A report published on the website Foodnavigator-asia.com foresees considerable growth in Chinese consumption of ready-to-drink (RTD) coffee. According to analysis from Euromonitor, instant coffee retail sales (a broader category than RTD coffee) in China amounted to over US$1 billion in 2012, despite an average per capita consumption of only two cups per day.
The report notes that China is already “the fourth-largest market for RTD coffee in terms of volume, and fifth in terms of value”. A distinct preference for “three-in-one mixes that include a mix of instant coffee, creamer and sweetener” is apparent in China, and accounts for “52% of instant coffee sales in 2012”. RTD coffee packaged in either cans or PET (plastic) bottles “provides convenience to Chinese consumers with busier and busier lifestyles”, particularly “students and young professionals who perceive it as more convenient than instant tea”.
A preference for flavoured RTD coffee is also emerging: “in 2012, flavoured RTD coffee products accounted for 52% of the total market, up from a 32% share of the market in 2007.”
The “dominant player in both instant and RTD markets” is Nestlé’s Nescafé, which has “50% of the entire RTD market and 74% of the instant market”, based on strong brand recognition. Nevertheless, the Euromonitor analysis still sees “potential for other RTD coffee manufacturers to increase their presence in the Chinese market”, noting that the second player in the Chinese coffee market has expanded its line to include “flavours that are designed to appeal to specific demographics” such as professionals and younger consumers. The report notes that “by 2017, the Chinese RTD coffee market is projected to increase by 129% in volume.”
In contrast to the size and growth trends in the instant and RTD coffee market components, fresh coffee sales totalled less than US$20 million in 2012. However, analysts at Euromonitor also noted that “as disposable incomes [continue] to increase, further success for RTD coffee may be threatened by consumers looking to trade up to specialist coffee shop purchases.” RTD coffee manufacturers are mindful of this development and hence are “introducing more premium products that use higher-quality beans and reduced-fat whiteners”.
The longer-term developments in China need to be seen against the background of the “dismal” price performance of arabica coffee in 2013 (down some 20%, according to reports published on Agrimoney.com) following “a strong crop in Brazil” and output recovery in Colombia. Falls in price were halted as blenders changed the mix with robusta beans in response to lower arabica prices.
Commerzbank, Macquarie, Rabobank and Société Générale all broadly agree that there will be further price declines in 2014, projecting a variable rate of price recovery. They anticipate that lower prices will reduce fertiliser and pesticide applications, which will then lead to falls in yields and production, while substitution for robusta beans in blends will continue.
Arabica coffee: Average price November 2013 and average price projections 2014 (US cents/lb)
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The Chinese market represents a major opportunity for market diversification across a range of agricultural commodities that are of export interest to ACP countries. However, the reality is that, for the vast majority of ACP exporters, the Chinese market is an unknown quantity. For individual ACP exporters, given the size of most ACP economies, finding one’s way around the Chinese market can be a difficult and disproportionately expensive task.
A key challenge is to identify market opportunities in China that offer a better return than existing markets and that open up scope for greater local value addition prior to export.
In the coffee sector, efforts by Jamaica to develop exports of its premium brand Blue Mountain coffee to China were bedevilled by problems, which led to the Jamaican Ministry of Agriculture abandoning its initial marketing arrangements in December 2012 (see Agritrade article ‘ Jamaica seeking new partners for coffee marketing in China’, 2 February 2013).
Given the overall size and complexity of the Chinese market and the relatively small size of individual ACP exporters’ associations there would appear to be scope for pan-ACP cooperation in establishing hard data about Chinese markets and consumers in sectors such as coffee. This could potentially focus on the establishment of a common fund to support:
- sector-specific market assessments;
- sector-specific exposure visits to develop business contacts;
- the compilation of best business practice guides to developing business partnerships in China.
Full exploitation of identified market opportunities would then need to devolve down to the enterprise level in individual ACP countries.