Dubai Chamber of Commerce and Industry, in a study published today, has identified six important potential markets for UAE coffee traders to increase their re-exports.
Qatar, Kazakhstan, Greenland, Lithuania, Latvia and Austria saw growth in the value of coffee imported from the world between 2006 and 2011. According to the study, they were also markets where importers on average paid a more lucrative price for coffee compared to importers in other countries.
The study suggests that these markets have significant potential for UAE coffee traders because they are those where the annual value of imports is worth millions of dollars and they are located in Central and Northern Europe, which according to the International Coffee Organisation (ICO) have high per capita consumption of coffee.
The colder climates of these countries, coupled with the affluence of their populations is suggested as one reason why there is a high need to import coffee and also a willingness to pay relatively higher prices. Consumers in these markets may also want better quality brands of coffee and interested re-exporters of coffee from the UAE should conduct further market research in these target markets, to secure potentially lucrative re-export opportunities, the study proposes.
Targeting wealthy consumers with sales of differentiated coffee brands could also help UAE business increase their sales, while better prices could improve profit margins, the study suggests. Furthermore, selling coffee sourced from sustainable sources could also help increase sales, as customers become more socially responsible.
Vertical integration, by setting up outlets selling coffee and related products in countries with growing demand, could also help UAE businesses increase their share of these markets, the study proposes, adding that these measures could help the UAE become the hub for coffee trading for the emerging markets of the Middle East and North Africa region, South Asia and Africa.
However, the increased demand for coffee also causes some challenges. For example, as demand has continued to increase, the price of coffee has also generally increased from around the year 2002 to present. Rising international prices of coffee can be a challenge for businesses.
Furthermore, coffee prices can sometimes be volatile and can also experience falls. This happens from time-to-time and occurred recently. For example, according to the ICO, the average monthly price of Robusta coffee has fallen from about 121.98 US cents per pound in May 2011 to about 106.88 US cent per pound in May 2012.
While UAE business should do their own analysis, locking into low prices using long-term supply contracts at times when coffee prices register large falls can potentially be one way to mitigate the impact of a period of rising international coffee prices, the study suggests.
Because of the different kind of coffee types, there is also a need to maintain quality control to ensure the purchase of high quality coffee. Sourcing quality blends could also give UAE businesses an advantage as the quality of the blend impacts taste and therefore a customer’s willingness to pay.
Another challenge includes customer awareness both in domestic and foreign markets about the need to buy coffee from sources using sustainable farming practices. UAE businesses could turn this to their advantage by importing coffee from sustainable sources and thereby differentiating their products, the study suggests.
Coffee traders wanting to re-export to other markets in the MENA region have historically used the UAE as a re-export hub. The UAE has therefore emerged as an important re-exporter of coffee to markets that are geographically close. According to the UAE Ministry of Foreign Trade, the UAE has been one of the major five coffee re-exporting countries in the world during the period 2005 to 2008.
The UAE’s domestic coffee market is also witnessing growth. Table 1 (on next page) provides data on the number of companies engaged in different activities related to coffee processing and trading.
The study shows the growth of Dubai’s population and increase in income over the years have resulted in the growth of coffee shops, which have registered an increase every year from 2008 to the first half of 2012.
Dubai’s evolution as an important re-exporter of coffee has also resulted in a consistent year on year increase in the number of coffee trading companies.
Important sources of coffee imports for the UAE in 2011 included Brazil, Italy, Switzerland and Germany. According to the ICO the top three countries with the most exportable surplus in the world in crop years 2011/2012 included Brazil, Vietnam and Colombia. In the future these countries with large exportable surpluses could also be analysed for their potential to supply the UAE with quality coffee for domestic use and re-exports.