Even as the recent disruptions in the Red Sea shipping route have lead to spiralling freight rates, Indian coffee exporters are facing competition from Uganda in the key European markets, mainly Italy, for the premium robusta coffees.

Exporters fear that the premiums which the Indian robustas command in the European market may come under pressure with growing competition from the African producers.

“The sharp increase in freight and insurance rates is creating problems for both buyers and sellers,” said Ramesh Rajah, President, Coffee Exporters Association. The freight rates are up by 50-75 per cent as the shipments have to take a detour to avoid the conflict zone in the Red Sea.

Crisis for others too

While the Indian coffee to Europe is sold on the cost and freight basis, the insurance cost is largely borne by the buyers. Exporters are quoting higher prices factoring in the increase in freight costs. “The buyers are not happy with the increase in freight and insurance costs. There’s confusion on how to deal with this crisis and each buyer is trying to find a solution,” Rajah said.

Besides India, other exporters from Asia such as Vietnam and Indonesia are also seen bearing the brunt of this crisis.

“There’s a temporary lull and we hope these issues are resolved soon,” Rajah said, adding that the higher costs have to be absorbed to retain the markets.

Meanwhile, Uganda has stepped up the competition trying to break into the premium robusta market in Italy by selling at a lower prices, Rajah said. Italy is the largest buyer of the Indian coffees.

“There is going to be pressure, if this prevailing crisis is not sorted out and India may have to drop the premiums to retain the markets,” Rajah said.

Currently, the Indian robusta parchment is commanding a premium $800-850 over the London International Financial Futures and Options Exchange (LIFFE) prices. Similarly, the Indian Robusta cherries are at a premium of $400-500 over the London terminal prices.

Sluggish start

Coffee exports have been rather been sluggish in the new year, so far. The export permits issued by the Coffee Board were down about 8.5 per cent during the January 1-16 period this year at 11,995 tonnes compared with 10,974 tonnes a year ago.

Rajah attributed the sluggish pace to the lower availability of coffees as the picking and processing has been rather slow this year. The harvest has been impacted by factors such as labour shortage and inclement weather in the key producing regions of Karnataka and Kerala. Also, as prices continue to rule firm tracking global cues, growers are not keen to sell their produce, expecting prices to move up further.

In calendar year 2023, Indian coffee touched a record $1.16 billion, up 4.5 per cent from the previous year.