China makes most of the world’s industrial caffeine. A change to its export rebates and a big capacity push at Tarapur are giving an Indian producer a rare opening.
Most of the caffeine in a fizzy drink or energy drink does not come from coffee beans. It is made in a chemical plant, shipped as a white powder called caffeine anhydrous, which simply means caffeine without water, and blended into the drink at the bottling stage. Caffeine belongs to a family of compounds called xanthines, and the business of making them is concentrated in very few places.
China dominates it. Management at Aarti Pharmalabs, the Indian producer at the centre of this story, estimates that China holds 80 to 90 per cent of global competitive capacity. Other estimates differ, so the exact share is debated. The direction is not: the world’s caffeine supply chain runs largely through China.
A rebate removed
On 10 August 2026, Aarti chairman Rashesh Gogri told investors that China’s removal of export rebates was a structural change for xanthine pricing. A rebate lets an exporter recover some tax paid on its inputs, so removing it raises the cost of Chinese exports. Gogri said raw-material cost rises linked to the West Asia crisis were temporary, and put the split between structural and temporary price increases at roughly 50-50. He also named competition from Chinese producers as a continuing risk.
The change is described here as Aarti’s management reports it. China’s wider January 2026 notice on export VAT refunds covers solar products, batteries and glass, and it does not name caffeine, so buyers should check the product-level detail.
An Indian producer builds capacity
Aarti Pharmalabs makes its caffeine at two plants in Tarapur, Maharashtra, near the western ports. It describes itself as a non-Chinese-dependent, fully backward-integrated manufacturer, and one analyst report calls it the world’s third-largest maker of xanthine derivatives. The company puts its current global share at 15 to 20 per cent and aims for 20 to 25 per cent within two years.
The numbers behind that push are large. Xanthine capacity has risen from 5,000 tonnes a year to more than 9,600, including a brownfield expansion at Tarapur of about Rs 210 crore that became operational in the April to June quarter. Xanthines made up 57 per cent of Aarti’s turnover in that quarter, its highest-ever quarterly xanthine sales, with volumes up 25 per cent on the year. Company revenue rose 42 per cent to Rs 535 crore. Management guides for Rs 900 to 1,100 crore of xanthine revenue in FY27 and targets utilisation above 80 per cent by FY28.
Who buys it, and where it goes
Beverage customers account for 74 per cent of Aarti’s xanthine volumes, with the rest going to pharmaceuticals and nutraceuticals. Exports take 79 per cent of its xanthine sales, and only 21 per cent is sold in India. This is a reminder that most of what the company makes leaves the country. The product is light, dry and sold in bulk, which suits long-haul shipping from a port-adjacent site.
What it means for supply chains
For beverage makers, the story is about supplier concentration. When a single country makes most of an ingredient, a policy change in that country, a tax rebate or a production quota changes prices everywhere. Buyers have started to qualify a second source, which is the logic behind “China plus one”.
For logistics, it is a reminder that ingredient trades move in bulk, depend on port access and respond fast to policy. An Indian site near western ports, a 79 per cent export mix and expanding capacity make Tarapur a notable lane to watch, though the pricing is unsettled. Aarti itself expects realisations per kg to fall as supply chains normalise.
Sources
Aarti Pharmalabs Q1 FY27 earnings call highlights (Yahoo Finance): https://finance.yahoo.com/healthcare/articles/aarti-pharmalabs-ltd-bom-543748-010607701.html
Aarti Pharmalabs (Trade Brains): https://tradebrains.in/indian-markets/aarti-pharmalabs-is-400-cr-capex-and-capacity-expansion-enough-to-capture-25-global-market-share-12612743
Aarti Pharmalabs (Concall Decoder): https://equityessenceindia.substack.com/p/aarti-pharmalabs-from-caffeine-powerhouse
Aarti Pharmalabs Q1 FY27 results (FilingReader): https://filingreader.com/news-wire/mumbai/2026-08-17/aarti-pharmalabs-posts-strong-q1-growth-on-xanthine-derivatives
Aarti Pharmalabs caffeine page: https://www.aartipharmalabs.com/caffeine
China’s January 2026 export VAT refund notice (VAT Update): https://www.vatupdate.com/2026/01/14/china-ends-vat-refunds-on-exports-impacting-international-trade/
