The brew is looking better

IN FOCUS/ COFFEE

After years of hardship, the outlook seems to be looking up for coffee growers with prices of beans reviving and the growth in retailing of coffee through value-added selling formats translating to some gains for plantations.

There may be some good news in the form of falling coffee crop. The Indian coffee crop for example declined by 8 per cent in the last fiscal.

This was expected to help arrest if not reverse in some measure the sustained depression in coffee prices and decline in sales over the last three years, according to ICRA.

The downturn in coffee prices goes back to fiscal 2001-02. This has left many players in the commodity game too exhausted even to go in for mergers or acquisition of estates.

The hard times have thrown up possibilities for M&A activity but players were yet to emerge. Global coffee prices have witnessed a recent uptrend but competition has been intense.

Cost reduction has become a critical parameter in the industry in these hard times, industry insiders point out. "Worldwide, the price of a cup of coffee at a store has gone up but growers, be they in India, Latin America or south-east Asia, have not got proper price for their beans", the source added.

As a result, most growers have remained stuck at the low margin, high cost end of the business spectrum. Few companies have managed to diversify their revenue streams and even then, many were yet to make money from investments in retailing or other selling formats.

Growers producing export grade coffee were also cut off from the market in most cases- they sold coffee beams to trader who made the money on exports. As a result, growers in India and in many other countries have been starved of funds for reinvestment in estate development and renewal.

According to credit rating agency ICRA, companies like Tata Coffee Limited (TCL) are best suited to gain from the present situation in view of the integrated nature of their operations in the coffee business, as well as diversified revenue streams from sale of bulk coffee, instant coffee and other plantation products.

ICRA has pointed out that Tata Coffee owned its coffee estates and curing factories, roasted and ground (R&G) coffee facility and instant coffee production plant. Instant coffee was its largest revenue spinner, followed by sale of coffee beans and other plantation products such as pepper, timber and tea.