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P.S. Sundar

PRICES are rising in the global market and Indian producers should stand to gain.

The principal reason for the buoyant market is the anticipated tight supplies that would be just enough to satisfy the growing demand and chances of over supply in the current coffee year ending September 2006 being ruled out.

F.O. Licht, renowned coffee analysts, has estimated that based on an assumption of the consumption growing at around 1.5 per cent this year, the world would need around 119 million bags of 60 kg each. Against this, barring any major weather calamities, the organisation has estimated the production to be 120 million bags or more. This expectation is based on the reality that the two coffee majors - Brazil and Vietnam - are slated to produce more. They themselves can increase the global production by 10 million bags.

If weather plays truant, the production figures could go haywire, but otherwise, it would be a tough job for the producers in India or elsewhere to manipulate supplies to create an artificial tightness. Since the supplies are expected to be around the level to neutralise the demand, the market still regards the supply situation to be bordering the tightened belt - just above the flat level. This factor can help the prices to remain to the advantage of the producers, but if they withhold too much of coffee anticipating sharp rises in prices, that could upset the market because, the demand is not far ahead of the supplies.

More so, Indian exporters will do well to watch the influence Brazil is doing on the supply chain for this could tilt the trading cart. Already, Brazil has upset the plans of many producing countries to withhold stocks to pressurise the prices as it flooded the ships with coffee. To capitalise on the rising price trend, Brazil took the decision to stock the consumers with as much of its coffee as possible to avoid an intrusion by any of its competitors. In India, the trading emphasis was shifted to the domestic market to ensure that all coffee is saleable.

That there would not an over supply in the remaining months of this year seems to be substantiated by many factors. Thus, the reduction in the production in Brazil to around 33 million bags due to the biennial cycle and the unfavourable fluctuation of the currency against dollar are said to lower the shipments.

On the demand side, global observers are not predicting much increase as they have discovered an elasticity to price in the developed economies. It is not easier for any country to pump the trade with information of shortage or tight supplies and push up the price for the drinkers are reducing their intake. Value-addition and brand-loyalty do pay some royalty, but the trade as a whole is subject to price fluctuations. As of now, around 23 million bags would remain as unsold stocks in various countries when the current coffee year ends in September. But, the next year would be crucial because once again, Brazil would be in the off-season.

So, the Indian producers and exporters in the coming months till September must watch the global developments carefully and more so the trading pattern of Brazil, tighten the supplies only to the extent of not choking the supply chain and simultaneously strengthen the home market.

The Coffee Board had announced its intention to popularise the coffee in producing States and the traditional coffee drinking belts for, there is scope for increase in these areas. By now, the board's measures have brought in some tangible results for, the consumption which had hovered around 55,000 tonnes for decades rose to around 75,000 tonnes last year. It is only because the multinational coffee chains are seeing a growing domestic base that they have come out with newer designs to sell their coffee in India.

More Stories on : Coffee | Plantation Panorama

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