The Rs 2,500 crore Indian coffee industry has come a long way. It is now a style statement at cafes across the world. India accounts for 4 per cent of world coffee production, but exports over 70 per cent of it. The financial crisis has hit coffee exports that declined 5-6 per cent in FY09 (181,479 tonnes up to March 5), compared to FY08 (190,944 tonnes).
The decline was more pronounced in Jan-Feb 2009, with exports down 14.5 per cent. According to Coffee Board chairman G V Krishna Rau, this drop introduces some concern, but may not harm the industry in a big way. In an interaction with Rashmi Shrikant and Praveen Bose, he shares his views on Indian coffee.
The demand for premium and value-added coffee, in particular, from markets like Russia and Europe has fallen. Is recession the main reason for this?
In a sense, yes. Like other products, coffee too has seen a fall in demand. However, volatility in the world prices too has contributed to the export slowdown. Global prices suddenly fell over 25 per cent during Sep-Nov 2008.
Both buyers and exporters were anxious of the direction the prices would take. Therefore, no forward contracts were concluded. Besides, a major cause for drop in exports is the reduction in India’s coffee output this year.
What caused the reduction in coffee output?
Our post-blossom survey estimated the new crop to be 293,000 tonnes for crop year Oct’08 - March’09. We revised it down 5.6 per cent, to 276,000 tonnes in the post-monsoon survey in November 2008.
However, crop has been below estimates in parts of Karnataka, mainly Chikmagalur, due to untimely rains and berry borer menace. We estimate there will be a further fall of 10,000-12,000 tonnes in output.
How much of a concern is the recent drop in exports?
It introduces some concern but not to the extent that it could affect the industry in a big way, unless this drop becomes a trend. The crop from Brazil is expected to be lower, meaning, supply will be less than than demand. Assuming the dollar weakens, a combination of these two will see prices firm up in a few months.
What assistance is given to growers to improve quality of their coffee and fetch a better price?
Subsidy for constructing drying yards, for setting up pulping and washing units, and assistance for irrigation are provided to small growers. There is a need to encourage exports in retail packs. For this, we have introduced a scheme - on every kg of coffee exported in retail pack, we provide growers Rs 2 as incentive.
How does shipping in retail packs help?
Some company, say in Europe, imports coffee from India in bulk, processes, repacks and sells it under its own brand name, and we lose branding opportunity. Of course, there is no point in competing with the developed countries in the technology for fine-tuning coffee as far as roast and ground is concerned.
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However, in case of instant coffee, it is the same coffee manufactured here, repackaged in some other country. Therefore, the opportunity is to convert bulk of instant coffee exports into retail packs, positioning India brand in the global market.
How do you intend to increase domestic consumption of coffee?
The sustainability of our coffee industry is possible only through a strong domestic market. We have been conducting Kaapi Shastra programmes, in the North. There is a programme to support entrepreneurs to set up roasting/ packaging units.
Once these units come up, we are confident consumption will grow faster.
A couple of major international players are firming up plans to establish large capacity roasting units in India. This would not only help provide more options to consumers but would also help increase the export of value-added coffee. A sharp fall in coffee prices from 1998 to early 2006 caused hardships for Indian growers. NCDEX launched coffee futures in 2007.
Has this helped growers hedge price risks? Till now the participation of growers in futures market is insignificant…
About 99 per cent of India’s coffee growers are small and they would not be the first ones to jump into futures market. Large growers and traders are very limited in number. The weekly auction, with very small numbers, is not good enough to create liquidity. Apart from those trading in coffee no outsider wants to participate.
Unless speculators come in, liquidity will not improve. Speculators will not come in if trade is small. Traders do need hedging opportunities, but futures alone does not provide adequate hedging opportunities.
Traders are looking for options. In my view, if options are permitted, perhaps it will provide for increased volumes in futures also, as they go hand in hand. The other possibility is introducing electronic spot market. Today we don’t have a transparent spot market as the number of players is very less and anonymity is not there.
