Buyers resisting payment of higher premium

Vishwanath Kulkarni

Fallout

Switchover could

impact robusta exports in the Oct-Dec quarter.

This could

also impact the prices of new crop in India.

Bangalore Oct. 2

Has the Indian robusta begun to lose its traditional and largest market Italy to top producer Vietnam? Yes, says the coffee trade. Unable to pay the high premiums for Indian robustas, buyers from Italy are seen switching over to Vietnam in the recent past.

When stocks are low

"There is resistance from buyers to pay a high premium for Indian robusta. As a result, buyers from Italy are switching over to Vietnam," said Mr Ramesh Rajah, President of Coffee Exporters Association of India. This comes at a time when the stocks are low in an overheated market where the prices are at a high, he said.

This switchover from Italian buyers could impact the robusta exports sharply in the October-December quarter. "There will be hardly any robusta exports during this quarter," he said.

New crop may be hit

Further, this would also impact the prices of new crop in India, which will be harvested from January. "There will not be significant difference between robusta prices in India and Vietnam when the new crop comes in," he said.

The development assumes significance as Italy was the only market where Indian coffee exports were growing, while the exports to other key markets like Russia, Germany, Belgium and the US were on the decline. Italy accounted for 26.51 per cent of the total Indian coffee exports of 2.01 lakh tonnes in 2005-06. Of the one lakh tonnes of robusta exported in calendar 2005, Italy imported over 42,000 tonnes.

Dipping premium

About 65 per cent of India's coffee output is of robusta variety. The Indian robusta, due to its better quality as per taste standards in the global market, has been commanding a significant premium for some time now. This premium is over the ruling contracts at the Euronext.Liffe, considered the base price for the commodity.

The premium for Indian robustas, which shot up to as high as $400 a tonne a couple of years ago, had declined to around $100 after the emergence of Vietnam as a major supplier. However, with the current low stocks, premium has shot up again to around $350 a tonne over the ruling contracts at Euronext.Liffe. The November contracts are ruling at $1,539 per tonne and January 2007 contracts at $1490. Robusta prices have gained over 77 per cent in the past one year.

(This article was published in the Business Line print edition dated October 3, 2006)
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