By Aparna Datta

It was the best of times. There was a mood of celebration at Jumboor Estate as news came in that Tata Coffee, which manages Jumboor, had won the ‘Fine Cup Award’ for Specialty Coffee at the Flavour of India Cupping Competition at the India International Coffee Festival 2002, held in Bangalore, during February 15 – 17, 2002.

The celebrations found an echo in Coovercolly Estate and in Bhagya Estate which scored wins in the category of Best Regional Arabica Coffees, and in no less than nine other coffee estates owned and managed by Tata Coffee that won Certificates of Merit as finalists in the Competition. In sum, Tata Coffee Limited had produced one-third of the prize-winning entries in the entire competition!

It was the worst of times. With coffee prices at their lowest in thirty years, managing some 23 coffee estates, with an approximate holding of 20,000 acres, had become a daily battle for survival. Belts had to be tightened till they hurt, a close watch had to be kept on every aspect of estate management, cost-cutting measures had to be implemented that possibly had the old-timers on the estates lamenting that “things have never been so bad”.

But they had. In the annals of Indian coffee, things hit rock bottom in 1940, when the Second World War cast a long shadow over the coffee business. It was a watershed year, when a solution was found in the pooling of coffee, and a coffee marketing mechanism that was to last forty years. It was a solution mooted by Ivor Bull, a stalwart of the coffee industry, and the then chief of Consolidated Coffee Limited, the earlier avatar of Tata Coffee.

The corporate history of Tata Coffee Limited reflects the ups and downs typical of the coffee business, and the story of Tata Coffee brings to the fore the strategic issues relevant to Indian coffee in general. At a time when coffee producers all over the world are trying to cope with the coffee crisis, a study of Tata Coffee offers many insights in managing change and transition, and the way forward for producing quality coffee.

As a corporate entity in India, Tata Coffee Limited is relatively new, having come into existence in August 2000. The company was earlier known as Consolidated Coffee Limited, more popularly as Conscofe, which had entered into a strategic alliance with Tata Tea Limited in 1990. The Tata entry into coffee made headlines at the time, being the first such move by a large industrial house in India. Unlike the tea industry in India, where many well-known business houses own and manage plantation companies, coffee plantations have largely been the preserve of owner-planters. The Tatas, with their extensive experience in tea, brought in a fresh approach to the coffee business. It remains till today the most significant merger and acquisition deal in the history of Indian coffee, post Independence. But, this was not the first time that the company had witnessed change via the M&A route.

The genesis of Conscofe dates back to 1922, when the Consolidated Coffee Estates Limited, Edinburgh was formed, on the amalgamation of Pollibetta Coffee Estates Company Limited and Coorg Coffee Estates Limited, both then managed by Matheson and Company. In a sense, investment in the plantation businesses represented the first organized foreign direct investment by Europeans in India, and as the name suggests, Conscofe was an effort at consolidation, to achieve better productivity through the economies of scale. Back in the early 1920s, the merger was seen as a major event, a pointer to new developments, though much of the planted assets of the company were created during the 1860s.

And what assets! Look closely at some of the names of the estates now in the Tata Coffee fold: Coovercolly, Woshully, Mylemony – these are heritage estates that have been producing quality coffee for well over one hundred years. Seen in context, the “Fine Cup” awards come as no surprise. Well-situated, in the prime coffee growing areas of Coorg, Chikmagalur and Hassan districts of Karnataka, with abundant shade trees, the estates also grow pepper, cardamom and oranges. With established farm management techniques and cultivation practices, the estates have been carefully nurtured by generations of workers and managers; over the past decade, the Tatas have further streamlined processes and fiscal management.

Being a lead player comes naturally. On two significant occasions, the company management has played a strategic role in shaping the destiny of the Indian coffee industry. In 1940 the idea of pooling coffee, in response to the crisis prevailing at the time, led to the subsequent formation of the Indian Coffee Board. Then, in 1992 Tata executives contributed to the processes that led to the liberalization of the coffee industry.

Today, as Asia’s largest integrated coffee company, with a turnover of Rs. 2 billion, Tata Coffee has several dimensions to its operations. An in-house research and development center has been established for applied research in improved crop varieties, tissue culture, pest and disease control and crop nutrition. While it inherited four coffee curing works, it today operates one highly modernized 20,000 tonne capacity curing establishment at Kushalnagar, in Coorg and another facility on the West coast of India for processing monsooned coffee. Clearly operational efficiencies now guide the management processes.

Coffee quality evaluation is integrated into the company’s operations, with cupping facilities at the curing works and a Coffee Board of India accredited quality lab attached to its Roast & Ground factory at Bangalore that produces packaged coffee. As free marketing opened up opportunities for branded coffee, Conscofe was the first plantation company to move towards value-addition by developing its own brands, and launched “Coorg 100% Pure Filter Coffee” in 1993. Another strategic investment, in an instant coffee plant at Hyderabad in 1993, is now paying off: instant coffee exports contributed to over 50 per cent of sales turnover in the year ending 2002.

The seamless integration from seed to cup took a definitive focus when, in July 2001, Tata Coffee picked up a 34.3% stake in Barista Coffee Company, a company that has energized the retail coffee sector in India. The alliance ensures Barista cafes a steady supply of high quality coffee beans, and specially crafted blends.

Corporate governance is high on the agenda with every employee now following the code of conduct and business principles enshrined in the Tata Business Excellence Model. Enlightened labour welfare policies, a hallmark of the Tata Group’s corporate social responsibility, are further extended to the local community through the efforts of the Coorg Foundation. The felicity with which “Tata Coffee” is now identified, within a space of two years since the company was formally renamed, shows the strength of the company’s ‘brand’ equity.

While the company’s annual production of 10,000 tonnes of green coffee constitutes about 3 per cent of the total production of Indian coffee, the strategic management approach represents a distinctive paradigm. In a scenario where small growers account for 98 per cent of the industry, a large plantation company such as Tata Coffee stands out – and serves as a model. While replicating the model may not be possible in toto, or even desirable for all growers, the case study is still useful in that it demonstrates the possibilities – and problems – of size. More pertinently, an integrated coffee company such as Tata Coffee represents a value chain in the coffee business that is transparent, benefiting all stakeholders.

The boom and bust cycles in the international coffee business are unlikely to change; the need of the hour, then, is an equitable approach that ensures a quality product for the consumer, and a quality of life for the farm worker. The moral of the story of Matheson’s merging into Consolidated Coffee and then being reinvented as Tata Coffee in a span of 140 years: big can be beautiful, too.

© Aparna Datta, 2002

Published in ‘Tea & Coffee Asia’ magazine, 3rd Qtr 2002