Agri Business

Rising arabica prices bring back smiles on growers' faces

A Srinivas Bangalore | Updated on February 07, 2011 Published on February 07, 2011


With arabica coffee prices ruling at record highs, the country's growers are making as much money as in the mid-90s. Arabica parchment producers will make a neat profit of at least Rs 90 a kg, or 80-100 per cent of their cost of production.

Producers of arabica parchment ? which is likely to account for at least three-fifth of total arabica output ? will make a profit of more than Rs 400 crore this season.

This estimate of profit takes into account the arguments of growers on output and costs. These include: a 15 per cent drop in arabica output over the post-blossom estimates, or a 2010-11 output of 86,200 tonnes, leading to higher unit costs; and a 30 per cent rise in costs since 2008-09.

OUTPUT ESTIMATES

Growers argue that a poor arabica crop will offset benefits from the price realisation, particularly in north Kodagu, where the drop in relation to the post-blossom estimates has been pegged at 30 per cent. They estimate the drop in arabica in Hassan and Chikmagalur at 15 per cent and 10 per cent, respectively, which amounts to an overall drop of 15 per cent. Industry sources said that the arabica output of large corporates could be hit by 15-20 per cent vis-?-vis the post-blossom estimates.

Mr Ashok Kuriyan, Managing Director, Balanoor Plantations and Industries Limited, said: ?The arabica growers in north Kodagu and parts of Chikmagalur have been badly hit. As far as we are concerned, there is little difference in profitability between last year and this year. The price realisation factor has been offset by the drop in productivity and higher per unit costs. We would rather have a high crop and a relatively lower price, rather than a poor crop with a high price.?

However, Coffee Board officials said that the drop in arabica output, as a result of rain in November and December, would not exceed 5 per cent in relation to the post-monsoon estimates. According to this view, arabica output should be at least 90,000 tonnes.

PROFIT CALCULATIONS

The Coffee Board, for 2008-09, estimated the cost of Arabica production at Rs 63,000 / hectare, assuming a yield of 900 kg/ha and a wage of Rs 92.43 for a man day. The yield can be considered as higher than the norm, since the average productivity of Indian coffee is about 800 kg/ha, owing to higher robusta yield. Taking into consideration the arguments of growers, arabica yield can be pegged this year at 650 kg/ha and the cost per hectare taken at Rs 80,000, accounting for the 30 per cent rise cited by growers. The average cost per kg is unlikely to exceed Rs 123, even under these generous assumptions.

The average realisation from parchment coffee, since the start of the season, is Rs 9,200 for a 50-kg bag (Rs 184/kg), since the season's prices started at Rs 8,500 for a bag and are now ruling at Rs 9,800. The large growers, who cure their coffee, would sell 42 kg to the trader for Rs 9,200, which works out to Rs 219/kg, earning a premium of 25 per cent for curing. Curing and transportation costs are unlikely to exceed Rs 10/kg. Therefore, parchment growers are likely to left with an average income of at least Rs 209/kg.

The profit made by large family estates and corporates growing arabica parchment would be at least Rs 86/kg (209-123) on an average. The small arabica parchment growers, who do not cure their output, would still make a profit of over Rs 70/kg, as opposed to Rs 61/kg (184-123), because of lower overheads and labour costs.

A 60 per cent conversion from raw coffee to parchment, as against the usual 70 per cent on account of the rain in November and December, implies an output of at least 52,000 tonnes of arabica parchment, assuming a 15 per cent output drop over post-blossom estimates. This amounts to a profit of well over Rs 400 crore for producers of arabica parchment. If worst-case-scenario assumptions are discounted, the figure would be higher.

Mr Sahadev Balakrishna, Chairman, Karnataka Planters' Association, said: ?Despite the price rise, the incomes are not unusually high this year, as there has been a productivity drop. However, the surpluses are likely to be invested in replanting and post-harvest processing technologies.?

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Published on February 07, 2011
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