Russia plans to significantly increase the volume of supplies of instant coffee to the global market this year, thanks to the rec undefined
overing domestic coffee production from the financial crisis and its consequences, according to recent statements of Alexander Tkachev, Russia’s Minister of Agriculture.
Prior to 2014, Russia exported just 10 per cent of the instant coffee it produced, with the remaining being consumed by the domestic market. However, the introduction of Western sanctions against Russia and a significant weakening of the local currency, the ruble, resulted in an increase in exports.
According to analysts of the Russian Ministry of Agriculture, this was mainly due to the fact that the supplies to the local market were no longer profitable for the majors operating in Russia.
Before 2014, the majority of coffee exports from Russia were sent to Ukraine. However, due to the ongoing tensions and the end of economic cooperation between the two countries, Ukraine is no longer a significant export market for Russian coffee.
Due to this, Russian coffee producers are paying particular attention to the European Union (EU) as a potential export market, as the demand for instant coffee there has been steadily growing since 2012 and has recently reached a 20-year high.
Currently, the Russian coffee industry meets about 80 per cent of domestic coffee consumption. At the same time, Russia continues to export its coffee to the former Soviet states (CIS) where it accounts for about 70 per cent of the local markets.
Still, according to government plans, the increase of exports to the EU market should become a priority for Russian coffee producers this year.
In April 2015, Russia joined the International Coffee Agreement 2007, which has also provided an impetus for the increase of exports to abroad.
The biggest hopes of Russian coffee exporters in Europe are related with Germany, which is the largest consumer of instant coffee in the European Union.
Currently the share of Russian suppliers in the German instant coffee market is estimated at 5 per cent, and it is planned that this share will grow by 10 to 15 per cent by the end of the current year.
Germany is in fact one of the world’s largest importers of instant coffee, with annual supplies of about 40,000 tonnes.
In addition to Germany’s status as of one of the world’s major consumers of instant coffee, the country ranks as one of its largest producers, with a growth in production in the range of 3 to 5 per cent per year.
According to analysts from the Russian Export Center (a public association that unites leading Russian exporters), in recent years global majors operating in the local market, in particular Nestlé and Mondelez, have expressed an interest in increasing coffee exports from Russia.
At the same time, particular hopes are related with the increase of exports to China, where the demand for coffee has significantly increased in recent years, as well as with Israel.
The growth of coffee exports will also continue in the CIS states as, according to Alexander Tkachev, the coffee market of these countries currently has the biggest potential for growth among the other world’s regions, mainly due to the ongoing Westernisation of local markets.
Tkachev has also added that for many years coffee consumption in Central Asian states and the countries of the Caucasian region was insignificant, compared to tea. However, that situation has changed in recent years, which has also been mainly due to the active expansion of Western coffee chains in these markets through the opening of their coffee houses.
Overall, according to plans of the Russian Ministry of Agriculture, Russia should become one of the largest suppliers of instant coffee to the global market during the next two to three years, overtaking the current leaders such as South Korea and Vietnam.
In the meantime, according to Ramaz Chanturia, head of the Russian Association of Tea and Coffee Producers (“Rascajkofe”), implementation of these plans is real, as in recent years the volume of instant coffee production in Russia has significantly increased compared to previous years.
That became mainly due to huge investments, which were made by the Russian government and private investors in the development of the Russian coffee processing industry and the increase of local coffee production for the last decade.
According to analysts from Rascajkofe, the influx of investments (including foreign) to the Russian coffee processing industry could be mainly explained by zeroing of tariffs on the imports of green coffee to the country, while maintaining the tariff for the imports of ready-made coffee at the level of 7.5 per cent for instant and 8 per cent for roasted and ground. This has made coffee production within the country more profitable for majors compared with importing it.
This has also allowed Russia to attract both domestic and foreign capital to the industry. According to data from the Russian Ministry of Agriculture, the overall volume of investments in the Russian coffee processing industry for the past several years has amounted to more than US$600 million and is continuing to grow.
The majority of these funds were invested in the building of super-modern and large-scale processing plants within the country by global majors.
In the case of the domestic market, the annual volume of instant coffee consumption in Russia is currently estimated at 135,000 tonnes.
In recent years, the rate of growth of coffee production in Russia was higher than its consumption rates. The latter trend is mainly explained by the financial crisis in the country, which resulted in the growth of consumption of strong drinks among the local population.
The decline of the domestic consumption and devaluation of the local currency have created conditions of the increase of exports to foreign markets.
Finally, the increase of exports will also be due to a decline in the demand for instant coffee in the Russian market, which has shifted in favour of roasted and ground coffee.
“If we talk about tastes, then instant coffee is not a drink for the poor, but rather it is about convenience,” Ramaz Chanturia says.
“The cost of some types of instant coffee is much higher than those of roasted.”
According to Chanturia, in recent years Russia has become a large industrial hub for coffee processing.
On average, about 70 per cent of coffee consumed in Russia is processed within the territory of the country.
Currently, the share of exports in the total structure of coffee produced in Russia varies in the range of 20 to 25 per cent, however, there is a possibility that these figures may significantly increase already in the coming years.
At the same time, the current recovery of the Russian economy from the financial crisis and its consequences may force exporters to revise their initial plans and to pay more attention to their development in the local market. GCR