ABSTRACT

This Report Comprises of Descriptive analysis of

Coffee market in India and a study of Price, Income
and Cross Elasticity.

Submitted By: Group B1

• Aritra Chakraborty (079)

• Debaleena Dey (085)
• Harsh Kumar Kedia (091)
• Mriganka Bujar Baruah (101)
• Sanjeet Singh (121)
PRODUCT ANALYSIS • Shreya Banerjee (125)
• Tushar Singh (132)

COFFEE
Coffee Origin and Types

With mystical beginnings in the 17th century, Indian coffees are appreciated globally - both for their unique
taste characteristics and for the environment friendly practices that the country's coffee planters have
persisted with over time. Intercropping with different types of spices provides interesting subtleties to these
coffees that have won them widespread acclaim.

Types of Coffee

There are basically two types of coffee consumed most commonly worldwide - Arabica and Robusta - that
grow from the two main species of coffee plants: Coffee Arabica and Coffee Robusta respectively. Although
there are numerous varieties of coffee plants, Arabica and Robusta are the most important from a
commercial standpoint.

Arabica

Arabica coffees (or Arabicas) have a delicate flavour and balanced aroma coupled with a sharp and sweet
taste. They have about half the amount of caffeine compared to Robustas. Arabicas are harvested between
November to January, and are typically grown on higher altitudes ranging from 600 to 2000 metres in cool,
moisture-rich and subtropical weather conditions. They require nutrient-rich soil to be able to conform to
the highest international coffee standards.

Robusta

Robusta coffees (or Robustas) have twice the level of caffeine compared to Arabicas. Robusta coffees have a
very strong taste, a grainy essence and an aftertaste somewhat similar to that of peanuts. It is possible to
grow this variety at lower heights. Robusta coffee plants are harvested from December to February, and can
better withstand the onslaught of unfriendly weather and plant pests.

Coffee plantation regions

South Indian states are the major producer of Coffees in India with Karnataka 53%, Kerala 28%, Tamil Nadu
11% and remaining from the other states includes Andhra Pradesh, Orissa,Assam and Tripura. Hilly area and
good monsoon in this region makes it best place for important varieties of coffee and tea plantation.

Major Plantation Locations

• Yercaud. ...
• Araku. ...
• Assam. ...
 • Darjeeling. ...
• Nilgiri.

Coffee consumption trends in India

India has long been a grower of coffee beans – in fact it is the sixth largest coffee producer in the world. But
in most of the country, the vast majority of Indians prefer to start their day with tea.

The exception to this rule are parts of Southern India, namely Tamil Nadu and Karnataka, where coffee has
been enjoyed for generations.

Below is the mixed response of consumers in year 2015.

Formulas use to measure elasticities and their interpretation

S. FORMULAS
No.

1 Price Elasticity

% Change in Quantity Demanded

% Change in Price

2 Income Elasticity

% Change in Quantity Demanded

% Change in Income

3 Cross Elasticity

% Change in Quantity Demanded for Product Concerned

% Change in Price of Substitute/Complimentary Product
 Range of
S. No. Elasticity Interpretation

1. Price Elasticity (Ep) <1 Inelastic Demand

=1 Unitary Elastic Demand
>1 Elastic Demand
=0 Perfectly Inelastic Demand
= Infinity Perfectly Elastic Demand

2. Income Elasticity
(Ey) Positive Normal Goods Inferior
Negetive Goods
0 to 1 Necessary Goods
=1 Comfort Goods
>1 Luxury Goods

3. Cross Elasticity (Ec)

Positive Substitute Goods
Negetive Complimentary Goods
=0 Unrelated Goods
0 to 1 Marginally Substitute Goods
0 to -1 Marginally Complimentary Goods

Demand Analysis

DEMAND SALES
PRICE COFFEE(Per PRICE-SUGAR(In GDP (Per Capita at GDP
YEAR QTY(Per '000 TEA (In INR)
Kg) INR) Curr. Prices) (Rs)
Tonnes)

2009-10 190.19 159.76 102.7 26.58 54414 54414

2010-11 192.14 166.33 100 27.67 64372 64372

2011-12 266.83 83.66 100.8 27.83 71609 71609

2012-13 373.97 61.38 117.8 31.16 80518 80518

2013-14 327.85 125.99 127.3 31.77 89796 89796

2014-15 447.71 83.77 123.1 27.05 98405 98405

2015-16 479.54 38.97 120 25.42 107341 107341

2016-17 476.62 42.17 129.8 32.66 118263 118263

2017-18 485.11 38.93 130.6 25.85 129901 129901

2018-19 495.04 41.02 134.7 31.55 142719 142719

Demand of Coffee vs Price of Tea (Inter - relation with substitute goods)
Elasticity of demand

1. Price Elasticity of Demand

Year Price elasticity Interpretation

2009-
10
2010- 4.10 Elastic Demand
11

2011- (0.78) Inelastic Demand

12
2012- (1.50) Inelastic Demand
13

2013- (0.12) Inelastic Demand

14
2014- (1.09) Inelastic Demand
15
 2015- (0.13) Inelastic Demand
16
2016- (0.08) Inelastic Demand
17

2017- (0.22) Inelastic Demand

18
2018- 0.38 Inelastic Demand
19

() denotes negative value

 2. Income Elasticity of Demand

Year Income Elasticity Interpretation

2009-10

2010-11 0.22 Normal Necessary Goods

2011-12 (4.42) Inferior Goods

2012-13 (2.14) Inferior Goods

2013-14 9.14 Normal Luxury

2014-15 (3.50) Inferior Goods

2015-16 (5.89) Inferior Goods

2016-17 0.81 Normal Necessary Goods

2017-18 (0.78) Inferior Goods

2018-19 0.54 Normal Necessary Goods

() denotes negative values
 3.1 Cross elasticity
(Sugar)

Year Cross elasticity (sugar) Interpretation

2009-10

2010-11 1.00 Marginal Substitute

2011-12 (85.95) Complimentary

2012-13 (2.23) Complimentary

2013-14 53.77 Substitute

2014-15 2.26 Substitute

2015-16 8.88 Substitute

2016-17 0.29 Marginal Substitute

2017-18 0.37 Marginal Substitute

2018-19 0.24 Marginal Substitute

() denotes negative values
 3.2 Cross elasticity (Tea)

Year Cross Elasticity (Tea) Interpretation

2009-10

2010-11 (1.56) Complimentary

2011-12 (62.13) Complimentary

2012-13 (1.58) Complimentary

2013-14 13.05 Substitute

2014-15 10.16 Substitute

2015-16 21.24 Substitute

2016-17 1.01 Substitute

2017-18 (12.47) Complimentary

2018-19 1.71 Substitute

() denotes negative values

Conclusions

• From the described demand graph we can conclude that the product, coffee, is following “ The Law
of Demand” i.e., quantity demanded follows inverse relationship with the price throughout the
decade 2008 – 2018.

• From “demand of coffee Vs price of sugar graph” we conclude that from 2009 – 2018 Sugar prices
almost remains constant with minimal increase/decrease but during the same year coffee demand
has shown large increase and decrease both with no correlation with sugar prices.

• From “demand of coffee Vs price of tea graph” we conclude that from 2009 to 2011 tea price
remains constant with the decrease in quantity of coffee, from 2011 to 2013 tea prices increase with
the fluctuation in demand of coffee, from 2013 to 2016 tea prices slightly decrease with the
decrease in demand of coffee, from 2016 to 2018 tea prices slightly increase with no change in
demand of coffee.

• From “Price elasticity of Demand” table we conclude that from 2011 to 2018 Coffee is showing as an
inelastic good.

• From the income elasticity calculation five out of nine years coffee has come across as an inferior
good.

• From cross elasticity calculation sugar is not a complimentary good, and tea comes across as
substitute to complimentary in the ratio 5/4.
Data For Statistical Analysis in SPSS :

Year SalesOf PriceOf Price PriceO GDPper LogSale LogPrCoff LogPrTea LogPrSuga LogPerCap
Coffee Coffee OfTea fSugar Capita ee r itaGDp
- 152.95 107.40 60.90 15.46 1.7846172 1.1892094 4.4662594
9300000 9000000 7900000
- 161.95 126.43 56.70 17.27 1.7535830 1.2372923 4.5164031
5900000 3800000 4800000
- 345.86 72.13 63.70 13.20 1.8041394 1.1205739 4.5788683
3200000 3100000 2900000
- 190.84 158.23 65.30 12.04 1.8149131 1.0806264 4.6339328
8100000 8700000 0100000
- 142.34 204.24 82.00 18.25 1.9138138 1.2612628 4.6792734
5200000 6900000 1300000
- 159.76 190.19 26.58 2.0115704 1.4245549 4.7357106
4400000 7700000 5200000
- 166.33 192.14 27.67 2.0000000 1.4420091 4.8086970
0000000 5900000 0300000
- 83.66 266.83 27.83 2.0034605 1.4445132 4.8549676
3200000 0600000 0900000
- 61.38 373.97 31.16 2.0711452 1.4935974 4.9058929
9000000 4900000 7900000
- 125.99 327.85 31.77 2.1048284 1.5020172 4.9532569
0400000 1500000 9100000
- 83.77 447.71 27.05 2.0902580 1.4321672 4.9930171
5300000 6900000 6600000
- 38.97 479.54 25.42 2.0791812 1.4051755 5.0307656
4600000 4600000 3700000
- 42.17 476.62 32.66 2.1132746 1.5140161 5.0728488
9200000 8000000 9200000
- 38.93 485.11 25.85 2.1159431 1.4124605 5.1136124
7700000 4700000 9400000
- 41.02 495.04 31.55 2.1293675 1.4989993 5.1544817
9600000 6400000 9400000

LogSale = Log( Sale of Coffee)

LogPrCoffee = Log( Price of Coffee)
LogPrTea = Log( Price of Tea)
LogPrSugar = Log( Price of Sugar)
 LogPerCapitaGDp = Log( GDP per Capita)

Model Summaryb
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .920a .847 .785 38.06501

a. Predictors: (Constant), GDPperCapita, PriceOfSugar, PriceOfCoffee, PriceOfTea

b. Dependent Variable: SalesOfCoffee

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 80066.431 4 20016.608 13.815 .000b
Residual 14489.453 10 1448.945
Total 94555.884 14
a. Dependent Variable: SalesOfCoffee
b. Predictors: (Constant), GDPperCapita, PriceOfSugar, PriceOfCoffee, PriceOfTea

Significant value of this function is less than 0.05. So this is perfectly fit. And the
function is-

“LINEAR”

R Square = .847. It means that this inputs describe 84.7 percent of this Demand
Function.
 Coefficientsa

a. Dependent Variable: SalesOfCoffee

As this is a linear demand function so the generelised function will be

Qd = a + bPc + cPt + dPs + G

Where

• Qd = Demand of Coffee
• Pc = Price of Coffee
• Pt = Price of Tea
• Ps = Price of Sugar
• G = GDP per Capita

According to Coefficient table, Only Pc and Constant(a) will be in the Demand Function as the
significant value for them is less than 0.05 and for others it is greater than 0.05( not fit in the
model )

Now, a= 208.500 and b= -0.914 So

the final Demand Function will be

Qd = 208.500 – 0.914Pc
Model Summaryb
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .944a .891 .848 .116612334830
755
a. Predictors: (Constant), LogPerCapitaGDp, LogPrSugar, LogPrCoffee,
LogPrTea
b. Dependent Variable: LogSale

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1.117 4 .279 20.541 .000b
Residual .136 10 .014
Total 1.253 14
a. Dependent Variable: LogSale
b. Predictors: (Constant), LogPerCapitaGDp, LogPrSugar, LogPrCoffee, LogPrTea

Significant value of this function is less than 0.05. So this is perfectly fit. And the
function is-

“NONLINEAR”

R Square = .891. It means that this inputs describe 89.1 percent of this Demand
Function.
 As this is a nonlinear demand function so the generelised function will be

Qd = a*(Pc^b)*(Pt^c)*(Ps^d)*(G^E)

Where

• Qd = Demand of Coffee
• Pc = Price of Coffee
• Pt = Price of Tea
• Ps = Price of Sugar
• G = GDP per Capita

According to Coefficient table, Only Pc and Constant(a) will be in the Demand Function as the
significant value for them is less than 0.05 and for others it is greater than 0.05( not fit in the
model )

Now, a= 5.170 and b= -1.169 So

the final Demand Function will be

Qd = 5.170*𝑷𝒄−𝟏.𝟏𝟔𝟗
Conclusion:
• Both Linear and Nonlinear( Cobb-Doglus) are fit for this Demand function.

• R square value of Nonlinear Function is greater than the Linear Function. So Nonlinear
Function’s inputs explain the demand function more accurately.

• From this statistical analysis we can say that Tea is not a perfectly substitute good of Coffee
and aslo Sugar is not a perfectly Complementory Good of C
DEMAND FORECASTING:

y q qi-q yi-y (qi-q)2 (yi-y)(qi-q)

2004(1) 152.95 30.56 -7 933.91 -213.92

2005(2) 161.95 39.56 -6 1564.99 -237.36

2006(3) 345.86 223.47 -5 49938.84 -1117.35

2007(4) 190.84 68.45 -4 4685.4 -273.8

2008(5) 142.34 19.95 -3 398 -59.85

2009(6) 159.76 37.37 -2 1396.52 -74.74

2010(7) 166.33 43.94 -1 1930.72 -43.94

2011(8) 83.66 -38.73 0 1500.01 0

2012(9) 61.38 -61.01 1 3722.22 -61.01

2013(10) 125.99 3.6 2 12.96 7.2

2014(11) 83.77 -38.62 3 1491.5 -115.86

2015(12) 38.97 -83.42 4 6958.9 -333.68

2016(13) 42.17 -80.22 5 6435.25 -401.1

2017(14) 38.93 -83.46 6 6965.57 -500.76

2018(15) 41.02 -81.37 7 6621.08 -569.59

Where,
Y= Year, q= Quantity demanded , Yi= Mean of the year range , Qi= Mean of the quantity
demanded
Now after doing regression in SPSS we get

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .777a .603 .573 53.73303
a. Predictors: (Constant), Year

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 57021.778 1 57021.778 19.750 .001b
Residual 37534.105 13 2887.239
Total 94555.884 14
a. Dependent Variable: Quantity
b. Predictors: (Constant), Year

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 122.395 13.874 8.822 .000
Year -14.271 3.211 -.777 -4.444 .001
a. Dependent Variable: Quantity
  From SPSS analysis, we get the value of R-square =
0.603. It means Year can explain The sales upto only 60.3
percent of it’s total.
 As the significant value of the function is 0.001<0.05, so
the function is perfectly fit and the function is linear.
 And significant value of Input is also 0.001<0.05, So Year
will be in the final function.

So the final equation of demand on the basis of

year is given below :

Q = 122.395 – 14.271*Y

Now at Y = 2025,
Q = (Q)-Q_ = 122.395-77.399 = 44.996 Units( ANS)
PRODUCTION ANALYSIS:

Year Quantity Labour Capital LogQ LogL LogC

2004-05 152.95 5983.00 1146.20 2.18454948 3.77691900 3.05926040
2005-06 161.95 7627.00 1154.30 2.20938095 3.88235375 3.06231870
2006-07 345.86 7167.00 1080.60 2.53890034 3.85533740 3.03366496
2007-08 190.84 9779.00 3269.70 2.28066941 3.99029445 3.51450791
2008-09 142.34 10021.00 1108.40 2.15332696 4.00091106 3.04469652
2009-10 159.76 6086.00 1048.80 2.20346805 3.78433195 3.02069268
2010-11 166.33 5818.00 1060.10 2.22097059 3.76477372 3.02534684
2011-12 83.66 6431.00 946.00 1.92251786 3.80827851 2.97589114
2012-13 61.38 6373.00 929.60 1.78802688 3.80434392 2.96829612
2013-14 125.99 5388.00 965.20 2.10033608 3.73142759 2.98461731
2014-15 83.77 6727.00 949.90 1.92308852 3.82782143 2.97767789
2015-16 38.97 6305.00 864.10 1.59073041 3.79968509 2.93656401
2016-17 42.17 16476.00 861.60 1.62500360 4.21685178 2.93530569
2017-18 38.93 13547.00 843.10 1.59028440 4.13184313 2.92587909
2018-19 41.02 7079.00 452.90 1.61299566 3.84997191 2.65600232

SPSS Analysis:

Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .716a .513 .432 .22550440232
a. Predictors: (Constant), LogC, LogL
b. Dependent Variable: LogQ

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression .643 2 .322 6.323 .013b
Residual .610 12 .051
Total 1.253 14
a. Dependent Variable: LogQ
b. Predictors: (Constant), LogC, LogL
 Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 1.956 1.885 1.038 .320
LogL -.848 .428 -.401 -1.982 .041
LogC 1.108 .354 .634 3.130 .009
a. Dependent Variable: LogQ

 From SPSS analysis, we get the value of R-square = 0.513. It means Year can
explain The sales upto only 51.3 percent of it’s total.
 As the significant value of the function is 0.013<0.05, so the function is perfectly fit
and the function is linear.
 And significant value of Input are also 0.041,0.009<0.05, So Year will be in the final
function.
 But the significant value of the intercept is 0.320>0.05. So this will not be present in
the final equation.

So the final equation of Productivity is given below:

Q = 𝑳−𝟎.𝟖𝟒𝟖 𝑲𝟏.𝟏𝟎𝟖
 Now as power of Labour (B1= -0.848) is less than power
of Capital (B2=1.108). So the Coffee industry is Capital
Intensive.
 Now (B1+B2 = 1.108 - 0.848 = 0.26), so this is less than 1.
So this function has a decreasing return to scale.
COMPETITION ANALYSIS:

Year HHI

2004-05 0.04

2005-06 0.05

2006-07 0.06

2007-08 0.05

2008-09 0.04

2009-10 0.04

2010-11 0.04

2011-12 0.03

2012-13 0.02

2013-14 0.02

2014-15 0.02

2015-16 0.02

2016-17 0.02

2017-18 0.02

HHI: The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market concentration. It is
calculated by squaring the market share of each firm competing in a market and then summing the resulting
numbers.

 HHI = 1, When there is only one firm in the industry

 Low value of HHI indicates that there is a high competition between different companies in
the coffee industry
 As the value of HHI has very small changes with respect to years, So there are very few
entries or exits of firms in coffee industry