Turnaround in coffee fortunes on the horizon

Arvind Jayaram | Updated on August 03, 2013 Published on August 03, 2013


Global coffee prices are likely to witness a modest revival this year amid a decline in production. This spells good news for domestic growers, who are projected to reap a record crop this year in the wake of healthy rainfall.

Prices of the arabica variety of coffee have fallen by 17.8 per cent (to $1.19/pound) on the New York Board of Trade in 2013 so far, while the robusta variety has lost 4 per cent (at $1,881 per tonne) on the London International Financial Futures and Options Exchange.

Dip may prove boon

A dip in production this year could brighten coffee’s prospects going forward. World coffee output has been forecast at 8.8 million tonnes (mt) in 2013-14, a fall of 2.64 lakh tonnes in comparison to the previous year. The reduction is primarily due to Brazil’s arabica trees entering the off-year of the biennial production cycle. Besides this, coffee leaf rust continues to affect plantations in Central America and Mexico.

Also, global bean exports have been pegged below the all-time high achieved last year. At 6.8 mt, coffee exports are expected to dip by 1.3 per cent in 2013-14, says the US Department of Agriculture. This is despite a 0.8 per cent rise in demand to 8.5 mt, which will put upward pressure on prices.

However, coffee inventories — which are near their highest levels in three years — may not let prices rise very sharply.

Domestic Scenario

India will see a 9 per cent jump in coffee production to 3.47 lakh tonnes in 2013-14, according to the Coffee Board. Of the total production estimate, output of the arabica variety of coffee bean is estimated to increase by 12.9 per cent to 1.11 lakh tonnes, while robusta production is expected to increase by 7.5 per cent to 2.36 lakh tonnes.

Consumption in the country, while on the rise, is unlikely to absorb the entire quantum of domestic production. In 2012-13, domestic consumption of coffee stood at 1.15 lakh tonnes, the same level as in 2011-12 and approximately one-third of the total output expected this year.

With an expected surplus equivalent to two-thirds of total production, this opens the door for augmented exports to overseas markets. India exported 3.10 lakh tonnes of coffee in the 2012-13 marketing year, which was valued at Rs 4,372 crore. This was a 4.2 per cent rise from Rs 4,546.73 crore through the export of 3.24 lakh tonnes in 2011-12.

monsoon fears

The scenario, however, would change for the country, if excess monsoon rainfall damages crops. There have been reports of kole roga (a rotting disease) in some areas due to heavy rains.

The slump in global prices of coffee over the past two years has been a significant damper for the domestic coffee industry. Producers are faced with the quandary of earning less for their produce whilst shouldering higher input costs amid a progressive phasing out of subsidies on fertiliser and diesel. What is more, labour costs — which account for over 50 per cent of the cost of production, have risen significantly.

> arvind.jayaram@thehindu.co.in

Published on August 03, 2013
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