Coffee's bitter aftertaste of falling prices and exports

Coffee's bitter aftertaste of falling prices and exports

The plight of coffee growers in the key coffee growing regions of South India continues to be dire as steep decline in prices of coffee seeds is imparting a bitter taste to the brew.

Coffee growers in the key coffee growing regions of Karnataka and Kerala are fast losing interest  in their coffee cultivation and postponing plans to raise their acreage due to the steep decline in domestic and international coffee prices. The steep rise in global coffee production has spurred the price decline. 

Besides, recent erratic weather conditions, pest attacks and diseases hitting the crop in the key coffee growing areas of South India have hit farmers hard and are expected to reduce beans production in this year’s harvest season running from February to March.

“We have lost our interest to cultivate coffee due to the steep decline in prices along with a jump in wages of the daily plantation workers, rise in farming expenditure and other factors,'' said a farmer based near Madikeri in Kodagu district of Karnataka.

“Nowadays, coffee cultivation has become a bitter experience for us with the advent of plant diseases, rise in farming expenses and bearish bean prices. An upward movement in the global coffee production has also affected us badly."

“Most of the plantation workers have gone in for service sector jobs in the last two three years, and this has also affected the existing coffee growers of the region and led to workers coming and settling here from other parts of the state. Most of the plantation labourers in the region have entered the services sector in the quest of higher income and social status,'' he added. 

Coffee plantations in Kerala have been reeling under higher labour charges, coupled with acute labour shortages and pest attacks adversely impacting farming activity.Global coffee prices have recorded their weakest trend last year since 2009 as a result of the dramatic jump in production, bringing pressure to bear on coffee prices across the country. 

On the other hand, coffee production in key growing countries has moved up significantly in recent times leading to dramatic falls in prices in the domestic and international markets.

“This year, the price movement of coffee is expected to be determined by the global economic recovery and crop conditions. A steep recovery in health of the world economy may support the course of the price movement,” said Sreekumar Raghavan, Chief Commodity Strategist at Commodity Online Group, a multi-financial service provider based in Kochi, Kerala.

It is clear that higher global coffee production will continue to put pressure on coffee prices in the domestic market. The steep decline in prices has been depriving farmers, while this has in fact supported processing companies in the country and around the world. It is worth mentioning that higher coffee prices in 2011 had prompted growers to plant more which resulted in higher output and consumption worldwide.

Looking at 2013-14, Brazil is expecting a record off-year crop of 49.15 million bags, just 3.3 per cent lower than 2012-13, with mixed prospects in other major exporting countries. 

In the short term, this is likely to place continued downward pressure on the coffee market, said London-based International Coffee Organization (ICO) in its latest monthly (December) coffee market report.  

However, with certified coffee stocks on the London futures market approaching record lows, and consumption continuing to grow at around 2.4 per cent per year, demand for coffee remains buoyant and should provide potential for further growth in the longer term, ICO pointed out.

In tandem with rising production, world coffee exports have recorded a declining trend tracking the bearish trend in the prices. Exports touched 7.84 million bags in November last year, compared with 9.17 million in November 2012. Exports in the first two months of coffee year 2013-14 (October 2013 to November 2013) have fallen by 10.8 per cent on a  year-on-year basis. In the twelve months ending November 2013, exports of Arabica totalled 68.21 million bags compared to 67.62 million bags last year; whereas Robusta exports amounted to 40.12 million bags compared to 43.19 million bags, IPO noted. Arabica coffee ICE futures at New York  declined 23% for the year 2013, as swelling global supplies weighed on the prices.  

India's Coffee Board has now reduced its estimates for the country's post-monsoon coffee crop for the season 2013-14 after analyzing the crop damage due to erratic monsoon rainfall in key growing regions, especially in Karnataka. 

It expects that the output may touch 311,500 metric tonnes, a fall of 35,500 tonnes (or 10.23 per cent) over the post-blossom projections of 347,000 tonnes for the 2013-14 season. 

Also, the estimate is less in comparison with the 3.18 lakh tonnes of coffee output recorded in 2012-13 season. In Karnataka, production may fall to the tune of 31,415 metric tonnes (12.61 per cent) while Kerala recorded a marginal decrease of 3,275 metric tonnes (4.64 per cent) compared to the post-blossom estimate.  

Analysts point out that a long period of drought following the blossom showers during this year’s harvest season, followed by erratic monsoons is expected to reduce production in the country. 

Heavy monsoon have been continuing in many cultivating areas for more than two months. 

The continued showers have caused soil saturation and wet feet conditions. White Stem Borer attacks had affected the harvest in the summer of 2013.  

In Karnataka, coffee production in 2013-14 is expected to fall by 12.61 per cent, while in Kerala it is likely to decline 4.64 per cent compared to the post-blossom estimate, according to the post-monsoon estimates released by Coffee Board. 

Around 98 per cent of the coffee output in the country is produced in the southern states of Karnataka, Kerala and Tamil Nadu.  Coffee acreage in Karnataka stands at 229,658 hectares followed by Kerala with 84,948 hectares and Tamil Nadu with 31,344 hectares.

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