EUDR Compliance Spurs Inventory Build-Up

Indian coffee exporters are experiencing a surge in demand from European buyers who are stockpiling inventory ahead of the European Union Deforestation Regulation (EUDR) deadline. The EUDR aims to minimize the importation of products linked to deforestation, requiring strict due diligence and traceability for commodities like coffee. This regulation is expected to impact Indian exports significantly.

The EUDR applies to a wide range of products, including cattle, cocoa, coffee, oil palm, rubber, soya, and wood. Businesses must comply with these requirements by December 30 this year. “With the EUDR coming up, there’s a lot of front-loading of coffees as European customers are buying ahead of the deadline,” said Ramesh Rajah, President of the Coffee Exporters Association. “We are seeing a build-up of inventories in Europe, and many shipments are already taking place.”

Front-Loading and Inventory Build-Up

• Reflecting this trend, India’s coffee shipments for the January 1 - June 21 period this year increased by 16%, reaching more than 0.237 million tonnes compared to 0.204 million tonnes in the same period last year.
• This includes re-exports, which grew by 18.3% to 53,497 tonnes during the period, up from 45,213 tonnes a year earlier.
• Shipments of India-grown coffees saw a 15% increase during this period, reaching over 0.183 million tonnes compared to 0.159 million tonnes last year.

“Most of our clients who preferred to buy just-in-time now feel it’s safer to have inventory. Over the past 20 years, the mantra was just-in-time and supply-chain management. Now, because of the EUDR regulations, the thinking is that they should hold more inventory,” Rajah said. “Roasters feel it is safe to have coffee in store and warehouses, and many of our customers are asking us to ship early.”

Logistical Challenges Amid Increased Demand

For Indian coffee exporters, the peak season usually ranges from February to May. This year, the peak season extended into June, said Rajah. Normally, shipments slow down during the June-August period due to the monsoon season. India, the seventh largest coffee producer, is the fifth largest exporter after Brazil, Vietnam, Colombia, and Indonesia. More than two-thirds of India-grown coffees are exported, with about 60% destined for Europe. Italy, Germany, and Belgium are the major buyers.

While shipments are up, exporters continue to face logistical challenges, including container availability and increased freight rates following developments in the Red Sea region. “Post Red Sea attacks, there are not enough food-grade containers available, and sailings are less,” Rajah added.

The impending EUDR compliance is driving European buyers to stockpile Indian coffee, leading to a significant increase in exports. Despite logistical challenges, the demand from Europe remains robust, ensuring a positive outlook for Indian coffee exporters.