A heady brew

Though coffee production yields and prices are up, the industry is paying the price for galloping wages.

Coffee season 2006-07 in India is nearing its end, and for the growers it is proving a roller coaster ride, especially for those in Chickmaglur in Karnataka.

The shadow of two successive droughts during 2002-03 and 2003-04 is still looming large. The industry, both in domestic and international coffee markets, faced low and un-remunerative prices in the wake of high input costs like fertlisers. Currently, it is waiting for some central government aid by way of re-scheduling of loans and assistance of re-planting coffee plants.

According to the Karnataka Planters Assocation (KPA) chairman, Jeffery Rebello, "The plantation industry faced a grave financial crisis between 2000 and 2004 due to the sharp reduction in the prices of major plantation crops like coffee and tea. There has been some improvement in the prices of coffee since 2005. However, in view of the two continuous seasons of drought during 2002-03 and 2003-04, there has been a huge crop loss due to infestation of pests and diseases like white stem borer and leaf rust in addition to the costs of inputs like fertilisers."

Despite all negative indications, the coffee production estimates put out by the Coffee Board (post-monsoon estimate) is at 2,88,300 tonnes, representing an increase of 5.2 per cent. Compared to the pervious year's production, it is lower than the post-blossom estimate of 3,00,300 tonnes.

"Looking at the factors at play, though the world coffee production has reported around 12 per cent increase (122.27 million bags of 60 kg each in 2006-07, compared to 109.5 million bags in 2005-06) due to increased Brazilian production, it was not enough to build up stocks, which was one of the reasons for the steady prices of coffee," says J K Thomas, chairman, United Planters' Association of Southern India (Upasi).

The volatile market took its toll on prices offered for the crop, but as per the Indian Coffee Trade Association (ICTA) data, there is an increase of 6 per cent for Plantation A, 1.7 per cent for Arabica Cherry AB and 17.7 per cent for Robusta Cherry AB for the year 2006.

The significant increase in Robusta prices was due to reduced crop from Vietnam during 2005-06, which was lower by 6.9 per cent (14.5 million bags in 2004-05 compared to 13.5 million bags).

However, higher prices is hardly a blessing, with shooting labour costs, which have increased manifold over the past five years, with wages having gone up by almost 20 per cent.

"In view of this, any improvement in the prices of coffee has not significantly affected the revenue of coffee growers, and the coffee sector has not been able to recover from losses, which it incurred all these years," points out Rebello.

---

SNIPPETS

Out-of-home
Coffee is seen as "hip and happening", much to the credit of cafe outlets. A Coffee Board survey has revealed that in-home consumption accounted for 84 per cent of all beverage consumption.

In terms of out-of-home consumption, coffee's share has grown significantly from 6 per cent of total beverages in 2003 to 15 per cent in 2005.

In developed countries, however, the consumption of beverages out-of-home is high. There is a significant opportunity to grow beverage consumption out-of-home, with coffee as the growth driver, and cafe chains are cashing in on this.

The two most familiar names are undoubtedly Cafe Coffee Day and Barista. Barista has 160 outlets. Cafe Coffee Day has 381 cafes across 70 cities. The ratio of company-owned and franchises between the two brands vary widely.

Not only are the brands expanding on home ground, but also abroad. Cafe Coffee Day has opened an outlet in Vienna, Austria, and is planning to open other cafes in the Middle East, eastern Europe, Eurasia, Egypt and South-east Asia in the coming months.

Barista already has a presence in the Middle East and Sri Lanka. What reinforces that the cafe format is growing and will continue to grow is the entry of new players into the market like Starbucks, one of the world's leading coffee chains.

Star-studded
Starbucks' foray into India has caused much enthusiasm in the cafe circle, but the brand has been around for a while now, albeit in a different form.

Since 2002, Tazo Tea "" the tea-related operation of Starbucks Coffee Company "" has been in collaboration with Mercy Corps, an international humanitarian organisation, on a project called CHAI (Collaboration for Hope and Advancement in India).

The project began a new era of corporate support and social investment in Darjeeling. The CHAI project was designed to take a proactive approach to community development within the region, aimed at improving the quality of life of more than 11,000 people living in 24 rural areas.

Mercy Corps initiated the project by conducting a needs assessment in the region to identify the areas in which the CHAI project could make most impact. Another project is being planned in Assam in collaboration with the Indian Tea Association.

"" Ishita Ayan Dutt