M018LON Managing International Trade: INaina Coffee Export Proposal

This report presents an export proposal for INaina Coffee Ltd, an Indian company specializing in instant agglomerated coffee, with the aim of entering the UK market. It begins by highlighting India's position as a major coffee producer and exporter, and the UK's growing coffee consumption trends, particularly for instant coffee. The report recommends that INaina Coffee Ltd capitalize on the UK's preference for instant coffee, deal with major brands like Costa Coffee, and comply with UK certification schemes and labeling requirements. It also advises flexibility due to potential changes in import regulations post-Brexit. The analysis incorporates David Ricardo’s comparative advantage theory, examining India's competitive position against other coffee-exporting nations. Furthermore, the report discusses the UK's economic and political stability, import requirements for coffee, taxation systems, and potential arguments against the recommendations, including political, economic, social, technological, legal, and environmental factors. The report emphasizes the need for INaina Coffee Ltd to maintain high quality and adapt to changing consumer preferences in the UK market.

M018LON MANAGING INTERNATIONAL TRADE: BOARD PAPER
Paper Reference:
Date of Paper: 5/04/2017
Title of Paper: Export proposal of Coffee for INaina Coffee Ltd.
For End of Module Assessment
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Brief Synopsis of the Issue (ES)
India is considered as the 6th largest coffee producer and 5th largest coffee
exporter in the world which makes it 3rd largest producer and exporter in
Asian areas. According to a report, India is considered to have 3.43% of total
production of coffee worldwide for the year 2016-17. The country has seen
an annual growth of 12.70% from past years in the exportation of coffee
which resulted in the 181,286 tons of coffee exportation over April 2017-
March 2018 (provisional) valuing about 455 million dollars. 70% of the total
coffee production in India is exported globally and about 30% of total
production is used locally (IBEF, 2017).
The United Kingdom stands at the rank 4 for in total global imports and is
known for major imports of machinery, fuels, foodstuff, etc. The average
total import for the country is approximately around $750 billion annually
(EXPORT GENIUS, 2018). UK’s coffee market is considered as a very different
market from rest of the European countries. People in the UK mostly prefer
tea, but coffee is also growing its importance in the UK. Instant coffee is
considered to be preferable by people in the UK which makes the increase in
demand for speciality coffees in the UK (CBI Ministry of Foreign Affairs,
2017).

Figure: Statistics showing consumers preferring more coffee than
tea in UK
[Source: https://www.statista.com/chart/10196/coffee-and-tea-
purchases-in-the-uk/]
‘INaina Coffee Ltd.” is a private company established in Andhra Pradesh
which exports Instant Agglomerated Coffee globally. The products of the
company are outstanding in taste and are highly praised for their exclusive
combination and flavour internationally. Clients can avail these products with
respect to their needs in different elemental sizes. The company packs its
product in a very hygienic way to retain its freshness. The minimum size of
order company exports is of 5000Kg with the brand IN-CPGA. The company
offers the coffee in different blends such as 100% pure and Coffee + Chicory

Blend. The production capacity of the company is 12 Mt/day and it takes
around 4 to 5 days for the company to deliver an order.
Figure: Instant Coffee

Recommendation(s)
 The UK is the only European country which favours instant coffee over
freshly ground coffee, so the coffee market of UK will be a safe market
for INaina Coffee Ltd.
 According to a research, the consumption of instant coffee in the
market of UK is expected to increase in near future, so it is
recommended to increase the exportation process of instant coffee
soon.
 British consumers are now preferring coffee more than tea and Costa
coffee is the main brand preferred by UK coffee lovers. It is
recommended to deal with COSTA brand.
 The British market is established with a certification scheme. This
makes the scheme will make the company deal with more legality.
 The company is recommended to be flexible with exportation legalities
as the UK is set to leave the European Union soon so it might be
possible that it changes its import regulations.
 It is recommended to the company to label the exported coffee with
country name, grade, net weight, product name, certification number,
manufacturer code and all this should be in the English language.
(CBI Ministry of Foreign Affairs, 2017)

Background
International trade allows countries to increase the quantity and quality of
products and services to be consumed by the people. It allows the countries
to make business deals and exchange the goods and services globally. It
makes consumer get the best quality products at the cheapest price as the
market become high with competition and it offers more competitive prices
to consumers (Feenstra, 2015). Trading globally allows the companies to
increase their wealth and it also allows wealthy companies to make use of
available resources effectively.
According to OEC, India is the 18th largest exporter in the world and along
with 130 other countries, it is also a member of World Trade Organization.
India exports about 1% of its total coffee to the UK.

Figure: Indian areas having coffee production
Figure: Ratio of goods exported by India globally
[Source: http://www.economicsdiscussion.net/essays/foreign-trade-
essays/essay-on-indias-foreign-trade/17958]
International Trade Theory: David Ricardo’s comparative advantage
theory
David Ricardo has designed a theory of international trade which is focused
on the concept of comparative advantage and specialization. The
comparative advantage theory is based on the concept of economic theory
that advantage an individual, companies, or countries on the basis of
technological as well as funding factors. Companies can have a comparative
advantage if they manufacture a good in a competitive environment at a
relatively low price (Ricardo, 2017). The author suggests that one must not
contrast the economic costs of manufacturing or even the costs of resources
of production such as labour. One must contrast the occasional costs of
manufacturing of goods across nations in its place. According to the author,

an individual or a company can produce more and consume less with the
help of this law or principle of comparative advantage (Ricardo, 2017).
Vietnam, Thailand and Indonesia are considered as the major opponents for
India in the exportation of coffee. The comparative advantage for the coffee
exportation in India is the RSCA’s positive calculated values for India for all
the years but according to a report, Vietnam and Indonesia have overcome
India. The comparative advantage for India is seen to be gradually
decreasing from the year 1991 that was 0.52 to the year 2004 that was 0.25
(Shinoj & Mathur, 2008).
Figure: Trends in RSCA estimates of coffee exports from India and
other Asian countries
[Source: https://ageconsearch.umn.edu/bitstream/47361/2/9-Shinoj-
P.pdf]
The host country
The UK is a well-built and stable country with respect to the economic as well
as political factors. It is considered to have a highly skilled workforce
globally. The country has suffered from the annual growth rate of GDP
because of the BREXIT memorandum.

Figure: Annual growth of GDP of UK
[Source: http://www.bdfgb.com/pulse.html]
The UK has witnessed an increment in population growth in recent years with
an average of 0.6 – 0.8% per year. The population of UK has increased from
2013 to 2014 by about 49000 people including the number of 26000 as net
migrants. This describes that real income per capita of the country is
increasing at a very low rate compared to the headline real GDP statistics
(Pettinger, 2017).

Figure: Real disposal income of the UK per head
[Source:
https://www.economicshelp.org/blog/14721/concepts/economic-
growth-per-capita/]
Requirements coffee should comply with to be allowed on the
market of UK
Requirements of coffee buyers can be distinguished as
I. Coffee exporters applying all the legal requirements
II. Functional requirements aimed at exporters

European legislation is focused on the safety of food and in case of coffee; it
more focused on the avoidance of defects. The UK is not growing more
importance for legality and certification schemes towards moral consumption
as to comply with functional requirements (Von Witzke & Noleppa, 2010).
High quality is also focused on the market of UK. Coming to the legal
requirements, the product should comply with the following:
(i) Safety of food with respect to traceability, cleanliness and
organization.
(ii) Neglecting the chances of the contamination of the products such
as Pesticides, Mycotoxin and Salmonella to make sure about the
safety of the food.
(iii) Extracting the solvents to decaffeinate the coffee.
(iv) Fulfilling the general requirements related to the packaging and
liability of the product.
(Von Witzke & Noleppa, 2010)
Along with these legal requirements, exporters should also fulfil additional
requirements of buyers in the UK such as classification of quality, specific
quality standards and management systems, corporate responsibility, having
a sustainable certification for the mainstream market. In respect to
functional markets, the exporters should fulfil the requirements such as
niche market certification.
Research on the Assessment Topic
INaina Coffee Ltd. Has the objective to offer high-quality instant coffee to the
purchasers with the focus on exporting the products globally that fulfil the
legal requirements, standards and expectations of the international market.
Coffea Arabica and Coffea Robusta are the biggest competitors for the
company as they provide high varieties of coffees to the UK at different
prices. The plantations of Coffee Arabica are usually located at altitudes on
top of 1,000 metres. This makes the brand as co-called highland coffee. The

UK based consumers of coffee are preferring the instant coffee with the
highly aspiring fragrance having a pleasant aroma and delicious taste. INaina
Coffee Ltd. Is offering best quality decaffeinated instant coffee with various
blends that can result for the company in the high ratio of customers to like
the coffee brand.
Figure: Increment in the export of coffee from India
[Source: https://www.thedollarbusiness.com/magazine/instant-
coffee---brewing-profits-instantly/25484]
Taxation system in the United Kingdom
UK government introduced the concept of value-added tax in the year 1973
and is considered as the third largest source of revenue for the country.
National insurance and income tax are the top two revenue sources for the
company (Treasury, 2011). The country has fixed the VAT on almost all the
goods and services supplied by registered companies in the UK and also on a
number of goods and services imported from outside the European Union.
Goods imported from outside the European Union in the UK are liable to zero
rates of the VAT. The importation of coffee from outside the European Union

is considered as the third country duty of 8.30 % if not liable to other
measures (Gov.UK, 2018).
Figure: Commodity information for the UK
[Source:
https://www.trade-tariff.service.gov.uk/trade-tariff/commodities/090
1120000#import]
Arguments against the Recommendation(s)
POLITICAL
The political factors of UK have a
very high effect on any company, but
the stable government of UK makes it
easy for companies to establish their
brand in the market. Trading ethically
will help the business with respect to
the economy, environment and social
factors. INaina Coffee Ltd. will be
ECONOMICAL
The country faces many
difficulties in the establishment
of trading for coffee but it is
considered as the foundation for
the country’s economy as 63% of
the total exports is accounting
for coffee. The economic
performance and growth of any