The Hindu Business Line : Coffee exports come to a standstill

"Growers are holding back their stocks so that they can sell them when they need cash. This is because banks have stopped funding the coffee sector," said Mr Arun Biddappa, Managing Director, Karnataka Coffee Brokers Pvt Ltd, told Business Line.

As such, coffee exports have been dormant since February in view of the rupee rising against the dollar. "Though the dollar has currently gained strength against the rupee, it is lack of offers that is hurting exports now," Mr Biddappa said.

"We are having to pay a higher price now to get coffee.

Only internal buyers are purchasing at Rs 4-5 a kg higher than what exporters are offering," said Mr Milan Shah of the Bangalore-based Jayanti Group.

According to Mr Bose Mandanna, former vice-chairman of the Coffee Board, internal buyers will have no problem in paying higher price since they could change the blend with chicory depending on the prices.

"Internal buyers will be ready to offer higher prices on any given day," he said.

"Usually, we run out of coffee in July. But this time, growers have begun to hold back from March itself," Mr Bidappa said.

Banks had stopped funding the coffee sector in view of non-payment of loans by growers, exporters said.

The other reason for the growers to hold back their produce is the expectation that coffee prices may go up on projections of a lower domestic crop next season.

During the 2004-05 season (October-September), coffee production is projected to be 2.75 lakh tonnes as per Budwood estimates. Coffee trader, however, has pegged it lower around 2.50 lakh tonnes. This year, coffee production has been forecast at 2.5 lakh tonnes.

On the export front, for the January-March period, the Coffee Board had issued permits to export 76,427 tonnes of which returns have been filed for export of 38,820 tonnes. During the same period last year, permits were issued to export 64,179 tonnes, though returns were filed for export of 53, 739 tonnes. Last year, nearly 2.20 lakh tonnes were exported.

Two-thirds of the coffee grown in the country is exported and domestic consumption is a meagre 55,000 tonnes.

"Exporters are scared to take orders because they will have to ship one full container. When they are not sure of getting the required quantity, what is the point in exporting?" Mr Biddappa asked.

The uncertainty has resulted in some exporters toying with the idea of cancelling their contracts.

"Exporters have begun to consider which loss will be less — either cancelling the contract or paying growers high prices," Mr Biddappa said.

"We may have to pay Rs 10 a kg extra to get coffee from the growers. But if we cancel the export orders, we may lose only Rs 3-4 a kg," Mr Shah said.

Still, the trade is optimistic on the export front. "This is a temporary phase and things will improve," sources said.

However, Mr Biddappa and Mr Shah differ. "Very few exporters can overcome the current situation," Mr Shah said.

"With banks not funding the sector and nothing happening to improve liquidity, things are looking tough," Mr Biddappa said.

Still, exporters are trying to keep some of their reliable buyers in good humour. "We don't want to let go such good customers," said an exporter.

On the other hand, global prices for coffee are on the decline now. The average price for Arabica in April declined to 74.91 cents a pound from 80.12 cents in March, while the average price for robusta had dipped to 37.94 cents from 38.61 cents during the same period.

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