COFFEE growers in India have been suffering for the past four years, as prices have fallen sharply due to various factors. But many in the industry believe that the fortunes will change over the next few months, as coffee prices are expected to rise and the industry likely to gain.

Coffee prices have already gained slightly in the retail market in recent weeks after witnessing a significant fall over the past two years. The price of the commodity had dipped below Rs100 a kg in the previous harvesting season, but has climbed substantially in recent weeks.

According to an official of the Coffee Board, prices have started rising after an increase in price in the international markets, especially London and New York.

India is the second-largest producer of coffee after Brazil. For fiscal 2016-17, coffee production is expected to fall from 348,000 tonnes in the previous year to 320,000 tonnes.

The state-run Coffee Board estimates that production will fall to 320,000 tonnes in 2016-17 from 348,000 tonnes last year, but the Karnataka Planers’ Association (KPA) feels production would be even lower because of a 25pc decline in Arabica output because of unseasonal rains last November.

“The Coffee Board’s estimation is 8pc lower than the actual production in 2015-16, whereas we estimate the overall shortfall to be at least 12pc due to delayed blossom and backing showers,” says Baba P.S. Bedi, chairman, KPA.

Total production of 348,000 tonnes last year included 244,500 tonnes of Robusta plantation and 103,500 tonnes of Arabica. In the current year, Robusta will account for 220,000 tonnes of coffee production and Arabica just 100,000 tonnes.

The Coffee Board is not very worried about the fall in price. Officials rule out a further fall in the production and price of coffee in India

Bedi warns that the hot and humid weather until March-April and the decline of water resources in Karnataka will have a harsh effect on irrigation at Robusta estates. Arabica plantation growth is also being impacted by the high incidence of white stem borer disease, leaf rust and lower productivity.

Bedi wants the union commerce ministry to allow the import of Arabica variety that are disease resistant and high-yielders genetically.

Karnataka, which accounts for nearly 80pc of India’s total coffee output, produced 251,000 tonnes of coffee in 2015-16 (including 172,000 tonnes of Robusta and 78,000 tonnes of Arabica). This year, it is expected to produce 229,000 tonnes of coffee, including almost 155,000 tonnes of Robusta.

According to D. Vinod Sivappa, president, United Planters’ Association of Southern India (Upasi), the country’s major strength in coffee was Arabica, with good demand from Europe. India has a 3.5pc share in the global coffee market and about half was for Arabica.

About 10 years ago, Arabica accounted for 60 to 70pc of coffee cultivation in India. R.M. Nagappan, chairman, Upasi, notes the figures have reversed now. Bedi points out that Arabica used to fetch about Rs200,000 a tonne as against Rs125,000 for Robusta.

But recent years has seen a dramatic fall in the production of Arabica, which used to fetch a good premium for planters. Analysts say the drop in Karnataka has been because of irregular rains in the state. The main competitor for Arabica is Brazil and for Robusta it is Vietnam. The fall in Brazil’s production has led to a spurt in the price of Robusta.

THE Coffee Board, however, is not very worried about the fall in the price of the commodity. Board officials rule out a further fall in the production and price of coffee in India.

While Karnataka is the largest producer of coffee, the other two major producers are also located in the south — Kerala (21pc of production) and Tamil Nadu (5pc).

A majority of India’s coffee is produced by small landholders many of who were unable to handle the sharp decline in the fortunes of the industry over the past four years.

The Coffee Board is facing a challenge of meeting its annual target of covering 5,000 hectares of plantation by the end of the year. But it is hopeful of achieving 80pc of its re-plantation target.

M.K. Shanmuga Sundaram, chairman of the board, notes that just 50pc of the annual target has been met so far.

According to Y. Raghuramulu, director of research, Coffee Board, the shortage in production is because of the problems encountered by small plantation farmers in replanting.

The board is also keen to expand coffee plantation to other states of India as part of its ‘de-risking strategy.’ It has already identified about 15,000 hectares of land in Tamil Nadu and launching pilot projects in Himachal Pradesh state in the north and in Darjeeling in West Bengal.

The board expects an expansion of coffee cultivation in about 20,000 hectares in Karnataka, Tamil Nadu and Kerala. But it also expects growth in non-traditional growing areas in states such as Andhra Pradesh and Odisha, where it plans to add another 40,000 hectares.

The aim is to increase coffee cultivation in non-traditional areas from 72,000 hectares at present to 112,000 hectares in just six years, according to Sundaram.

The Coffee Board also sees good prospects for exports in the current financial year. “The decline in production is unlikely to affect exports this year,” notes Sundaram. “We may achieve the same level of exports as that of last year.”

But he warns that coffee production has become stagnant and “if we do not improve the productivity of the existing holdings, it will be difficult to sustain coffee cultivation with increasing costs and uncertain prices.”

In 2015-16, India exported nearly Rs52bn worth of coffee, though this year has seen a sharp fall (in value) to Rs28bn.

The board has also entered into collaborative research programmes with the Indian Institute of Science and the Indian Council for Agricultural Research to tackle issues such as the white stem borer (WSB) issue.

Published in Dawn, Business & Finance weekly, October 24th, 2016