The cup of woes

Published : Mar 16, 2002 00:00 IST

The crisis in the Indian coffee industry following a price crash puts the growers and the labour in a quandary.

IT was an angry and somewhat desperate group of coffee planters that sat in a demonstration under the banner of the Karnataka Growers Association in front of the Coffee Board headquarters in Bangalore recently. The effect of three years of falling coffee prices has been disastrous for India's two lakh coffee growers and 10-lakh strong plantation labour force. Growers are in debt, plantation labour is getting laid off, and once lush coffee estates now lie neglected. In order to draw attention to the crisis that has hit the industry, the 26 growers' associations of Chikmagalur, Hassan and Coorg districts that the Karnataka Growers Association represent have decided to take to the streets. They have put up several bail-out demands before the Government of India.

The crisis brought about by the sharp decline in prices has been precipitated by the vagaries of free trade that govern the industry internationally. The present crash in prices has been brought on by a global glut in supply, and the holding of large stocks by roasters (traders) in the consuming countries. Although not a major coffee exporting country, India, with an annual production of a little over 300,000 tonnes (2001-02) is a large producer. Tied as it is to the international market, the Indian coffee plantation sector is feeling the impact of the slump. Small growers who own less than 10 hectares but constitute over 98 per cent of coffee growers in India are the worst hit, as is the 10 lakh strong plantation labour force.

"The first to be hit in such a crisis is labour," said N.K. Pradeep, general secretary of the Karnataka Growers Federation. "But growers are deeply in debt and are unable to make repayments to financial institutions. Many planters have actually abandoned their estates."

The downward trend in prices began in 2000 and intensified over 2001 and 2002. The price of Arabica, which averaged Rs.90 a kg in 1999, dropped to Rs.63 a kg in the last quarter of 2001. Over the same period Robusta fell from Rs.68 a kg to Rs.33 a kg. India exports 80 per cent of its coffee produce, and there has been a sharp fall in both export quantities and values in the last two years. While the volume of exports has fallen by about 30,000 tonnes (from 2,53,524 tonnes in 2000 to 2,19,017 tonnes in 2001), the value has fallen from Rs.1,685.24 crores to Rs.1,113.56 crores in the same period.

The coffee producers' major demand is a waiver of interest accruals on crop loans and deferment of the principal. "I have made a loss of Rs.1.5 lakh this year because of low prices," says Anantha Subba Rao, a small grower from Belur in Hassan district. "I took a crop loan of Rs.25,000 from the State Bank of Mysore and a Rs.2-lakh development loan from the same bank. I am unable to repay the loan."

There has been a sharp drop in productivity owing to the cuts that growers have had to make on inputs such as fertilizer, and in labour costs. "My average yield, which was around 360 kg of beans per acre, has come down this year to 250 kg," said N.K. Pradeep, who owns a 20 ha plantation. "I had a labour force of 50 to manage my estate. I have reduced the size of the labour force by 30 per cent. Today my per acre losses are between Rs.10,000 and Rs.15,000.''

B.L. Shankar, Chairman of the Karnataka Legislative Council and a coffee planter, told Frontline that banks and cooperative societies had disbursed Rs.950 crores as advances with an interest accrual of Rs.135 crores to the growers. "We have asked the Government of India to defer the repayment of loans for eight to 10 years and to waive interest repayments. We are also asking for fresh loans to the industry at a lower rate of interest." The coffee industry earns about Rs.1,600 to Rs.2,000 crores by way of foreign exchange, and it needs some protection in times of an unprecedented crisis such as this, he says. "A coffee plant takes 15 years to give a good yield and requires attention all through the year. There is no immediate alternative to the industry. When the governments of other coffee-growing countries are coming to the rescue of their coffee industry, why is not the Indian government doing the same?"

Another argument in favour of government intervention put forward by representatives of coffee growers is that prolonged neglect of coffee plantations will result in ecological damage to the Western Ghats as each acre sustains almost 400 to 500 shade-bearing trees.

"There are several reasons for the unprecedented crisis in coffee," said Lakshmi Venkatachalam, Chairperson of the Coffee Board. "Excess global production is owing to the absence of major supply shocks in recent years. The entry of Vietnam has increased the area under coffee cultivation significantly. Also there have been technical innovations coupled with the introduction of high-yielding varieties in the sector."

There is a lack of viable alternatives which is why despite the drastic drop in prices there has not been a substantial decrease in production. "The diversification to other cash crops is not an alternative if over-supply and low price conditions exist there as well. Once planted coffee trees become fixed assets and as long as variable costs of cultivation are covered, farmers will continue to produce," Lakshmi Venkatachalam said.

Switching over to food crops is not an alternative in India where coffee is grown in eco-sensitive zones of the Western Ghats where such a conversion could lead to deforestation. "We see the over-supply situation continuing for some more time with markets becoming even more competitive. Large producers will increase productivity/competitiveness at the expense of less competitive producers. Demand and supply will adjust over a period of time but at a huge cost," she says.

ON the recommendation of the Coffee Board and the Ministry of Commerce, the Reserve Bank of India had agreed in May 2001 to re-phase all loan accounts in coffee that are likely to fall under sub-standard categories, and to extend fresh crop loans. According to the Coffee Board, the number of rescheduled loans was around 14,500, accounting for approximately Rs.400 crores by September 2001. The Ministry recently approved a scheme to provide a 5 per cent interest subsidy relief to coffee growers with less than 10 ha on working capital loans. This measure is seen by growers as too little too late. The Ministry has also approved a transportation subsidy scheme to provide financial support of Rs.500 a tonne to coffee exporters to meet handling costs. The Coffee Board has also submitted recommendations that would meet the demands of the growers. These are aimed at reducing the debt burdens of the growers by providing interest relief, allowing repayment holiday of bank loans by re-phasing the principle and interest and advancing fresh loans.

These are merely bail-out measures. With global supply projected to remain constant or even increase, what are the long-term prospects for the Indian coffee industry? The liberalisation of the coffee sector in India coincided with an upswing in world trade, and Indian growers reaped the benefits of high coffee costs. N.G. Ravindranath, president of the Karnataka Grower's Federation, points to the highly inequitable structure of the trade. While the consumer continues to pay high prices, the producer hardly gets 10 per cent of the consumer's dollar. He cites several initiatives by the governments of coffee-producing countries to protect the industry. However, the economies of these countries (Brazil, Colombia, Vietnam, El Salvador and Mexico among others) are heavily dependent on coffee exports. Ravindranath suggests an income support scheme wherein the Central government creates a corpus of Rs.1,300 crores, operative for a four-year period. If prices remain low, growers should be given advances from the corpus, which can be recovered in the form of an export cess or duty when prices improve. He has also suggested the replacement of Robusta with Arabica as the former commands higher prices and bringing plantation labour under the below poverty line (BPL) category so that they become eligible for benefits under the scheme. Nearly 70 per cent of the cost of cultivation goes towards wages.

An initiative by Comark (Indian Coffee Marketing Cooperative Ltd), one that is currently in its early stages, holds a great deal of promise, and could, offer a long-term solution to the crisis. This lies in the development of the Indian domestic market for fresh coffee through a link-up between Comark and a cooperative marketing institution. "If coffee has to reach the Indian middle classes, it has to be through a marketing cooperative which has a good network. There is a huge potential here," D.S. Raghu, Chairman of Comark, said. In 15 years Brazil doubled its domestic consumption, which now accounts for 40 per cent of the country's production. The idea was discussed at a meeting called by the Commerce Ministry in July 2001. "We have been talking to Amul as a possible marketing and retailing cooperative in this venture, which would need an initial financial support of around Rs.50 crores. Growers are willing to participate by offering two to three bags for free to get the scheme going." Fresh coffee as a beverage is restricted to the two or three south Indian States. There is a huge untapped market in the north for good coffee and Comark hopes to tap this before the others do.

Sign in to Unlock member-only benefits!
  • Bookmark stories to read later.
  • Comment on stories to start conversations.
  • Subscribe to our newsletters.
  • Get notified about discounts and offers to our products.
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide to our community guidelines for posting your comment