Trade: The local coffee market reached EUR 400 million in 2014 as coffee prices soared

The local coffee market reached EUR 400 million in 2014 as coffee prices soared. However, consumption has stalled, according to a PwC Romania study.

The value of the Romanian coffee market was close to EUR 420 million last year, a slight decrease from 2013, a PwC Romania study found. The price of coffee started grew by 30 percent between 2009 and 2013 – driven in part by the high taxation level in the industry.

Annual coffee consumption in Romania rose by 9 percent between 2000 and 2009, buoyed by the economic growth registered during this period, which doubled the amount of coffee consumed annually. From 2009, coffee consumption felt the effects of the economic crisis and started to decline, with the market contracting by 8 percent between 2009 and 2011, since when it has remained relatively constant.

The same study put Romania 26th in Europe by average coffee consumption, with an annual per capita consumption of 2.3 kg, compared to the EU average of 4 kg per capita. This is caused by the high coffee prices in relation to local purchasing power, as well as the VAT level and un-harmonized excise duty, say pundits.

The elimination of coffee duty could cut prices price, boosting consumption and encouraging the development of the coffee and coffee products market in Romania. Such a measure would have a neutral impact on the budget revenue, say pundits, with the 0.2 percent decrease in collected revenue from excise duty offset horizontally by other taxes collected following the development of the coffee industry.

“Taking into account the correlation between the price of coffee and coffee consumption, we estimate that reducing prices by eliminating the excise, combined with rising disposable incomes, could increase coffee consumption and also boost other economic sectors. The estimated value of additional taxes collected by the state budget would reach RON 64 million,” projected Bogdan Belciu, partner, advisory services, PwC Romania.

Romania is one of the last members of the European Union to still apply excises to coffee (along with Denmark, Germany, Croatia, Belgium and Latvia). None of the other 22 member states does so.

“In terms of tax philosophy, excise duties are applied to products that are either considered luxury, or harmful to health or the environment. Coffee, a mass consumer product, does not meet any of these criteria, so the excise is justified strictly by budgetary reasons. Our data show that the elimination of excise duty on coffee would have a neutral impact on the state budget. We notice that the recently adopted new Tax Code proposed by the government eliminates these un-harmonized excise duties, with the main reason that there is a gap between state budget revenues and the administrative costs of enforcing these taxes, as well as the conformation costs for taxpayers,” added Daniel Anghel, partner, tax consulting, PwC Romania.

In terms of budget revenues, excises on coffee in 2013 stood at RON 51.7 million, 0.2 percent of total national excise revenues of RON 21.1 billion.

“The ANAF human resources currently working on collecting and administering the coffee excise duty could be redirected towards the alcoholic beverages and tobacco sectors – two of the most important industries when it comes to excise duty revenues and which currently suffer a high level of tax evasion, estimated at around RON 2.5 billion,” said Anghel. “It is commendable that the tax authorities have stepped up efforts to combat tax evasion, because these will lead to an improvement in the business environment, by eliminating the unfair competition in certain sectors, and will generate additional resources for the state budget. Even a modest 1 percent reduction in tax dodging with regard to the above mentioned products could generate more than RON 24 million in revenues for the budget.”

A community flavor: fair trade coffee

Although the concept of fair trade is well known and has been commonplace for decades worldwide, Romania is still lagging behind more developed countries. But it has taken some steps in this direction.

Coffee is big business and remains one of the most valuable primary products in world trade. However, for many of the world’s 25 million coffee farmers, it is a labor-intensive crop that frequently yields very little financial return.

Coffee is also enormously valuable to the economies of many developing countries. For some of the world’s least developed nations, such as Burundi, the cultivation of coffee accounts for the majority of foreign exchange earnings, up to 80 percent. Most coffee-dependent workers worldwide are in developing countries, especially Brazil, Vietnam, Colombia, Indonesia and Mexico, the largest exporters of coffee.

A few large retailers on the local market have expanded their range of products to include coffee from fair trade sources. Many coffee chains have also adopted this strategy, with Starbucks being an example both in Romania and worldwide.

In short, fair trade works to benefit small-scale farmers and workers, who are amongst the most marginalized groups globally. The idea is that trade rather than aid enables them to maintain their livelihoods and reach their potential. Fair trade certifies small-scale farming organizations and offers rural families the income stability that enables them to plan for the future. Bananas, cocoa, coffee, cotton, flowers, sugar, tea, composite products, fresh fruits, gold, honey, juices, rice, spice and herbs, sports balls and wine all come in fair trade versions.

Fair trade facts:

- 30 countries around the world supply fair trade coffee

• Around 125 million people worldwide depend on coffee for their livelihood

• Fair trade coffee won 14 Great Taste awards in 201425 percent of fair trade farmers invest 25 percent of their premium to enhance the quality of the coffee they produceFair trade enables farmers to improve their living standards

• Over 660,000 farmers are now part of the fair trade movementFrom 2012-2013 a fair trade premium of over GBP 37 million was generated, empowering farmers to decide how to invest in their communities.(Business Review EU)

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