The per capita consumption of coffee in India is just 55 grams every year and it’s declining. Compare this with the consumption rate of tea – 650 grams per year – and you will begin to understand the envy and frustration of the country’s coffee companies. Add crashing prices and the threat of cheap imports under the World Trade Organisation (WTO) regime and their cup of woe seems ready to overflow.

But M. H. Ashraff isn’t ready to sit back and sip away the bad times. The managing director of Tata Coffee Limited, in an effort to turn the tide in favour of coffee, is helping focus the company’s attention on building brands and adopting scientific methods and techniques to increase yield and productivity. He should know how, considering that he spent over 20 years in the tea industry (at Tata Tea Limited) before moving to Tata Coffee in September 2000.

Besides being the largest grower of coffee in India, Tata Coffee is the country’s biggest producer of pepper (1,000 tonnes annually) and it also markets the Conswood brand of plywood. Speaking here to Christabelle Noronha, Mr Ashraff voices his concerns and explains his plans to turn Tata Coffee from a mere commodities company to a FMCG powerhouse.

tata.com:What initiatives are Tata Coffee and the Indian Coffee Board taking to counter the impact of cheap imports under the WTO rules?
M. H. Ashraff: As far as the WTO impact is concerned, we took up the issue of free imports with the government and, consequently, the duty on the import of coffee was increased to 70 per cent. This move is protecting the Indian coffee industry to a small extent, but these are temporary measures. As long-term strategy the only solution is to become a low-cost producer of coffee and to make the best quality in order to be competitive.

At Tata Coffee we have taken several initiatives to reduce the cost of production. We are concentrating on increasing the productivity of our workers. The company is also focusing on producing speciality coffee. For this we are building a database to distinguish coffee by origin, cultivation practices, pre- and post-harvest techniques, branding and other aspects. These specifications will ultimately decide the colour, taste and flavour of the coffee. We are trying to give separate identities to our coffee from south Coorg, north Coorg and Chikmagalur. The government has also sanctioned Rs 30 crore to promote coffee through the Coffee Board.

tata.com: Coffee drinking is still largely confined to south India. How do you propose to increase coffee consumption across the country?
MHA: A new phenomenon that is catching on is the emergence of

coffee pubs. The image of coffee as a drink for the old and serious-minded, of it being a staid and south India-centric beverage is changing. The culture of these pubs is creating an image of coffee being a lifestyle drink. Vibrant youngsters dominate these pubs that have sprung up in the south; the trend will catch on in the rest of the country. Most of our brands are concentrated in the south but we have plans of launching ‘national’ brands over the next couple of years.

tata.com: Recently, the international coffee board suggested that coffee growers in developing countries should destroy their produce of low-end coffee seeds to bolster coffee prices. What is Tata Coffee’s view on this?
MHA: I think it’s a good idea that low-standard coffee be destroyed. First of all, it will reduce overproduction and, more importantly, it isn’t good to market sub-standard products.

tata.com: There are no significant brands in Tata Coffee’s portfolio. Why has this happened and what are your plans to introduce brand-based coffee products?
MHA: There are several reasons. When we started out in 1993 our brands did very well initially. However, because Nestle was such a major player, we could not sustain our brands. We realised that it was not possible to compete nationally, so we decided to concentrate on the south, where we are doing well. We have four brands there and we have no plans to introduce any more just yet. But we have got into the rapidly-expanding coffee-vending business in a big way. This year we recorded 400 per cent growth in this segment. Our plan is to have a vending machine in every city.

tata.com: You have said that Tata Coffee lays emphasis on R&D. Can you expand on this?
MHA: Tata Coffee is probably the only coffee company in the world to have its own R&D division. Our thrust is to develop new

planting material which will deliver high-quality produce and high-end yield. More recently, we have also gone in for organic farming at our Devaracadoo estate, where coffee is being grown without the use of fertilisers or chemicals. We have been able to achieve good yields because of better agricultural practices. We monitor soil quality and the balance of nutrients carefully. Our research deals mainly with how coffee cultivation can be made sustainable and environment-friendly.

Our R&D team focuses extensively on crop nutrition, soil testing and analysis. It recommends levels of fertilisation and irrigation, bio-control, coffee breeding and tissue culture. Our R&D focus is on customers, quality, cost and on being eco-friendly.

tata.com: Any plans of forming a farmers’ cooperative?
MHA: As part of the Tata philosophy of welfare, we have adopted several small farms. We visit these farms regularly and our R&D department frequently holds seminars where farmers are updated on the best farming and harvesting practices. We
also educate smaller planters on better planting techniques, irrigation and supply of seedlings. Most planters do not find it viable to have a nursery of their own, so we give them saplings. Similarly, we have also assisted planters through irrigation schemes by providing timely ‘blossom irrigation’ to enhance productivity.

At one point we seriously considered setting up a farmers’ cooperative based on the Amul model, where we could purchase the product from the farmers and market it. But the farmers were not interested in this kind of an arrangement then because there was a boom in the price of coffee at that point. Also, the growth of our brands then did not warrant a cooperative where we would purchase coffee from the farmer, add value to it, market it and pass on the benefits to the farmer. So, the idea hasn't taken off so far but we have not given up on the possibility.

tata.com: What are your export plans? Other than Mysore Gold, are there any other brands that you export?
MHA: We are the second largest coffee exporter from India after Nestle. About 95 per cent of our exports are to Russia, where we are selling several brands. And Mysore Gold is doing very well.

tata.com: Any plans to buy plantations abroad?
MHA: We have plans to expand our agricultural base by purchasing plantations in India and abroad, but that is not our priority. Our number one priority over the next four to five years is to become a FMCG company and not remain merely a plantation company. For the moment, though, we are looking at acquiring plantations within the country.

tata.com: What about the instant coffee market?
MHA: We are very small players in the instant coffee market in India but we are the second largest in Russia. We are in the process of negotiating with a Russian company to put up a joint venture instant coffee plant in that country. We will export our coffee beans to this plant from here.

tata.com: What about entry into other global markets such as the United States and Europe?
MHA: We have made a dent in the US market, where we have sold our coffee to Illy Café.

tata.com: In a commodity market where price fluctuations are so rapid, what future do you see for a company like Tata Coffee?
MHA: That’s why our long-term strategy is to go beyond being a commodity player. We want to be more into brands, we want to be a fully-integrated coffee player that grows and brands its own coffee. If we were just a commodity company we would have been wiped out by now, because prices are at a 30-year low. But we are not just a commodity company: we are the second largest in instant coffee in Russia, we have our own brands in India and our balance coffee is being sold. We are a very profitable company.

tata.com: What kind of revenues come in from exports?
MHA: In instant coffee we recorded a net revenue of Rs 24 crore in 2000-01. The export-domestic ratio of revenues is 65:35. Our long-term strategy is to become a FMCG company that is driven by brands.

tata.com: To what would you attribute your failure in certain niche markets? For instance, your coffee bags and instant coffee did not take off.
MHA: Coffee bags were a niche category which did not exist in India. We tried to create this market and for this you need a lot of patience. It took the tea-bags segment 23 years to break even in India. We test marketed our coffee bags in two cities and realised there were no volumes, so we pulled out.

Tata Café was a different experience. There was only one competitor there and that competitor had very deep pockets. It was a question of matching deep pockets with equally deep pockets. That’s where the difference lies. But Tata Café is not buried yet; we may still have plans for it. The brand is there and we may revive it. Instant coffee is certainly not a sunrise market. Volumes continue to be low – 6,720 tonnes for the last 18 years continuously. It hasn't fallen, but it hasn't increased either.

tata.com: Finally, does Tata Coffee grow any other agricultural produce at its estates?
MHA: Yes. We are the single largest producer of pepper in the country. We produce around 1,000 tonnes per annum, which is about 1.5 per cent of India's total pepper production. A large amount of black pepper is exported and we are also the largest exporter of white pepper. Additionally, we produce around 10 tonnes of cardamom annually. The timber from our plantations is converted into plywood and sold under the Conswood brand name.

Company matters In 1892, two companies -- Coorg Coffee Company Limited, London, and Pollibetta Coffee Estates Company Limited, London, both managed by Matheson & Co -- were amalgamated to form Consolidated Coffee Estates Limited, Edinburgh. In 1943, the Edinburgh enterprise formed an Indian company called Consolidated Coffee Estates Limited with its head office at Pollibetta, Karnataka. In June 1967, the name of the company was changed to Consolidated Coffee Limited (CCL). In 1990-91, Tata Tea acquired a controlling interest in CCL through an open offer to CCL’s resident shareholders. In September 1999, Asian Coffee Limited, Coffee Lands Limited, Veerarajendra Estates Limited and Charagni Limited were merged with CCL, making it the largest integrated coffee company in Asia. In August 2000, its name was changed to Tata Coffee Limited. Today the company controls 25 estates in Coorg, Hassan and Chikmagalur in Karnataka.