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Coke may have won the World Cup, but it’s losing in India

With sales falling and profits shrinking, Coca-Cola is hoping the FIFA World Cup will help boost its fortunes.

The soft drinks company has spent hundreds of millions of dollars on sponsorship and advertising for Brazil 2014, as part of a push to increase demand.

So the last thing Coke needs is to be stopped from making its most famous fizzy drink, in the place it hopes will become its biggest future market.

An advertisement for Coca Cola at the entrance of a restaurant in Ahmedabad, Gujarat, India.
Frank Bienewald | LightRocket | Getty Images
An advertisement for Coca Cola at the entrance of a restaurant in Ahmedabad, Gujarat, India.

Indian pollution officials have ordered the company to shut down operations at its bottling plant in Varanasi — the district where India's new prime minister ran for office in May's general election.

The local Pollution Control Board says aquifer levels at the factory are critically low and claimed that Coke had failed to get permission to use groundwater in the area.

It also said the company had increased production from 20,000 cases per day to 36,000 cases, and that pollution levels had also shot up.

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Coca-Cola told GlobalPost the board's decision was "an unprecedented move." Executives have challenged the ban and on Friday June 20 won a temporary stay of the decision until Coca-Cola's appeal is heard on August 5, although it cannot use the new extended areas of the plant.

They claim improved manufacturing processes mean they can make the same amount of soda with less water — roughly 2.5 liters of water for every liter of Coca-Cola.

"We use water very responsibly and judiciously. We recognize that water is critical to our business as integral to community needs and therefore we have a shared interest is the sustainability of water resources," a Coke statement said.

Coke's claims have not impressed local farmers and environmentalists. They have campaigned against the factory since 2002.

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Father Anand Mathew helped lead the campaign. "For this struggle I was imprisoned in 2004 and 2005," he said. "Our movement has been made with women and marginalized farmers. Nowhere in India there is such a platform where people of different denomination come together."

Narendra Modi's Hindu nationalist Bharatiya Janata Party (BJP) was also at the forefront of the campaign, Amit Srivastava of the campaign group India Resource Center told GlobalPost.

"People have talked about how the new government is pro-business but I don't think they will get a free ride," he said. "The [new prime minister's] party workers had a campaign against Coca-Cola, seeking its closure."

India's enormous, growing population and development have placed a major strain on its water resources. Shortages are common in many parts of north India.

"Coca-Cola's business strategy has put its plants near its big markets: the cities. That means it's putting itself in competition with local people and farmers," Srivastava said.

This is not the first time that Coca-Cola has faced problems in India.

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In 1977, it was forced to pull out of the country when Prime Minister Indira Gandhi's government insisted that Coca-Cola could only do business in partnership with an Indian company.

The company returned in 1993 as India began to reform its economy, with a cavalcade of delivery trucks arriving at the Taj Mahal.

But groups in several states have opposed its expansion.

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In 2004 it was forced to shut down a plant in Kerala, and the state government introduced legislation making it liable for $47 million in damages.

Campaigners in Rajasthan want to close a bottling plant they say is depleting water supplies.

A similar campaign in Uttarakhand fought off plans for a new Coca-Cola factory within a year of the proposal being made public, Srivastava said.

"I think they were shocked by the amount of opposition they have faced," Srivastava said. "Coca-Cola is facing its greatest challenges in India, certainly. They have changed their business practices and become much more aware of how they use groundwater because of their experiences in India."

India is a particularly important market for Coca-Cola because it is seeing shrinking demand for its products in the United States and Europe.

In April 2014, it announced that global sales of fizzy drinks had fallen — by one percent — for the first time in 15 years.

Far from wanting to open new factories, Coca-Cola has closed down plants in St Louis, Greece, Spain and Russia in the last two years, often citing shrinking demand.

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Profits and its share price have also fallen, although in 2013 the Atlanta, Ga., company still managed to draw revenues of $46.8 billion, with a net income of $10.2 billion.

People in the West drink far more fizzy drinks than Indians or Chinese. The average earthling consumes 92 Cokes a year. Indians drink only 12.

Eyeing the opportunity for growth, Coke announced in 2012 that it planned to spend $5 billion developing its India business in the eight years until 2020. By comparison, it had spent $2 billion in 19 years after returning to the subcontinent in 1993.

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Coca-Cola's Indian executives were not prepared to discuss the potential impact of opposition to its activities but released a lengthy statement to GlobalPost.

It said its Varanasi bottling plant had been in operation for 15 years within all regulations and laws and described the authorities' decision to close down the factory by withdrawing consent for operation as "an unprecedented move," which Coke will challenge at a tribunal on June 20.

"As part of the withdrawal of the consent, we were not allowed or even asked to present any facts or explain our position — in essence, being denied due course," the company said, adding that it was "a responsible and law abiding corporate citizen that has always complied with all regulatory norms both in letter and spirit."

The company said that Indian government officials from the Central Ground Water Board did not believe declining water levels in Varanasi were due to the Coca-Cola plant.

-- By James Tapper of Global Post, a CNBC partner

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