Pakistan is a tea-drinking nation, no doubt. But with changing demographics, slowly but surely, coffee penetration is growing. There are MNCs that are involved in importing and assembling (including branding) tea in Pakistan; the same can happen in the coffee business. The market is ready; the issue remains the higher duty of coffee as compared to tea which should be rationalized.
Within coffee, the Pakistan market is dominated by instant coffee which is showing promising growth potential while the volumes of fresh coffees are minimal. The numbers are growing fast, and growth is mainly emanating from youth in colleges and universities which is suggesting that tastes are changing with a higher influx of youth in the population.
Globally, 2.25 billion cups of coffee are being consumed every day. It’s the second biggest commodity in trade, after oil in the world, and the global market size to reach $85 billion by 2025. Pakistan is an emerging market for coffee and it needs to be tested by rationalizing the duty structure. The overall duty (customs duty, additional customs duty, and regulatory duty) on finished coffee products is at 53 percent while on bulk import it is at 28 percent. On the flip, the duty on tea is at 13 percent.
High duty hinders not only penetration of coffee but has also created friction for formal businesses to bet on this market. Like other sectors, higher duties on coffee has created a parallel (illicit) trade market. For example, there are smuggled international brands selling on retail shops at a price that the coffee-making companies themselves cannot sell, as they comply with duties and taxes.
This is also in violation of SRO 237 issued in 2019 which requires imported products to have 66 percent of shelf life at the time of import, ingredients mentioned both in English and Urdu, and have Halal certification from prescribed accredited authorities along with logo and labeling in a specified format. It is the responsibility of respective federal (at the imported stage) and provincial (at the retailing stage) governments to ensure compliance.
The general perception here may be that coffee is an elite drink while tea is for the masses but there is no denying that coffee drinking is growing amongst the masses. This provides an opportunity for localization, assembling, manufacturing, and branding coffee in Pakistan, with the potential to export. One of the world’s leading MNCs in coffee making is operating in Pakistan and is perhaps ready to take the bet. The role of the government is to provide an enabling environment.
Coffee growing is also possible in Pakistan. The climate in the Pothohar region of the country is conducive to coffee growth. This can add a new dimension to the Pakistani agriculture value chain. For this, the duty rationalization for bulk coffee is of utmost importance which would help towards developing value chains, and attract much-needed foreign investment and innovation in the coffee market. There are examples of value chain development in South America (countries like Brazil and Peru) and in Africa by global companies involved in coffee manufacturing. This can be replicated at home.
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