High costs, liquidity crunch give tough time to coffee firms

The global economic meltdown had its impact on the coffee sector resulting in lower exports from countries, including India, Columbia and Vietnam. Retail consumption of coffee in the US, Russian Federation and European countries drastically came down due to job losses and less disposable income with people. In developing countries and emerging markets, coffee is still considered a luxury. Besides recession, high inflation rates and shooting production costs have adversely impacted the coffee industry.

“The industry is going through an unusual crisis due to a slowdown in demand, scarcity of funds and job losses. The climate change impact in producing countries is also a worrying factor,” said Nestor Osorio, executive director, the International Coffee Organisation (ICO).

Addressing the delegates at the third edition of India International Coffee Festival (IICF-2009) here on Thursday, Osorio said, “Due to high inflation, the burden of production cost is mounting on coffee growers. Besides this, volatile currency rates are also posing challenges to the global coffee sector.” According to him, coffee prices will remain volatile in countries with exchange rates linked to the dollar. Lack of remunerative prices discourage growers from reinvesting in their own farms.

Even while there was a decline in retail sales at coffee bars, consumption at homes was increasing. Though exports from some countries including India were hit, global exports remained marginally high, protecting the world market. Global shipments rose 3.49 per cent to 98.6 million bags (each bag of 60 kg) in the October 2008-August 2009 period.

The world coffee consumption has gone up from 104 million bags in 2000 to 130 million bags now. Production more or less matches consumption. Coffee producing countries account for 26 per cent and emerging markets 16 per cent of the world coffee consumption, while the developed countries account for 58 per cent.

Global producers, even in a big coffee growing country like Brazil are unable to retain stocks. The financial crisis has put pressure on institutional funding leading to lower inventories. Hence producers are compelled to put more coffee beans on sale in international auctions. “ICO is planning to set up a forum next year, to facilitate credit to growers in producing countries at low interest rates for retaining stocks and to meet their capital requirements,” the executive director said.