Agri Business

Low prices, lack of overseas demand steal aroma off coffee

Vishwanath Kulkarni Bengaluru | Updated on January 22, 2018 Published on December 16, 2015

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The new coffee season has begun on a tepid note for the Indian growers as prices for the mild and premium variety arabicas, currently being harvested, are almost lower by a fifth over corresponding last year levels. The farmgate price of the new arabica parchment is hovering between ₹7,700 and ₹8,000 per 50-kg bag compared to around ₹10,000 levels at the beginning of the season last year.

“The low price is a worry. The price for the new arabica is being quoted around Rs 7700 in the last two days,” said Bose Mandanna, a grower at Suntikoppa near Madikeri in Kodagu, the key coffee growing region in Karnataka.

Excess supplies

Attributing the current downtrend in prices to the excess global supplies, Mandanna sai, “the demand for Indian coffee is not there as it used to be earlier. Perhaps, the financial position of the consuming countries is also a playing a part.”

Though the pickings of arabicas began early this year in mid November, the cloudy weather that prevailed over the last couple of weeks has impacted the drying process of the beans. As a result, the new arabica crop has begun to hit the market, but in a trickle.

Crop size, picking

Trade sources expect the arrivals to pick up from early January. However, a section of the trade believes that the growers – mainly large and medium – may hold back their produce in anticipation of better prices. The picking of arabica beans is in full swing in the key growing regions of Coorg and Chikmagalur. “About 40 per cent of the picking is over in these regions,” said an official at the large multinational trading unit, who had visited these regions recently.

Based on the progress of the harvest in Karnataka, trade sources estimate that the current arabica crop in the State could be bigger by about 10-15 per cent over last year’s 74,755 tonnes. The Coffee Board, in its post monsoon estimates released on Tuesday, had placed the arabica crop for 2015-16 at 1.10 lakh tonnes, about 12.55 per cent higher than last year.

Slack exports

The lack of export demand is also influencing the domestic prices. After having burnt their fingers by selling coffee in advance last year, exporters are not aggressive on taking any positions. Normally, the exporters start booking orders from September and the order books tend to swell by mid-December. But this year the order books are very thin.

“We are at a tenth of what we had booked around this time last year,” said Ramesh Rajah, President of the Coffee Exporters Association. “We have never seen this thin order books in the last two decades,” he said.

Volatile prices

Further, Rajah said the slump in global commodities led by oil and gold is also influencing the volatility in coffee prices.

“Even at the ₹7,700-7,800 levels, the Indian coffee is still expensive compared to the Colombian variety that it directly competes with. As a result, buyers are waiting and watching,” said Rajah. The Indian coffee is commanding a premium of 30 cents per pound over the New York Terminal prices, while the differential (premium) for the Colombian variety is 10 cents.

However, Rajah said the drop in prices amid increasing cultivation costs is proving to be a double whammy for the Indian growers hurting their realisations. “Any price of below ₹9,000 per bag is difficult to break even,” Rajah added.

India exported 2.83 lakh tonnes of coffee valued at ₹4,900 crore in the financial year ended March 2015.

Published on December 16, 2015
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