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India industry: Coffee, beer, wine and spirits more popular
(EIU Viewswire Via Thomson Dialog NewsEdge)COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
Tea dominates Indias productionand consumptionof beverages, but outputand drinkingof coffee, beer, wine and spirits is also on the rise
Indians are the worlds biggest drinkers of tea. In fact, India is the worlds largest producer of tea, and leads the global tea industrys research and development efforts. According to the World Food and Agriculture Organisation, India accounts for about 27% of world output, followed by China with 25%, Sri Lanka with 9.75% and Kenya with 9.4%. India is also the largest manufacturer and exporter of tea-processing equipment.
Stock exchange-listed companies account for about 40% of total tea production, but there is also a large number of small players. About 80% of farms are less than 8 ha in size and contribute only 10% of production. Indians actually drink comparatively little tea each year, with each person in 2003 consuming 0.7 kg, compared with 1.6 kg in Sri Lanka, 2.3 kg in the UK and 3 kg in Ireland.
Tea consumption has been stable, but production increased to 850,000 tonnes in fiscal 2003/04, a 1.5% increase on the previous year. Tea plantations in India are concentrated in the north-east (Upper Assam and West Bengal states) and the south (Kerala and Tamil Nadu states). The north-east accounts for 76% of total tea production. Yields are lower than in the rest of the country but of higher quality. The leading tea producer, with 20% of the market in 2002/03, is Hindustan Lever. Tata Tea is the next largest player, with an 11% share.
Coffee consumption is on the rise
Historically, coffee consumption in India has been low, and has been confined mostly to the southern states of Tamil Nadu, Karnataka and Andhra Pradesh. Rising incomes, the development of an urban-centred youth culture and the entrance of fashionable retail chains, such as Barista and Cafe Coffee Day, two local companies, have led to a rise in consumption. According to the India Coffee Board, domestic consumption, which was stagnating at 55,000 tonnes/year, is estimated to have risen to at least 70,000 tonnes in 2004. Most coffee, however, is exported.
Between 1990/91 and 2003/04 worldwide coffee production and exports grew at a compound annual rate of 1.8% and 1.5% respectively, compared with reported rates of 4.9% and 6.3% respectively for India. However, recent production had, until the current marketing year 2004/05 (October-September), been stagnant at around 270,000 tonnes. With the sharp increase in world prices in the last 12 monthsthe average world price for Arabica rose from 64.2 US cents/lb in 2003 to 80.3 US cents/lb in 2004production has again started to rise. In the current marketing year, total Indian coffee production is forecast by the US Department of Agriculture to reach 290,000 tonnes. Coffee exports in the previous market year are now estimated at 226,341 tonnes. Starbucks, a US coffee retailer, has reportedly entered into an agreement with Tata Coffee, a local company, to source coffee beans from India. This is the first time Starbucks has purchased coffee from India. According to the Centre for Monitoring the Indian Economy (CMIE), an independent research organisation, Nestl India and Hindustan Lever, the Indian subsidiaries of two multinational companies, are the largest coffee-sellers, with around 10% and 6% of the market respectively in 2003.
Young spur market for beer and spirits
Beer is not especially popular in India, but growth is expected to accelerate as the market opens up and an affluent, young, consumer-oriented middle class expands. There are 36 breweries in India, and domestic consumption was an estimated 600m litres in 2002/03. The industry exported 7m litres of beer in 2002/03, and imported 4.4m litres. United Breweries (UB) is Indias leading brewer, with around 33% of the market. Its leading brand is Kingfisher, which alone accounts for one-quarter of the market. In January 2005 Scottish & Newcastle of the UK agreed to pay Rs4.66bn (US$106.5m) for 37.5% of UB, which is controlled by an Indian tycoon, Vijay Mallya. Beer consumption in India was valued at Rs12.7bn (US$273.4m) in 2003 by CMIE.
The Indian wine and spirits industry is much largerIndia, for example, is the worlds biggest market for whisky in overall volume terms. McDowell, with 18% of the market, and Shaw Wallace Distilleries, with 11.2%, are the leading local players. In January 2005, UB emerged as the leading bidder for Shaw Wallace; if the acquisition goes through, the combined company will be the worlds second-largest spirits company. In general, consumption of all alcoholic beverages in India is minuscule compared with that in other emerging markets: a sales volume of around 1bn litres in 2002 was a small fraction of Chinas 21bn litres. Alcoholic beverages (including spirits) carry a high tax burden and are a major source of tax revenue for state governments.
Soft drinks: battle of the giants
The soft-drinks market has expanded rapidly following the entry in the late 1990s of the two major US soft-drinks bottling companies, Pepsi, which has around one-third of the market, and Coca-Cola, which has just under 20%. Consumption of soft drinks slowed from 17% in 2002 to around 12% in 2003, and is expected to average close to that level during the forecast period. Slower growth in consumption of carbonated beverages (owing to contamination scandalssee below) hurt the overall market. Non-cola, non-carbonated beverages are also popular in India, especially fruit juices and bottled water, which appeal to the health conscious and are seen as an alternative to the now-controversial colas. With total consumption per head at only around 3.5 litres/year, there is considerable potential for growth.
Coca-Colas fortunes in India have been volatile. The company, which performed poorly when it first re-entered the Indian market ten years ago, fared better in the early years of this decade, both by appealing to the fast-growing rural consumer-goods market and by tailoring its products more closely to Indian incomes. The company reduced both the size of bottles (to 200 ml) and the price (to Rs5, or around 10 US cents). This lead to an increase in the number of consumers from 160m to 300m, according to the companys figures. Coca-Cola has, however, had to reduce costs to achieve an acceptable return with this low-price, high-volume strategy. The last 18 months have, however, been a difficult time for Coca-Cola and Pepsi alike. Both companies came under attack in August 2003 from an Indian environmental organisation, the Centre for Science and Environment, which claimed that their beverages contained levels of pesticides and insecticides that were above the legal limit. Both companies have denied the accusations, and the government subsequently cleared the companies of any wrongdoing. But various lawsuits are ongoing, and an Indian Supreme Court ruling in December 2004 may lead to a requirement that the companies note on product labels that trace amounts of residues are present in their products. Coca-Cola has also been criticised for its water-use policies. In early 2005 the company was again the target of an India-wide protest over both alleged contamination of its soft drinks and its water-use.
Tobacco consumption fell
India is the third-largest producer of tobacco in the world, and tobacco accounted for 3.2% of the countrys agricultural exports in 2003/04. India produces around 9% of the worlds tobacco, and most types are grown. Tobacco production amounted to an estimated 665,000 tonnes in 2004; in the last two years tobacco production has averaged annual growth of around 1%. Only one-third of the countrys tobacco output is suitable for cigarette manufacturing.
Indians consume 0.7 kg of tobacco per head per year, compared with a world average of 1.85 kg. Total domestic consumption fell by 0.4% in 2004 to 486,000 tonnes, following two years of stagnation. Cigarette tobacco consumption in 2003 was estimated at 98,000 tonnes. Of the 250m tobacco consumers in India, less than 30% consume tobacco as cigarettes, which consist mostly of Flue Cured Virginia (FCV) and Burley varieties; more than 50% consume tobacco in bidi form (where the tobacco is wrapped in leaves) and the rest raw, often for chewing.
Bidis are popular because they are taxed at a lower rate than cigarettes, even though they pose a greater health threat. Bidis are made by small companies that employ a total of about 4.4m rural people, mostly women, and which therefore enjoy substantial political support. The cigarette industry employs about 550,000 people.
The Tobacco Board regulates cigarette-quality production of tobacco. Much of the tobacco output in India is of poor quality. About 750,000 growers and curers are engaged in tobacco production, and tobaccos easy availability has helped a cottage industry develop around the manufacture of chewing tobacco.
This is the second of a two-part article excerpted from the Economist Intelligence Units Food, Beverages and Tobacco Forecast released December 23rd 2005
Beer: sales trends (Rs m) 2000/012001/022002/03Market share (%) 2002/03 United Breweriesn/a2,7354,22432.63 Skol Breweriesn/an/a2,66020.54 Mohan Breweries & Distilleries9128279447.29 Mohan Meakin6747488346.45 Inertia Industries774626745.21 Note: fiscal years Source:: Centre for Monitoring Indian Economy, EIUs Food, Beverages and Tobacco Forecast, December 2005Cigarettes: sales trends (Rs m) 2000/012001/022002/03Market share (%) 2002/03 I T C76,76680,13687,56881.34 Godfrey Phillips India9,1958,94510,1619.44 V S T Industries7,1076,5006,3875.93 G T C Industries4,4523,5853,2823.05 R D B Industries145140990.09 Note: fiscal yearsSources: Centre for Monitoring Indian Economy; EIUs Food, Beverages and Tobacco Forecast, December 2005Wines, spirits & liquors: sales trends (Rs m) 2000/012001/022002/03Market share (%) 2002/03 Mcdowell & Co.7,7667,9048,65417.94 Shaw Wallace Distilleries1,5574,9815,41511.22 Mohan Breweries & Distilleries3,7914,0294,7019.74 Jagatjit Industries2,9293,0523,4117.07 Herbertsons1,9972,0762,4635.11 Note: fiscal yearsSource: Centre for Monitoring Indian Economy; EIUs Food, Beverages and Tobacco Forecast, December 2005SOURCE: Business India Intelligence
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