Today there are a lot of coffee companies in Armenia. It is enough just to follow the advertisements on TV in order to understand the capacity of this market in Armenia. We have already mentioned in our previous articles that it is not easy to produce coffee but we can assume two things on the basis of this great number of companies in the market: either it is not difficult to produce coffee and this is just an imitation to frighten all potential investors in this market or our businessmen are very clever and understand a lot about this business. But there is another option too; maybe they produce cheap coffee with low quality which is not so difficult. Besides that the quality is controlled neither by the respective bodies nor by consumers, a lot of people have also founded small enterprises producing coffee. In spite of the huge number of participants it is very difficult to get information about the market. In order to make a good analysis, there are serious obstacles: shadow economy and the fact that most of participants don’t wish to share information.
This behavior of state bodies is not a secret for us, but the confidentiality of producers was really surprising for us. For instance most of them don’t give any information about their sales and export and say that this is confidential. As for this information, usually this is a good advertisement for producers.
There is strong competition in this market and we were informed by the state antimonopoly inspection that there is no monopoly in this market. The shortcomings that exist in this market mainly concern the illegal behavior of participants such as copying the packs or brands, etc.
According to our information, currently there are over 15 companies in this market. There have also been private enterprises trying to enter this market but they couldn’t resist the competition and were left out of the market.
Generally we can divide this market into three sectors: cheap coffee (100g costs 200-300 dram), medium sector (500 dram) and high sector called “elite coffee” (1000 dram and more). Due to the low level of purchasing power in our economy the capacity of the cheap market covers 80%. Most companies are oriented in this market in order to meet the demand.
There are only several companies producing expensive coffee. One of these companies is “Parisian coffee”, which is one of the pioneers of this market. This company also owns cafes named “Jazzve” and they have also started producing coffee with this brand. In spite of the other companies, “Jazzve” doesn’t produce coffee here but they produce it with the help of an Italian company in Italy and then import here. This makes the price go up but as one of the stock owners of this company, Michael Minasyan says, the consumers appreciate the quality. According to him a lot of serious companies do the same thing: they create their flavor and then order another company to make and pack this coffee and then they work to advertise and sell their product in the market. This means that the coffee offered by different companies can be produced in the same place.
A lot of people ask why instant coffee is not produced in Armenia. According to Mr. Minasyan the technical facilities for this production are very expensive and there is only one company in CIS countries that has certain facilities to produce instant coffee, which is the “Roscofe” company.
Our companies usually export coffee to Georgia, Russia and some European countries. For instance the “Royal Armenia” company exports its product to Iran, Bulgaria, Belarus, Ukraine, Russia and Georgia.
There are certain problems for Armenian producers in exporting coffee to Europe because there is no demand there for low quality coffee. But there are some companies that have gained the trust of Europeans and entered their markets. For instance the “Parisian coffee” exports coffee to France, where consumers demand for high quality coffee. For instance “FERO” company, according to the information on their web site, exports coffee to the USA, England and some European countries. There are several companies cooperating with them but we hope this number will increase in the future.
So we can assume on the basis of the large capacity of this market that the coffee market is developed in Armenia. There are problems in this field too and most of the businessmen think that the main problem is the illegal competition, i.e. that’s the only complaint. We understand all this because we have market economy system in our country. It is clear that sometimes competition goes out of its limits. We also understand that all companies think that their coffee is the best. People use different leverages for competition because besides competition they have to also find a solution with taxation and other state bodies. Probably this is the reason that coffee producers are mostly backed by powerful personalities in the country. But in spite of this usually the state is the one responsible for creating equal conditions for all competing parties and good business environment.
But it seems that the purpose of the state is something else. We asked one of the participants of the market what the main obstacle in their business is and he replied without thinking long, “state officials”. As for the state bodies, most of the participants complain of customs bodies. It seems that our legislation has been made in a way that lets us make much money. The customs bodies don’t care about any documents containing information about the purchase price of the product. This lets them maneuver and thus take bribe. The customs bodies have a right to decide the purchase price themselves and take relevant taxes and VAT. The following mechanism is applied among the customs officers: the more you give me, the less you will have to pay. If the importers are backed by strong politicians, they pay less money. For instance according to the “Royal Armenia” they have made calculations which show that each year the customs bodies make over one million dollars from coffee alone.
There is another factor too. Importers are not interested in registering their products with low prices because if the registered prices are low accordingly they will have to pay less VAT and the real market price differs much from the registered price. As a result of this they pay more income tax and VAT. And in order to escape this loss producers have to hide the real capacity of their sale, the real income and other relevant information. This is a classic example of fighting against shady economy.
It would be wrong to assume that the importers have not considered all these facts. They just don’t want to be in extra trouble.
This article seems to be not about the coffee market, but about the customs bodies, but there is no field where this institution doesn’t play a key role of influencing the market. And it will be possible to speak about the economy and markets by bringing up economical rules and examples only when state officials serve the public, but not the vice versa that we have now…