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7 Dec 2009


Impact of AFTA Liberalization on Thai Coffee Industry (Business Brief No.2707)

The cancellation of import tariffs on instant coffee products to duty-free status per the ASEAN Free Trade Area (AFTA) agreement, effective January 1, 2010, will offer opportunities for Thailand to export more instant coffee products to ASEAN markets, thanks to several advantages, especially the superior quality of Thai instant coffee products. Thai instant coffee producers will also benefit from lower processing costs as they will be able to import low-cost coffee beans from Vietnam and Indonesia because import tariffs on this farm category will be reduced to 5 percent.
It has been seen that competition within the ASEAN coffee market focuses on taste characteristics and consumer preferences, but these factors should not be a cause for concern for Thai instant coffee exporters because their products are superior to ASEAN rivals. As for domestic consumers, they will benefit from a variety of choices in instant coffee products imported from other ASEAN member countries. Price-conscious consumers, in particular, will be able to enjoy low-cost instant coffee products imported from ASEAN. Nevertheless, it has been found that a sizable portion of Thai consumers still prefer to drink locally-produced instant coffee products because of the quality and taste, so this market segment has some potential for expansion. Meanwhile, consumers are advised to beware adulterated coffee products.
While producers and consumers of instant coffee products will benefit from the cancellation of import tariffs, Thai coffee bean growers will be adversely affected because the cultivation costs of coffee in Thailand are higher than in other ASEAN member nations. Nevertheless, that problem will be offset by the superior quality of domestically-produced coffee beans that should still be preferred. Because of this, Thai coffee growers should try to maintain this advantage, and avoid complacency because our rivals are continuously improving the quality of their coffee, as well. To bolster the competitiveness of Thai coffee beans, related private and public sector agencies should initiate programs that distribute quality plant strains and improve the land for cultivation.

In addition, they should set clearer rules and regulations pertaining to coffee imports, provide know-how to coffee growers, promote the use of advanced cultivation and processing technologies, as well as conduct R&D on new coffee products to ensure that the Thai coffee industry remains competitive.