Tata Coffee’s Managing Director Hameed Huq on India’s industry.

Story by Jane O’Connor India’s expanding coffee industry has, according to Tata Coffee’s Managing Director Hameed Huq, learned its key lessons from times of plenty. “In times of shortage, anything will sell.” But if you consolidate the quality of production, then the expansion can begin. Huq says that Tata Coffee has reached that stage, where it’s not using its production output as a sole measure for success, but strategically upscaling and diversifying its business. The forward push and business expansion will be towards the “mature” markets, further building on strong market share in the United States and parts of Asia, capturing more of the Russian and eastern European territory – and other target countries, including Australia – with the soluble, freeze dried output. The balancing act for Tata is to keep building its quality and then to maintain that standard while expanding yields and production. This involves a two-pronged approach. All of Tata’s Indian grown Arabica is shade grown on its southern plantations and to date more than 80 per cent of its income has been derived from export sales. This growing method has meant that yields are lower, but it produces a more succulent, high quality bean that is easier to process. The unblemished washed beans are the type of premium coffee that is not only most sought after, but also returns higher profit margins. Until recently, an insect pest has also played havoc with domestic organic production yields. But, Huq says, research has now come up with a solution and 40 year old trees are currently being replaced with intensive plantings of the new, hardier varieties. The space to watch will be Tata’s already well advanced plans to expand its growing operations in Central Africa through established plantations, with further potential future operations aimed at other countries such as Laos. “What we need is critical mass. The first focus will be on central Africa. We are scouting initially for 5,000 hectares. Between our own domestic consolidation and this project, we should be able to at least double turnover within four years.” Or, put another way, he says, the Tata business has been stabilised and now it is time to value-add. Central Africa also offers well-established coffee plantations with high quality Arabica. A nation such as Laos – “where land is available,” says Huq –  would require far more preliminary start-ups. Something for future consideration. Nor does the timing of such expansion hinge on what prices are doing globally. “We’ve been in the plantation business for 20 years. Where some operations may have been neglected by others, they are now trying to play catch up with high prices. It is production rises that will even out the prices. I doubt very much that India will expand coffee production because of current high prices,” Huq says. Understanding the focused business mindset requires an appreciation of what every Tata business carries in its corporate armoury – namely a long and strong history of patient and strategic planning and no compromise on the social responsibility front. Founded in 1831, the still family run behemoth was a business pioneer that gained little attention from the industrial superpowers until it began a serious program of global expansion from 1990. Its founder, Jamsetji Nusserwanji Tata was well tuned in to steel, energy, textiles and hospitality industries in the 1800s. He was also an extremely committed philanthropist. In 1904, the company’s leadership passed to Sir Dohan Tata who expanded his father’s legacy over the next 53 years. Not only did Tata Steel emerge, but so too did a major scientific institute to foster research, the introduction of an eight hour working day well before other countries, pioneering aviation and airline set ups, provident funds and previously unattainable educational opportunities for workers. A key ingredient in what Huq describes as looking to central Africa for a production solution involves an appreciation of the entire group’s already strong presence in and close relationships with African nations. As one of the earliest Asian countries to forge joint ventures – starting with Zambia in the mid-1970s – Tata took not only its motor vehicles to the developing continent, but also expanded into trucks (it acquired South Korea’s Daewoo heavy vehicle arm in 2005), hotels, mining, agriculture and telecommunications. Land was acquired for crops such as rapeseed to produce bio-fuel. Along with each project went Tata’s pioneering and long-term zealous commitment to implementing the developmental social policies, building schools and employing many locals, including in the management ranks, that is a corporate given in India. Such corporate social responsibility (CSR) has been written into Tata’s code of conduct since its earliest inception, rather than adopted as a contemporary concept. Tata has subsequently carried out major projects in Tanzania, Malawi, Namibia, Ghana, Mozambique and Uganda and headquartered all its African operations in South Africa in 1994. Currently, 65.8 per cent of the Tata Group is controlled by charitable trusts.  When the 1990s arrived and with it rapidly changing and revolutionary technology, Tata methodically set about rejuvenating its existing businesses. During this time and into the 2000s, it began new manufacturing operations, entered the telecommunications market, acquired Tetley Tea, bought out the Anglo-Dutch steelmaker, Corus, added Land Rover and Jaguar to the stable and bought Eight O’Clock Coffee to capture a slice of the American market. Its forward vision is to become a global corporation across all of its businesses.   Another major advantage Tata Coffee can now build on is its historic adoption of sustainable business models. “In any of the Tata businesses, you have to live the CSR. It is the underpinning foundation for a very large labour force and the communities that we need to look after,” Huq says. In translation, this means that Tata Coffee has had a triple certified and sustainable business model for the 20 plus years that it has been developing its plantations. That business model automatically takes into account the honourable treatment and development of its workers, the preservation of culture wherever they operate and Rainforest Alliance level of environmental sustainability. In recent innovations, Tata Coffee has dropped its water consumption for washed Arabica processing by 80 per cent and is currently working on lowering electricity consumption. It has also applied the United Nations Human Development Index to not only track its own domestic employees, but is now using it to benchmark the development and life expectancy improvements in its workers outside of India. “We believe that things such as welfare and social issues should always be measurable for a business,” Huq says. The bottom line is that Tata Coffee will not have to expend any energy coming into line with consumer expectations in regard to CSR issues, having largely, but quietly led the way. The man in the driver’s seat, Hameed Huq, came to the coffee industry seven years ago after a corporate life spent in tea production in India’s Assam, as well as in Sri Lanka. Coffee, he says, “is a far more exciting and romantic crop” and a great deal more “happens in the world of coffee.” What has also been a catalyst for the Indian coffee industry to move forward was the relaxing of government controls in the mid-1990s. Until then, all production was pooled and rigidly overseen, but there was little focus on quality. “Once it was decontrolled, we made giant strides in quality,” Huq says. It also became attractive for Tata to commit to significant long-term investment in the industry. This has built towards that crucial “consolidation” that Huq refers to often. Part of that has been to reach a point where it has taken its coffees into world competitions and to entrench a strong consciousness in regard to quality control. Tata Coffee’s strategy today takes account of two very distinct markets: the yet to explode domestic scene and expansion of its already established export markets. Domestically, Tata Coffee’s actions have gained international attention as it strikes a deal with Starbucks to supply and roast for their operations in India and potentially, in other parts of Asia. They have one, non-exclusive memorandum of understanding with the chain and at time of writing, Huq was expecting to have finalised more of the detail. However, the initial Starbucks deal has less to do with short-term volume and more to do with exposing the domestic Indian population to coffee and creating a coffee culture. “It brings coffee out of the closet, so to speak,” Huq says. In any business equation, capturing the rapidly growing Indian consumer and their increasing disposable income, offers enormous potential on the sheer weight of population numbers alone. Indians are tea drinkers and a cup of coffee is considerably more expensive than tea. “But, the Indian middle class is growing and there is huge coffee potential. India will become a net importer of coffee in coming years,” Huq says. Tata’s link with Starbucks puts it into a strong position on its own turf ahead of any import requirements. Ultimately, when a coffee culture emerges, Tata would aim to capture the quality market as well as supplying the soluble market. India’s coffee consumption has already doubled in the space of 10 years. Café Coffee Day is the largest coffee shop chain in India and Italy’s Lavazza has also opened numerous outlets under the name Barista Coffee Co. Australian-owned Gloria Jeans has also explored the market. They have around 1,200 outlets between them. Huq also sees the potential to supply and roast for Starbucks operations in other parts of Asia. Its push into China is evident. Is it beyond comprehension that an Indian origin blend may find its way onto Starbucks’ global offerings, thus further exposing consumers to it? Only time will tell. Tata Coffee has already set up one roasting plant at Kushalnagar and has plans to expand as the market requires. Starbucks has largely done its own roasting to date. Tata also has two plants producing spray dried and freeze dried instant coffee. Huq dismisses the issue of record high prices as any reason why the company would accelerate its expansion plans. On the contrary, he points to the practice of inter-cropping the Tata plantations employ. Beneath the coffee trees you will find a range of other crops – black pepper, cardamom, vanilla, quick growing timbers. Huq refers to the pepper as “black gold” given its profit margin of 100 per cent. “In any plantation we would have to have around four crops fail before anything was affected.” Another hedging mechanism is its ownership of vast tea plantations. Huq says that often, when tea prices are high coffee prices are low and vice versa. “What we aim for is to make the business completely sustainable.” Not even a number of staff bungalows left vacant after the 2000 coffee crisis, are wasted. At Coorg, about five hours journey out of Tata Coffee’s corporate home in Bangalore, these bungalows have been turned into sought after, on-plantation retreats for travellers seeking an eco-tourism experience. The local people make a living catering for the tourists and the buildings are preserved and profitable. The coffee world will be unwise not to keep an extremely close eye on what used to be the quiet achiever, but is now evolving into a bigger and louder global gun. Tata fact
The Tata group comprises over 90 operating companies in seven business sectors. It has operations in more than 80 countries, and combined the group reported a total revenue of $67.4 billion in 2009-2010. Crop fact
On Tata Coffee’s plantations they actively practice inter-cropping. Beneath their coffee trees you’ll find a range of other crops, including black pepper, cardamom, vanilla and quick growing timbers.