Dry weather sets off price rally; global rates increase 45% in a month

Your cup of coffee is set to cost more, courtesy, the drought in Brazil.

Reports of severe dry weather impacting this year’s Brazilian crop have sparked a sharp rally in coffee prices over the past few days and domestic raw coffee prices have moved up in tandem. Global prices — mainly of the Arabica variety — have risen by 45 per cent in the last one month.

As a result, small and mid-sized domestic roasters, who sell roast and ground filter coffee powder, are thinking of passing on the burden to consumers by increasing prices. This is because of export demand for Arabicas driving up farm-gate prices. India exports two-thirds of nearly three lakh tonnes of coffee it produces every year.

At the weekly auction on Thursday, prices of key grades of raw coffee were up by ₹30-40 a kg, an increase of almost 20 per cent over the previous week.

No option

“Roasters have to increase prices by 20-30 per cent, else quality will take a hit,” said BS Suryaprakash, CEO of Coorg Coffee Supplies, a Bangalore-based roaster and exporter.

“It’s a tricky situation. If we increase the price, there is a chance of losing customers. If we don’t, we’ll have to incur losses as the rise in raw coffee prices has been pretty steep,” he said. Coorg Coffee, which retails powder and speciality blends under the same brand, has already effected a price hike of 20 per cent, he added.

A little over a third of the 300,000 tonnes of coffee produced in India is consumed domestically. The annual growth in consumption is around six per cent, with coffee drinking becoming fashionable among the younger generation through the spread of the café culture.

“This price rise is unprecedented. If the market stays at the current level, we don’t have any option but to increase prices. We will take a call on revising the prices over the next couple of days,” said Shrikant Rao, Director at Bayar’s Coffee.

Watching developments

However, large companies such as Tata Coffee are cautious in reacting to the price rally. “The market has gone up in the past four days. We have to study the market before taking a call on prices,” said Hameed Huq, MD of Tata Coffee Ltd, the country’s largest coffee grower.

Moreover, the lower-than-expected crop size back home is seen supporting prices. The Coffee Board has lowered its estimates by about 10 per cent, pegging the current crop size at 3.1 lakh tonnes as untimely rains in Karnataka, the main producing state, has shrunk the crop. However, growers harvesting their produce said the crop is much lower than the Coffee Board’s estimates.

(This article was published on February 21, 2014)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.