

Table 1 : Consumption in leading producing countries (1000 bags)

However per capita consumption is not very much encouraging in these countries. Plans in other leading producing countries are not so well formulated but efforts are beginning to be made, as stocks remain very high and prices are low.

Indonesia	1667	27.55
Ethiopia	1833	56.40
Mexico	1500	32.97
Colombia	1400	11.91
India	1172	25.57
Vietnam	500	4.44
Grand Total-all producers	27658	27.11

Source: ICO
Table 1

Consumption trend in India

Coffee consumption has shown an annual average growth of 2.14% between 1951-2003. In absolute terms the off take in domestic market has grown from about 18,400 tonnes to about 70,000 tonnes during 2003. For various reasons the decade between 1991-2000 did not show any noticeable growth in consumption. This period coincided with a surge in domestic retail prices in India. Table 2 shows the domestic consumption of coffee as well as per capita consumption for selected points in time. Most of the earlier growth has come from robustas than arabicas. This is expected in view of higher growth in production of robusta and its substantial lower prices. Though, during the pool marketing, the period between 1981-90 saw higher volume of consumption (well above 50,000 MT and peaked about 63,300 MT) highest growth rates were achieved only during the period 195160 and 1971-80 at a CGR of 7.23% and 3.28% respectively. The rates of increase in consumption were also higher at 1596 MT p.a and 1375 MT p.a respectively

Coffee Consumption by type and per capita consumption (All India)
Year	Coffee Consumption(MT)			Per Capita Consumption(Kg)
	Arabica	Robusta	Total
1951	14857	3526	18383	0.051
1961	17293	16580	33873	0.077
1971	20387	17517	37904	0.069
1981	28586	22210	50796	0.074
1991	37500	17500	55000	0.065
2001*	34000	30000	64000	0.062
2002*	34000	34000	68000	0.066
2003*	33800	36500	70300	0.068

Source: Coffee Statistics.
* Estimated volume

Growth rate and trend in consumption by decades - All India
	Mean (MT)	GR(%)	Trend Equation
			Base (a)	Rol (b)
1951-60	23188	7.23	14408	1596
1961-70	35462	0.69	34075	252
1971-80	41433	3.28	33866	1375
1981-90	55538	1.16	51945	653
1991-00	52500	0.48	51000	272
1951-2003	43085	2.14	21512	788

Consumption - Volume and growth rate by states
	Period	T.N.	Karnataka	Kerala	AP	South India	Non-South	All India
Mean (MT)	1974-80	19344	13614	3106	3458	39522	3277	42799
	1981-90	26308	14982	5470	5630	52389	3145	55534
	1991-00	24753	15282	3415	4670	48119	3527	51646
	1974-03	24040	15025	4602	5283	48951	3506	52456
Growth Rate (%)	1974-80	3.40	8.84	27.41	0.14	6.41	-3.17	5.54
	1981-90	-0.25	1.41	1.58	9.24	1.37	-1.94	1.16
	1991-00	1.18	0	5.83	1.74	1.11	4.28	1.30
	1974-03	0.88	0.90	2.73	2.40	1.25	1.25	1.25

(Table 3). In the post-pool marketing period, only recent few years showed some encouraging signs of growth in consumption. During 1991-00, the rate of increase had substantially slowed down to 272 MT p.a. Per capita consumption did not show any appreciable growth due to increase in all India population though coffee consumption is concentrated only in South India. The per capita consumption during 2003 is estimated at 68 grams.

Table 4 shows statewise consumption and growth rates. Between 1981 and 2000, the rate of growth in the prime consuming states of Tamil Nadu and Karnataka was almost stagnant while AP showed encouraging growth but on a smaller base. Between 1981 and 2001 the per capita consumption showed a declining tendency in almost all the states (Table 5).

Table. 5 Statewise Per capita Consumption of Coffee in India
	1981	1991	2001
Tamil Nadu	0.633	0.425	0.493
Karnataka	0.498	0.370	0.350
Kerala	0.179	0.070	0.143
AP	0.109	0.062	0.077
Total South	0.362	0.237	0.267
Total for Non-South	0.009	0.004	0.005
Total for all States	0.094	0.076	0.062

Recent market research studies affirmed that coffee consumption in India, by and large is an urban phenomenon with an urban and rural divide of 71% and 29% respectively (Chart 2). Among the type of coffee consumed it was almost equally divided between instant (soluble) and filter (Roast and ground) coffees though the proportion of instant coffee is very high in non-south (Chart 3).



Results of Consumption and Attitude of Indian Coffee Consumers

The Board has commissioned market research studies in 2001 and 2003 to understand: the habits and practices with respect to coffee consumption; coffee consumption by location and form; share of Coffee in the daily basket of beverages consumed etc. The attitudes towards coffee and drivers and barriers to coffee consumption were studied in 2001. The salient results of these studies are as follows:
• In home volumes account for nearly 90% of total yesterday's volumes, across all beverages. Coffee consumption dips from 11% at home to 6% outside.
• Penetration (Beverage consumed in the past 12 months) of coffee at 59% is low compared to that of tea.
• Penetration of filter coffee is highest in South India. Penetration level was found to decrease from higher socio economic class (SEC) to the lower socio economic class.
• In the Rural areas (South India) instant coffee has a higher level of penetration than filter coffee.
• Yesterday consumption of coffee is relatively lower with 19% consuming it yesterday (when compared to 85% for tea). Yesterday's consumption was the highest in the South at 31 % while it ranges between just 35% in the weak coffee zones of North, East and South.
• Yesterday's consumption is the highest among the 1524 and 35-44 age group.
• When compared to consumption of other beverages yesterday, coffee comes in third, after tea and plain milk. Among other beverages, buttermilk, natural beverages and Carbonated Soft Drink are more popular with more than 10% of respondents consuming these beverages yesterday.
• Coffee is consumed as a first cup only by 23% of coffee drinkers even in the traditional market of the South.
• Coffee has a 10% share of throat at the national level, with negligible shares in the north, east and west zones, (1% or less). However, coffee performs well in the south, recording a share of 18%, the highest after tea at 45%.

• Per capita consumption of coffee (among all respondents - both drinkers and non drinkers) is 0.33 cups against 1.77 cups for tea. However, coffee consumption among drinkers at 1.76 cups compares favorably with that of tea at 2.1 cups. This would point to the fact that coffee is consumed as much as tea (among drinkers). If coffee volumes have to compare favourably with that of tea, the base of coffee consumers needs to be increased.
• About 41% of the respondents are non-drinkers of coffee. The potential for growth lies with occasional drinkers who constitute 40% of the population. The potential is more in the north and the east zones. The proportion of non-drinkers of coffee increases from Socio Economic Class (SEC) A to C, while that of occasional and light drinkers decreases. Coffee thus seems to be more a beverage of the upper SECs.
• The proportion of non-drinkers is the highest in the oldest age group of 55+ years. Amongst coffee consumers in the rural areas, a majority (43% of all adults) is light drinkers, consuming 1-2 cups everyday. About a fifth of rural consumers consume coffee occasionally.
• The average number of cups of coffee consumed increases marginally from summer to winter.
• Visiting cafes is not a frequent habit. Of all respondents surveyed, about 12% visit cafes and there is a greater tendency among the upper SECs to visit cafes. Of all the respondents, about 10 % have ever visited cafes, this proportion is higher among men and the younger age groups (15-34 years).
• Around 65 % of households buy instant coffee and only 18% buy filter coffee
• Among filter coffee drinking households, 49% are branded coffee drinkers and 51 % are unbranded coffee drinkers. In the South, filter coffee is bought mostly from R&G outlets.
• A majority of the rural households (71 %) buy packaged and branded coffee powder Of those buying branded/ packaged coffee powder, 47% buy instant coffee and 53%, filter coffee.

Attitudes to coffee

• Coffee at home is significantly different to coffee outside.
• It is interesting to observe that rating for Coffee outside home is better than Tea outside home, specifically in the North and the east.
• Restaurant Coffee rated better on quality in the West and South, particularly when compared with the East.
• Coffee from vending machines rated significantly more satisfactory in the North as compared to the East or the West.
• In the weak Coffee markets defined as the markets in the North, East and West- the key barriers to Coffee appear to be its bitter taste (East), its inconsistent taste outside.
• High price of coffee is also felt as a barrier in the South and the North. *Attitude towards coffee available outside of home is least favourable in the East
• The knowledge levels on Coffee appear to be relatively weak in the North and East where consumers
  - Do not know how to make filter coffee
  - Do not know what chicory is
  - Would make filter coffee if they knew how to make it well (East)
  
• Consumer in the North also believe that making filter coffee is time-consuming
• While consumers in the North believe that Instant coffee is convenient and tastes good the seasoned coffee consumer in the South believes that all Instant coffee contains chicory and that filter coffee is the gold standard in coffee.
• Respondents in the North, followed by East, appear to be most positively inclined to consume more coffee at home if - The price was less.
  - They were reassured on health.
  - They could try new/ different recipes.
  
• Respondents in the North, followed by West, and East appear to be most positively inclined to consume more Coffee Outside if
  - The price was less.
  - Consistently good coffee was more easily available outside.
  They were reassured on health
  
• In the coffee strong markets- comprising the four southern states consumers believe that they would consume more coffee at home if their family & friends consumed coffee. In the East, there appears to be a certain level of eagerness to learn about m making `just right' coffee and, as seen earlier, they would make filter coffee if they knew how to make it well.

Potential Opportunities for Growth: Market research studies point the following areas have potential for growth.

Filter Coffee in the North: When we compare the large towns, the North & West zones show a clear increase in penetration of Filter Coffee. This increase in consumption of the beverage in a non-traditional coffee region such as North can be partly attributed to the growing cafe culture. This is a good trend, as coffee marketers can look at extending their brands beyond cafes in the low penetration zones and increase the base of coffee consumers.

Cold Coffee in North: The North has an increased consumption of cold coffee in summer, showing 60% consuming cold coffee at least once a week in summer.

Occasional Consumers: There is more potential in the north and south, where the occasional consumers are high in number (28% and 40% respectively). There is also a potential to increase the number of cups consumed by light drinkers, who account for 15% of the population.

Rural Areas in South: The rural areas in the South show a good potential for coffee consumption. Currently coffee penetration is at 70% and yesterday consumption at 51 in rural South India - this can be improved to match the penetration of tea, at 87% and yesterday consumption at 75%. Marketers can consider increasing the consumption of instant coffee in the states in rural south. In the rural south, states like Andhra Pradesh & Kerala that have a current low consumption of filter coffee can be targeted for increasing consumption.

Conclusion and Outlook

Coffee habits, practices, attitudes differ significantly across regions in India. Barring the recent few years, consumption is stagnating for the past many years now. In a global oversupply situation where Indian coffee policies are directed towards export at the expense of the potential domestic market, it is imperative that our policy towards a larger domestic base need to be given top priority. Based on the above analysis and market research, strategies should be formulated based on the following broader focus areas:

• Market: Development in non-traditional markets
• Consolidating traditional markets
• The Retail Space: outlets and distribution
• Product forms
• Consumer education
• Focus on the youth

At present coffee is consumed mostly in the South. It meets functional needs of the consumer rather than their emotional need. South Indian filter coffee is the most recognized coffee beverage. There are many first time coffee drinkers and lot of occasional toffee drinkers who should be turned into potential coffee consumers of future. The welcome signs are that the young India is discovering coffee while older people are rediscovering coffee and more and more players are expected, to come into the retail segment. The new Cafes will be the brand ambassadors of Indian Coffee.

With only south Indian population drinking coffee regularly, the scope for a substantial increase in consumption is enormous. However, if nothing is done to actively promote it, annual growth is likely to continue at the disappointingly slow rate of the past few years and in line with recent trends. Two important factors for coffee consumption - price and income growth - cannot be ignored. As far as price is concerned, competition from tea and cold drinks is an important consideration.

Appendix 1. A note on data and analytical techniques

The data required for this study were obtained from various issues of Coffee Statistics published from Coffee Board, unless and otherwise stated specifically. The consumption data obtained and relates to (1) period 1950 to 2003 for the major categories, arabica and Robusta Coffee. (2). Statewise consumption of coffee for South and Non-South for the period 1974 to 2003 Per capita consumption was derived by dividing the volume of coffee consumed in any given year by the population. The population data are those of published government sources. The analysis was carried out by using statistical techniques like trend, growth rate and coefficient of variation. To carryout these analysis, both category wise and statewise data were divided into decades, mainly to observe the decadal growth rate and trend in coffee consumption in India. The growth rate in this study represents the compound growth rate of the form: Yt = Abt

Where Yt = Consumption at `t'); t = Time variable in years, 1, 2, 3, ... n; A & b are Intercept and Regression Coefficients respectively. The above equation was log-transformed first on both sides and estimated following Ordinary Least Squares method. The beta coefficient (b) was then used to workout the percent growth rate, g as follows. g = (Antilog b - 1) 100

To obtain trends in consumption simple linear regressions of the form Yt = a + bt were used.

Where Yt = Consumption of coffee in MT at time t; t = Independent variable i.e. time variable in years 1, 2, 3, . . . n; a = Intercept ; b = Regression coefficient representing marginal productivity

Acknowledgement:

The author wishes to thank Shri. R. Raju, JRF, Economic Market Intelligence Unit of Coffee Board for his help in data compilation and analysis.