The second-most traded commodity in the world after crude oil, coffee is one of the most valuable primary products in world trade. It is an important source of foreign exchange to producing countries. Its cultivation, processing, trading, transportation and marketing provide employment to more than a hundred million people worldwide. It is one of the most important commodities for many of the least developed economies in Africa.

Considered as the alternative hot beverage of India, coffee is said to have originated in Ethiopia, from where, it spread to Egypt and Yemen. Today, there are two main coffee species cultivated commercially- Coffea arabica and Coffea robusta.

Global Scenario

Global production of coffee was estimated to be around 8.36 million tonnes (mt) in 2010 with Brazil accounting for almost 35 per cent of total production as the world's leading green coffee producer. This is followed by Vietnam (13 per cent), Indonesia (9.6 per cent) and Colombia (6.5 per cent) in 2010.

Arabica coffee is cultivated in Latin America, eastern Africa, Arabia, and Asia while Robusta coffee is grown in western and central Africa, throughout South-east Asia, and to some extent in Brazil. Major consumers of coffee include the US, the EU nations particularly Germany, France and the UK followed by Brazil, Japan and other countries in Europe and North America.

Indian Scenario

Production: India is the sixth-largest producer of coffee after Brazil, Vietnam, Columbia, Indonesia, and Ethiopia. With 4,04,645 hectares under coffee cultivation, India accounts for 3.8 per cent of total coffee production (3,02,000 tonnes in 2010-11). In India, Karnataka (70 per cent), Kerala (20 per cent) and Tamil Nadu (7 per cent) are the major producers of coffee. Arabica production amounted to 31 per cent of total output, the remaining 69 per cent being contributed by Robusta. In 2010-11, coffee production in Karnataka and Kerala stood at 2,13,780 tonnes and 65,650 tonnes, respectively, while Tamil Nadu produced 16,650 tonnes during the period. Production of coffee, which was highly concentrated in the South, has now extended to non-traditional areas particularly Andhra Pradesh, Odisha and to North East in the recent years to almost 40,000 ha.

Consumption: Coffee has become increasingly popular in India over the last few years. It is no longer a traditional beverage, but positioned as a youthful and trendy beverage. According to the Coffee Board, domestic consumption is increasing 5 to 6 per cent annually, partly due to expansion of the café culture and the spread of the coffee drinking habit throughout India. Coffee consumption is estimated to be 108,000 tonnes (2010). Urban consumption dominates with about 73 per cent of total volumes and the remaining from rural consumption. South India alone consumes nearly 78 per cent of total coffee consumed in India.

Recent Trends: The coffee planting and bearing area in India has shown an upward trend mostly due to expansion of cultivation in non-traditional States. Arabica coffee productivity in the non-traditional areas is reported to be much lower than in the traditional belt (9.2 quintals/ha), which has brought down the overall yield to 8.4 quintals/ha. Compared to an yield of 21 quintals in Vietnam and 13 quintals in Brazil, productivity is low in India on account of limited mechanisation, pest infestation and labour shortage. Higher price realisation during the past three to four years has prompted coffee growers to follow better agronomic practices, supporting higher production. However, labour costs, which account for almost 65 per cent of the cost of coffee cultivation have continued to escalate in the past few years.

Policy: The Indian Government/Coffee Board provides various subsidies, mostly to small and marginal coffee producers to increase production and improve quality. In addition, the Ministry of Commerce has included coffee in the list of products eligible for the duty entitlement passbook (DEPB) scheme and the Vishesh Krishi Upaj Gramodyog Yojana (VKUGY).Total duty credit under the programmes is subject to a maximum of 7.5 per cent. On April 29, 2010, the Finance Minister announced a new Debt Relief Package in Parliament, intended mainly for small coffee growers. Accordingly, 50 per cent of the pre-2002 term loans taken by coffee growers were to be waived, subject to a maximum of Rs 5,00,000 for a farmer.

Way Forward

Globally coffee consumption is expected to grow at 6 per cent annually. Both domestic and international coffee prices hit record highs in calendar year 2011, coupled with all-time high exported volumes. The domestic coffee production is expected to increase at a CAGR of 6.2 per cent for the next three years, while consumption is expected to grow at 6.4 per cent. With coffee outlets set to increase multi-fold in the next 3 years, the coffee industry is likely to continue witnessing similar growth trend in future. India being a minor player in the global market has great potential to improve its market share through higher yields and improved quality. Besides, with domestic consumption being very small when compared to the consumption trend globally, there lies a huge opportunity to expand the market with the help of intensive coffee promotion. At the same time key pressing issues of labour shortage and migration, and tremendous increase in cost of labour are major concern areas for the industry, which are to be critically addressed through effective policy interventions.

Source: YES Bank

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