The Hindu Business Line : Coffee needs a different brew

THAT A SECTION of the plantation sector has been going through a rough patch in recent years is well known. Unsteady output and productivity, rising production costs and falling global prices have blunted the competitive edge of some of the plantation items. Many of the crops were largely export-oriented, but competition from other origins has eroded the share of Indian produce. A large number of small growers are in distress because of this. Coffee is an example of the pain of the plantation crops. To make exports viable, in the context of adverse external factors and lack of cost competitiveness of the industry, a Standing Parliamentary Committee of Commerce has suggested grant of massive subsidy for coffee plantations and small growers. The panel has also suggested a Minimum Support Price (MSP) for coffee and periodic market intervention to support prices.

The forces of demand and supply determine coffee prices. As coffee is an export-oriented item, its prices are influenced by global market trends. The global coffee market has been depressed since 1997 with the annual turnover falling from $12 billion to $5 billion in 2003. India cannot escape this phenomenon caused by a serious demand-supply mismatch. To help coffee growers, the government is implementing a debt restructuring (Special Coffee Term Loan) package and offering crop loan at concessional rates. Also, the import duty on certain coffee machinery has been reduced to a 5 per cent to enable the industry improve productivity and quality to become globally competitive.

Without doubt, the MPs' intention to support small growers is laudable. It may be politically expedient but not financially feasible to include all crops under the MSP scheme. Coffee is neither an essential commodity, nor does it impinge upon the country's food security. If the government were to fix MSP for all crops and start purchases, it would turn into a supermarket. Not just coffee, many plantation crops are in a bad shape because of past omissions and commissions. One of the major blunders of the plantation sector is the failure to promote the domestic market. Coffee consumption has stagnated at 65,000-70,000 tonnes, while production has been rising and is now at 300,000 tonnes. No coffee-producing country has the advantage that India enjoys — a large population with a rising disposable income.

The policy-makers and the Coffee Board must assume responsibility for not paying sufficient attention to the domestic market and placing excessive reliance on exports. A change in the global demand pattern in favour of Arabicas means that the product mix should change to this variety whose output is only about 40 per cent compared with Robusta (60 per cent). Last, the report of Parliamentary panel may be somewhat dated. Since early this year, international coffee prices have improved substantially. Even within the country, 13 coffee estates that were closed or locked-out have reopened. Admittedly, the sector is not in the pink of health; it deserves support. What is necessary is to exploit the domestic market potential, infuse investment in production and quality as also make a holistic approach to planning supplies and enhancing demand with a long-term perspective.

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