Agri Business

Coffee sector’s cup of woes brims over on Covid, weak Real

Vishwanath Kulkarni Bengaluru | Updated on June 12, 2020

According to estimates, exporters have incurred a loss of about ₹384 crore   -  PV SIVAKUMAR

Delayed shipments, order cancellations, forex losses push the sector into fiscal distress

The double whammy of Covid crisis and devalued Brazilian Real has deepened the crisis in the country’s coffee sector that was already reeling under the impact of low prices, rising costs and stagnating yields.

While the Covid lockdown has triggered labour shortage and shrunk incomes of growers from other sources such as pepper, timber and tourism (homestays), the weak Real has made Indian coffees uncompetitive in the world market, hurting exports. Growers and exporters have demanded that the government extend immediate relief to overcome the impact of the crisis.

Order cancellations

Indian exporters have faced order cancellations and delayed shipments due to the lockdown even as the demand for coffee has shrunk in consuming countries with a major impact of the pandemic on out-of-home consumption.

According to initial estimates, exporters have incurred a loss of about ₹384 crore, said Ramesh Rajah, President of the Coffee Exporters Association. Rajah said instant-coffee exporters have faced losses to the tune of ₹189 crore and green bean exporters at ₹195 crore.

Major reasons attributed for the losses include order cancellations, variation in prices, delayed shipments, carrying costs, demurrage, forex losses and extra insurance premium among others due to the pandemic. Instant-coffee exporters also faced production losses due to factory closure during lockdown, Rajah said.

Brazilian connection

Further, the substantial devaluation of Brazilian currency weakening the global prices has hurt the competitiveness of the Indian coffees. The Real has weakened by about a fourth against the dollar since the beginning of the year till date, while the Indian rupee has depreciated by around 7 per cent during the period.

“In addition to weak demand, we are now facing problems in getting new orders as we have to compete against Brazilian exporters who are pumping out coffees at lower prices,” Rajah said.

India exports about two-thirds of the over 3 lakh tonnes of coffees produced. According to the latest data from Coffee Board, permits issued for shipments from January 1 to June 9 were lower by 22 per cent at 1.15 lakh tonnes as against 1.47 lakh tonnes in the same period last year. Permits issued for instant coffee shipments for the period were down by 41 per cent at 5,584 tonnes as against 9,467 tonnes in same period last year. Re-exports during the period were up marginally at 38,203 tonnes as against 37,684 tonnes. Overall shipments during the period were lower by 17 per cent at 1,53,672 tonnes as compared to 1,85,310 tonnes.

MP Deviah, General Manager, Allanasons, a large exporter, said the weakening of Real is giving Brazilian exporters a big advantage and impacting the overall global prices. “There is uncertainty in the market and there could be some on the robusta exports,” Deviah said.

While the shipments of mild variety Arabicas has largely been done, the exporters of robustas are facing a major hurdle. Buyers are seeking discounts of up to 15 per cent for the robusta parchment, while it is higher in case of lower grades, Rajah added.

Plea for MEIS benefit

According to him, the Centre should restore the MEIS benefit of 5 per cent for January-June period to help exporters deal with the crisis. The International Coffee Organisation has said Covid pandemic has posed a threat to global coffee demand, which has been growing at 2-2.5 per cent annually over the past several years.

This contraction of demand growth holds challenges for the agricultural supply side around the world, where farmers have been struggling to cope up with prices trading below cost of production in several origins already.

Growers hit badly

“The situation of growers due to the lockdown has gone from bad to worse,” said UM Thirthmallesh, President of the Growers Federation, a body representing small and medium growers.

As the relief package announced by the Centre has not benefited coffee growers, the government should waive all crop loans with interest as on April 30 of individual growers and extend interest relief on debts for term loans, Tirthmallesh said. Further the principal of term loans should be restructured into long-term loans with repayment period of 10 years at 3 per cent interest along with 3 years moratorium, he added.

Coffee growers, who were already reeling under the impact of multi-year low prices, are now faced with labour shortage, as migrant workers have mostly gone back to their native places.

“The labour shortage is not just affecting the work at plantations, but also leading to increase in costs with rise in wages as the existing labourers are demanding more money,” Thirthmallesh said. About 40 per cent of the workers in the coffee estates are migratory in nature. The coffee plantations in Karnataka, which accounts for 70 per cent of the country’s coffee output, attract workers from the eastern districts of the State such as Bellary and Yadgir, and also from Tamil Nadu and the North-East, mainly from Assam.

Moreover, with the onset of monsoon, growers are struggling to carry out the cultural practices to be carried out in plantation such as manuring and spraying of fungicides among others, he said.

Published on June 12, 2020

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