Rise in Indian Coffee Exports in Response to EUDR

Rise in Indian Coffee Exports in Response to EUDR

Sub: IR

Sec: Grouping

Context:

Indian coffee exporters have experienced a surge in demand from European buyers. This trend is attributed to the upcoming European Union Deforestation Regulation (EUDR), which aims to minimize the importation of products linked to deforestation.

EUDR Overview

• Objective: To reduce deforestation by enforcing strict due diligence and traceability requirements for commodities like coffee.
• Implementation Deadline: Businesses must comply with the EUDR requirements by December 30, 2024.
• Products Covered: Includes cattle, cocoa, coffee, oil palm, rubber, soya, and wood.

Impact on Coffee Exports

• Increase in Demand: European buyers are building up their inventories ahead of the EUDR compliance deadline.
• Shift in Strategy: Traditionally, buyers followed a just-in-time strategy for procurement. Now, due to EUDR, they are shifting towards maintaining higher inventory levels.

Export Statistics

• Overall Growth: Coffee shipments from India increased by 16% to over 237,000 tonnes from January 1 to June 21 this year, compared to 204,000 tonnes in the same period last year.
• Re-exports Growth: Re-exports grew by 18.3% to 53,497 tonnes during this period, up from 45,213 tonnes last year.
• India-grown Coffee: Shipments of India-grown coffee increased by 15% to over 183,000 tonnes, compared to 159,000 tonnes a year ago.

Exporters’ Perspective

• Inventory Build-up: Exporters report that European customers are front-loading coffee orders and preferring to hold more inventory due to the EUDR regulations.
• Extended Peak Season: Normally peaking between February and May, the export season extended into June this year.
• Logistical Challenges: Exporters face logistical issues such as container shortages and increased freight rates due to disruptions in the Red Sea region.

Market Position

• Global Standing: India is the seventh-largest producer and the fifth-largest exporter of coffee, following Brazil, Vietnam, Colombia, and Indonesia.
• European Market: Over two-thirds of Indian coffee is exported, with about 60% destined for Europe. Italy, Germany, and Belgium are the major buyers.

Conclusion

The EUDR is driving a significant shift in the coffee export landscape, with European buyers moving away from just-in-time procurement to building larger inventories to ensure compliance with upcoming regulations. Indian coffee exporters are benefiting from this increased demand but continue to face logistical challenges.

European Union Deforestation Regulation (EUDR)

The EUDR aims to remove deforestation from the supply chains of everyday items in the EU. This regulation seeks to ensure that products imported into the EU do not contribute to deforestation, promoting sustainable land use and environmental protection.

Legislation

• Adoption: The legislation was adopted in Brussels in 2023.
• Target Year: The target year for full compliance is 2030.
• Focus Areas: Biofuels, palm oil, and deforestation are key areas under the Palm Oil Policy and Deforestation Legislation.

Key Requirements

• Deforestation-Free Products: Firms must ensure that products exported to the EU have been grown on land that has not been deforested after December 31, 2020.
• Due Diligence and Traceability: The regulation imposes strict due diligence and traceability requirements for commodities such as coffee, cocoa, soy, palm oil, rubber, wood, and cattle.
• Administrative Burdens: Palm oil exporters, in particular, face significant administrative burdens to meet the EUDR requirements.

Compatibility and Impact

• WTO Compatibility: The EUDR is not compatible with World Trade Organization (WTO) rules and is considered a non-tariff barrier.
• Impact on Exporters: Exporters, particularly from developing countries, face increased administrative and compliance costs to meet the stringent requirements of the EUDR.