A crisis is brewing in coffee industry

Source– The post is based on the article “A crisis is brewing in coffee industry” published in The Hindu on 22nd October 2022.
Syllabus: GS1- Economic geography
Relevance– Major plantation crops in India
News- The article explains the challenges faced by the Indian coffee sector and suggests the solutions.

Coffee plantations in Karnataka, Kerala and Tamil Nadu have suffered high losses due to heavy rains between July and September this year.

What are the issues faced by the coffee sector?

Climate change–  Over the last few years, it has adversely impacted India’s coffee production and the quality of the crop. According to the Coffee Board of India, production for the 2022 crop year was estimated at 393400 metric tonnes. But given the extreme climatic conditions, it is anticipated to be some 30% Lower.

Cost of financing– There is volatility in market prices. Influence of producers in the value chain has reduced. They are getting marginalised. This has rendered coffee cultivation a loss making enterprise.

Around 75% of coffee is exported. The producers from other exporting countries have competitive advantage of low cost finances.

The cost of financing is one of the biggest challenges of the coffee sector. Most private banks provide financing against collaterals. Since small and medium-size growers are not in a position to provide collateral, the interest rates are high.

Debt issues– There are debt issues faced by farmers. As per the information compiled by United Plant Association of Southern, there were short-term and long-term loans amounting to ₹395.54 crore and ₹40.4 crore respectively at the end of year 2019.

Banks have not restructured the loans. The accounts of many coffee growers have turned to NPAs. These growers are now facing recovery proceedings under the SARFAESI Act.

Low production and higher input cost– The productivity of coffee is low. The cost of production is on the rise compared to other coffee countries such as Vietnam and Brazil.

Labour costs are on a higher side. In Brazil, labour charges account for 25% of the entire production cost. But in India They account for about 65%. India’s coffee terrain and topography makes mechanisation difficult.

There is a shortage of labour in the coffee sector. Plantations have to be dependent heavily on migrant labourers who are unskilled. Wage costs are not linked to productivity. growers are mandated to pay the usual wage along with other social costs such as housing and medicines. It adds up some 30% more to the wages.

The cost of production per acre has gone up substantially to ₹80,000-85,000 from ₹50,000 five

years ago. The cost of inputs such as fertilisers and agrochemicals has increased by almost 20% in a year.

The plantations face power cuts during the summer months. This makes irrigation expensive as the cost of diesel is high.

What is the way forward?

Additional income– Growers should create additional revenue streams through inter-cropping or through innovative measures like fish farming, dairy farming or green tourism.

Branding and promotion– There is a need for better branding and promotion of Indian coffee in the global market. Indian coffee is highly rated and commands premium prices in the global coffee markets. India has several speciality coffees and over three dozen estate brands for the global markets. It provides better opportunities for marketing.