Coffee Prices Rise Thrice In A Year

All attempts to rein in coffee prices have come a cropper. The All India Coffee Merchants Association's decision to raise the price of best grade Arabica coffee powder by Rs 10 to Rs180 per kg , the third in two months (it was increased from Rs150 to Rs160 in February and from Rs160 to Rs170 in March), may leave a bitter taste in the consumers mouth . A fall of 10-15 per cent in domestic production of coffee to 1.75- 1.85 lakh tonnes as against the targetted 2.05 lakh tonnes was the immediate provocation for a price hike. Uncertainty in the global market is another reason being cited for the upward revision in prices. The intermittent drought in Karnataka ,the major coffee producing state, affected production. Supply has fallen short of rising demand, and has sent prices haywire.

 

The decision of the Association of Coffee Producing Countries (ACPC) to cut export quota for coffee of its 14 members by 1.3 million 60-kg bags to 25 million bags may exert pressure on prices despite the Association's disclaimer. The international coffee trade is in the hands of private traders, and the governments have little control over their activities.

The price of Plantation A variety rose from Rs 72 per kg in May 1996 to Rs 105 per kg in September 1996. It fell to Rs 91per kg in November 1996 only to firm up at Rs 111 per kg in February 1997. Two other varieties viz. ARA CHY AB and ROB CHY. AB showed similar trends. After tea exports, coffee is an important foreign exchange earner for India. However, coffee exports dipped 15 per cent in value terms and 6.5 per cent in volume terms in 1996-97. This was because domestic coffee prices were nearly 50 per cent higher than the international prices. In 1995-96 the country witnessed a rise of 23 per cent in coffee exports. Revenue earned fromexports of 1.71 lakh tonnes was valued at around $450 million during that period. Coffee exports rose from Rs 252 crore to Rs 1503 crore during 1991-96. The share of coffee in total exports has almost doubled from 0.8 per cent in 1990-91 to 1.4 per cent in 1995-96. In the last 2 years, there has been a sharp rise in value realisation from coffee exports because of bullish

prices in the international market. Unit price realisation rose from Rs 81.95 per kg in 1994-95 to Rs 96.28 per kg in 95-96 up, a rise of 17.5 per cent.

There is a general agreement over the need to reduce cost of coffee production and step up productivity. Ashok Kurian , managing director, Balanoor Plantations & Industries, says , We must ensure that at a selling price of Rs 40 per kg for Robusta and Rs 60 per kg for Arabica, we must make profits. The present cost of cultivation is around Rs 25 per kg for Robusta and Rs 35 per kg for Arabica. So a 100-acre estate yielding 500 kg/acre must make a profit of Rs 12.50 lakhs in case of Arabica and Rs 7.50 lakhs in case of Robusta. If we take the cost of land at Rs 2.50 lakhs, return of investment is 3.75 per cent for Robusta and 6.25 per cent for Arabica.

Robusta and Arabica are the two main varieties grown in India. Domestic demand is around 50-60,000 tonnes annually. Nearly a third of the total output is exported. Area under cultivation has grown from 92,500 hectares in 1950-51 to 2.93 hectares in 1994-95. Karnataka alone contributes nearly 70 per cent of the Indian coffee production followed by Kerala (21 per cent) and Tamil Nadu (8 per cent). From around 2.08 lakh tonnes in 1993-94, coffee output fell to 1.80 lakh tonnes in 1994-95 but increased sharply to a record 2.23 lakh tonnes in 1995-96. Large variations in coffee production is owing to seasonal factors as coffee is extremely sensitive to changes in weather conditions. India exported 1.37 lakh tonnes each in 1993-94 and 1994-95. In 1995-96, exports rose to 1.70 lakh tonnes. India should cash in on the fact that the world coffee market is expected to consume about 100 million bags this year. For the 1996-97 year/season, the Coffee Board has set a production target of 2.05 lakh tonnes. The state-wise

break-up is as follows: 1.41lakh tonnes (1.59 lakh tonnes) from Karnataka , 0.47 lakh tonnes from Kerala (0.45 lakh tonnes ), 0.16 lakh tonnes (0.18 lakh tonnes) from Tamil Nadu, and the rest from other non-traditional areas. The industry feels that production would be lower at around 1.80 lakh tonnes with the outputs of both Robusta and Arabica pegged at 0.90 lakh tonnes each thanks to unseasonal rains. Asian Coffee and Consolidated Coffee showed that the going is not all that good for 1996-97. Their sales income fell by seven per cent to Rs 56.9 crore (Rs 61.2 crore) during the first half of 1996-97. A steep fall of 47 per cent in the sales income of Asian Coffee was the reason for this disappointing show. Coffee accounts for 62 per cent of Consolidated Coffees turnover which was up 24 per cent.

Operating profit of the two companies fell by 24.8 per cent to Rs 12 crore (Rs 16 crore). Gross profits fell by 32 per cent and net profits slipped down by 35.1 per cent. Operating profit margin fell to 21 per cent (26 per cent), gross profit margin to 10 per cent (15 per cent) and net profit margin to 11 per cent (15 per cent). Brooke Bond Lipton India (BBLI), a major coffee company, could not be included in the analysis as it has been merged with Hindustan Lever with effect from January 1996. Before the merger, coffee accounted for 12.6 per cent amounting to Rs 261.6 crore (Rs 237.4 crore) of the total turnover of BBIL till December 1995.

Nestle India turns out soluble coffee and coffee blends. Its Nescafe brand of instant coffee has been well accepted in the market.

In order to meet the rising demand for coffee and check its price rise, the government has decided to put coffee imports on the OGL list. The move has been resented by the UPASI on the ground that unbridled imports may upset domestic coffee cultivation. P Mathai, chairman, Coffee Board, estimates that the produce would reach a new high of 2.33 lakh tonnes during the 1997-98 crop year (July-June). While production of Arabica variety is estimated to be 1.04 lakh tonnes, Robusta will be 1.29 lakh tonnes. It is possible to reach these levels only with blooming crop and appropriate methods of warehousing and preservation.