Reasons: Low output, higher export prices.
Indian coffee is losing its competitive edge in the global market on account of exorbitant prices. It is commanding a high premium which global buyers, hit by the ongoing recession, are unwilling to pay. As a result, coffee exports have declined over 21 per cent during the first 10 months of the current coffee year (October 2008-September 2009).
Exports between October 2008 and July 2009 stood at 152,681 tonnes, as against 194,058 tonnes in the corresponding period of the previous coffee year.
While the global economic slowdown has had an impact on demand, Indian coffee has been losing on the pricing front. The prices of Indian coffee are 20 per cent higher than the central American variety and 5 per cent higher than the Vietnamese coffee.
“Prices are extremely high. At this rate, the next six months are going to be the worst for Indian coffee,” said Ramesh Raja, president, Coffee Exporters Association of India. According to the Coffee Board data, the price of Indian arabica coffee futures for September delivery was around $1.23 a pound, while the December contract was even higher at $1.26 a pound.
Lower coffee output in India is behind falling export volumes and high prices. The largest producing state, Karnataka, witnessed heavy crop loss last year due to excessive rain and the berry-borer menace.
According to Coffee Board estimates, India’s coffee output will be 262,300 tonnes by the end of the current coffee year, which is 10 per cent lower than the initial estimates. Normally, India exports about 75 per cent of the coffee it produces.
Exporters expect the current coffee year to conclude with exports of around 180,000-190,000 tonnes, 14-18 per cent lower than in the previous coffee year. With this, India’s coffee exports will touch a 10-year low.
Italy and the Russian Federation are major buyers of Indian coffee. Of the total coffee exports, about 25 per cent go to Italy and about 10 per cent to the Russian Federation. This year, the demand for Indian coffee has been poor in both the EU as well as the Russian Federation. Coffee exporters are now looking for government aid in the form of higher subsidies.
“The industry is badly in need of increased assistance from the government. We have approached the Union commerce ministry seeking a hike in export subsidy,” said Raja. The industry gets 4 per cent export subsidy under the Duty Entitlement Pass Book scheme and 3.5 per cent under the Vishesh Krishi and Gram Udyog Yojana. The industry wants a subsidy of 5 per cent under both these schemes.
