Online Tutoring on Australian Coffee Industry

EXECUTIVE SUMMARY

The report below is highlighting the opportunities and threats associated with importing coffee beans from Brazil to Australia. Brazil, being the highest producer of Arabica Coffee, Green Bean Coffee and Grounded Premium Coffee, was identified as the perfect country through which high quality coffee beans could be imported. The host country was chosen out to be Australia because of coffee and tea boom in its coffee industry. The porter five forces and PEST analysis were used to scrutinize internal and external environment of the Australian Coffee Industry and Brazilian Coffee Industry. The report highlighted the method of entry that could be used to enter the Coffee Industry in Australia to be through Joint Venture. It will help to transfer risk associated with business failure and risk of corruption. It also indicated the political, economic, socio-cultural and technological factors in Australian Coffee Industry. The Australian coffee market was found out to be highly competitive driven by high threat of substitutions and low suppliers bargaining power. Due to low product differentiation, the buying power of buyers was highlighted as high. These factors indicate the high risk associated with entering a highly competitive market through Greenfield and acquisitions. So the sole purpose of the report was to indicate the mode of entry into Australian Coffee Industry as a joint venture. It was recommended to involve into product differentiation, penetration pricing and traceability access for consumers. The Report also explains the risk response strategies chosen amongst risk reduction, risk transference, risk avoidance or risk transference. This market report tends to provide the importers of Brazilian Coffee Beans an overview of the Australian Coffee market, its key players and its coffee culture. The market trends, market orientation, key performance indicators and market opportunities are discussed in light of Australian Coffee Market. Furthermore marketing strategies, marketing objective and mission is also provided for at the end. In order to position a coffee business into Australian Coffee Industry, marketing mix is discussed as well. Product, price, place and promotional techniques are discussed at the end. In conclusion it was recommended to enter the market of Australian Coffee after proper research because the industry attractiveness wasn’t found to be really lucrative.

 

INTRODUCTION

The main objective of this paper is to highlight the benefits associated with exporting coffee beans to Australia from Brazil. The global consumption of coffee is increasing day by day which is making it difficult for the coffee beans supplier to stay in line with the increasing trend. Particularly in the developing countries like United States, Canada, United Kingdom and Aus  tralia, the demand for coffee is tolling. With the growing consumption rate, the price of coffee is getting inversely affected and the Coffee suppliers are seeking to respond towards changing climate. According to Katariina Aho (Purchasing director of Paulig Coffee), the demand for Coffee will outweigh the production in near future as the coffee reserves are at their lowest and need replenishing by the harvesters (Paulig Corporate Social Responsibility Report, 2012). The unstable economy worldwide and climatic change is adversely affecting the pricing trend of coffee.

To take advantage of growing demand of coffee regardless of boundaries, it is important to analyze the positive and negative trends in a particular country before expanding internationally. There are many tools used by multinationals that help them in scrutinizing the factors that should be considered before going global. The main factors that should be at-least considered before taking the coffee beans business into Australia are economic factors, legal factors, risk analysis, infrastructure needs, legal issues and competition level of Australia. This paper tends to focus on examining the external and internal environment of Coffee business in Australia through PESTLIED and Porter Five Forces tools.

 

ATTRACTIVENESS OF COUNTRY AND MARKET:

Australia is amongst the countries that have internally developed coffee culture nationwide that is cultivated from increased obsession for quality coffee. The coffee culture has hit the Australian market like a storm and embraced the black bean coffee unreservedly as compared to most of the developed countries (Khamis, 2009).

Australians are getting more focused towards the flavor, origin and sophistication of coffee drinking due to maturing of consumers’ palates and changes in trends. How can a nation (which lies far away from rest of the world) can develop a strong culture of coffee? The answer lies in the question itself. It is due to the Greeks and Italian immigrants that took coffee culture with them to Australia in 20^th century after World War 2 (Frost, et al., 2010). The immigrants, who took Australia as their homes after fleeing from other parts of world due to World War 2, took large espresso machines and coffee stoves packed up in their luggage (Frost, et al., 2010). This way of rich Italian and Greek coffee history strengthened up its roots in Australian culture and instantly emerged as the important part of Australians lifestyle.

Coffee imports into Australia dates back to 1788 when First Fleet brought it into the premises. According to recent study by Ibis, Australians on average consume around 3kg of coffee annually as compared to mere 0.5kg consumption of coffee 50 years ago (Khamis, 2009). The strong coffee culture in Australia was brought in by the European Immigrants and made it the fuel of Australian’s daily routine. According to International Coffee Organization, Australian coffee and café business will grow by 2. 6 percent annually in next five years (Adams, 2012). Australia imports range of coffee beans from 65 countries all over the world. The main types of coffee beans imported by Australia are coffee beans, roasted coffee and ground coffee beans. The graph below (Figure 1) is showing the type of coffee beans imported by Australia during 2007 to 2011 (Adams, 2012).

The statistics show that the imported Green coffee Beans are dominating the Australian coffee industry followed up by Roasted Coffee beans and Coffee husks. The main types of coffee beans that are cultivated and dominating the world are Arabica coffee beans and Robusta Coffee beans. According to IBIS world report, Brazil is known for cultivation of Robusta Coffee beans and Green Coffee beans. Brazil was reported to be largest producer of coffee beans with 56 kg million bags production in 2012-2013 and it is also reported as top global coffee exporter with exports of 1,791,064 tones during 2010 (Lin, 2015) and 32.9m (60 kilo bags) in 2012 (as shown in the figure aside). Imports from Brazil is expected to rise due to good crop management and increase in growth of Arabica trees in near future.

 

Table 1: Top Exporters in the World

Top Global Coffee Producers	Tons
Brazil	$1,791,064
Vietnam	$1,217,868
Indonesia	$432,781
Columbia	$410,493
Germany	$328,464

Source: Statistical Division of FAO

 

CURRENT ENVIRONMENT OF BRAZILIAN COFFEE MARKET

The external environment of Brazilian Coffee market can be analyzed by utilizing the PESTLIED strategy tool. PESTLIED analysis lets the businesses to scan the external environment of the targeted company so that it can take advantage of certain factors while mitigate the risk associated with downside factors. This strategy is developed for revealing and important aspect of the strategic analysis of the external environment and to build vision of the future prospects of business. The acronym is used to scan the important factors that can influence the business. These factors are Political, Economical, Socio-cultural, Technological, Legal, International, Environmental and Demographical. Brazil is a developed economy and by far the world’s largest coffee producer which is growing further at the rate 2.5 million tons. It exports 2 million tons and holds 31% of the total exports of the World’s total exports (as shown in the figure below) (Van der, et al., 2015). Pest analysis of Brazilian Coffee Industry is given below.

Political:

Political factors include local and national government actions that can have an impact on the operations of particular industry. The overall political condition of Brazil seems to support the coffee culture. According to International Coffee Organization the Brazilian government is tirelessly working towards providing the help for local entrepreneurs. The Brazilian Government is trying hard to improve the coffee producing methods and involve in ethical trading (International Coffee Organization, 2011). The coffee industry demand is increasing rapidly with the soaring demand for sustainable and fair trade coffee around the world. Brazilian Government has also launched a program for economic growth which extends the government support to the investors in both financial and advising areas. MERCOSUR (a trading block composed of Brazil, Argentina, Paraguay, Uruguay and Venezuela) is supporting the direct investment and trade policies through which Australia (non-partners) can also gain. Politically or virtually, Brazil is not involved into any war with its neighbors or other countries around the globe. The government of Brazil is sound and stable and also improving on constant basis, with the government’s supportive programs that encourage foreign direct investment and increase the demand as well as production of Coffee in Brazil (Russell, et al., 2012). The coffee industry has realized some important changes in the last decade. As Government tend to reduce tariffs and other government prohibitions from coffee trading. Government also took steps to increase foreign investment and increased its focus towards exports. There are no tariffs and duties imposed on exports of Coffee in Brazil, but the Brazilian Government has put 10% rate for importing green beans coffee in the country. Duty free exports are allowed to be made in United States (International Coffee Organization, 2011).

The Brazilian-Australian trade relationship has grown significantly since mid-1990s. Brazil is Australia’s largest trading partner in South America with almost $1.414 billion worth trade during 2013-2014 (Frost, et al., 2010). Coffee held the major component in the imports from Brazil in 2013. In 2010 Brazil was second major importing partner after Vietnam which accounted for 12,170,586kg coffee imports in Australia (Linton, 2008).

Economical:

The industry of coffee is maturing worldwide with big leaders like Starbucks, Dunkin Donuts, Gloria Jeans and McCafe.  Brazil has ranked at 1^st position in the world’s most coffee producing and exporting countries as 34% of the coffee production is done in Brazil. Coffee is the foundation of the Brazilian economy since its share in GDP is around 63% (International Coffee Organization, 2011). The Brazilian economy experienced the growth as well as some difficulties due to overproduction of Coffee during 2008. It also faced the coffee crisis during 1999-2004 in which the premium coffee i.e. Arabica Coffee beans faced an ever low price equivalent to 45 cents a pound in 2001 (Fair Trade Foundation, 2012). The exports earning of Brazil fell down from $10 billion to $6 billion due to the coffee crisis. The recent trend has shown the convergence of Brazilian coffee lovers towards organic and black coffee that are subject to fair trading schemes and its origin. It means that the potential of coffee market is dependent on the source through which it is imported (in our case it’s imported from Brazil) (Frost, et al., 2010). This means that consumers will be willing to pay higher for the high graded coffee beans imported without discrimination from home country i.e. Brazil.

The inflation rate in Brazil is falling since 2002 and the currency of Brazil is gaining strength due to extensive exports (Fair Trade Foundation, 2012). Brazil has been involved in huge debts since 2002, which made the central bank to increase the interest rates through monetary policy tool (International Coffee Organization, 2011). New economic policies in Brazil are aiding in the public debts, meeting inflation targets and maintaining current account deficit. The market of coffee in Brazil is gaining strength and is increasing the purchasing power of the consumers constantly due to Government’s supportive schemes.

 

Socio-Cultural:

Brazil is reported to be second largest consumer of coffee after United States as 94% of its population is indulged into sipping coffee in daily routine (shown in the figure below).

The long hours working schedules (just like United States) and the workaholic environment in Brazil is increasing the consumption of Coffee as a quality product. In 2012, due to working environment, Brazilian consumers tend to consume 40% of what it produced (Fair Trade Foundation, 2012). The coffee culture in Brazil is growing at rapid pace and has made a prominent place in the Brazilian lifestyle that has fueled the growth of coffee industry in Brazil. In the social context, the large workforce and increase in family and work commitments have driven the demand for coffee in Brazil. As the lifestyle of Brazilian consumers is becoming busier, the demand for coffee is increasing (Adams, 2012).

However, it was analyzed that coffee consumers were less likely to stay in the coffee store and results in increased turnover. Due to health benefits, tea, de-caf hot drinks and fresh juices are getting more popular throughout Brazil (Fair Trade Foundation, 2012)