Domestic demand makes up for lower coffee exports

The domestic demand for coffee remained robust despite subdued export enquiries from international buyers on the back of the ongoing European crisis and higher domestic price of the robusta variety, which is taking cues from the present high price level in the international market.

“As Europe accounts for a major chunk of Indian exports, there are few buyers in the market due to the ongoing debt crisis. However, domestic demand is robust and addition of unconventional geographies will help in sustaining this in future,” Babu Reddy, agricultural economist of Coffee Board of India said.

While demand in northern part of the country increased 40 to 45 per cent, traditional market of south India showed a growth of 5 per cent, he added. He, however, said that exports from India would revive with turnaround in the European economies.

According to the Coffee Board, India is estimated to produce around 289,000 tonnes of coffee this crop year starting from October 1 out of which two-third of the output is set to be exported.

However, officials said that the board would come up with revised estimate soon as there were signs of higher output of the commodity.

“The feedback from planters shows that this is going to be a good crop year. So, we expect production on a higher side. However, we are yet to come up with a revised estimate,” Reddy said.

Meanwhile, coffee futures climbed to a 27-month high in New York, while prices in London have rallied 17 per cent this month.

“There seems to be secular bull trend in the coffee market with 10-25 per cent price variation expected in the near term,” Biren Vakil, director, Paradigm Commodities said.

Present rally is due to a weak dollar and low level of effective interest rate, which drives fund houses to put their money into commodities market, he added.

About domestic pricing, he said, “Domestic prices will not remain depressed for a long time in the wake up higher price level globally.”

According to a recent report of United States Department of Agriculture, global coffee production is expected to rise 11 per cent to 139.7 million bags (one bag of 60 kg each) from 125.7 million bags a year earlier.

While Brazilian production is expected to increase 23 per cent to 55.3 million, the second largest producer — Vietnam may touch 18.7 million bags in the year starting from October 1, which is a 7 per cent rise over last year.

Indonesia, the third-largest grower, will harvest 9.6 million bags by March 31, up 4.9 per cent over last year.

However, analysts are of the opinion that higher production estimate may not be able to cool off prices in the short term.

“Higher production will have less impact on the recent rally and we expect a 10 to 15 per cent rise over current prices in both Liffe and ICE futures in near future,” Chowda Reddy, an analyst from JRG Wealth Management said. He, however, said that higher output would bring down prices in the long-term.