Robusta coffee going the arabica way, prices fall below cost of production on good crop in Vietnam

PK Krishnakumar -  6 Nov, 2013, 05.28AM IST

KOCHI -  The coffee industry is facing tough times with robusta going the arabica way, the prices of which have fallen below the cost of production. Almost 70% of Indian coffee production is the robusta variety and the plunge in the prices has hit the grower.

Expectation of higher crop in Vietnam, the largest producer of robusta coffee, is pushing prices down in the global market. Various reports say that coffee output in Vietnam, where the harvest is about to begin, will be around 27 million bags (of 60 kg each). Last season, it was in the range of 23-24 million bags.

LIFFE robusta coffee futures for January delivery settled $6 lower at $1,483 a tonne on Monday. Robusta prices have fallen 16% since September. In India, the robusta cherry prices have gone down 15-20% to Rs 54 per kg compared with last year.

"The current situation is not economically viable for the farmers. The average annual earnings of a grower having a 5-acre farm have plummeted to Rs 50,000 from Rs 1.5 lakh earlier. We will have to wait and watch how it pans out,'' said Prashant Rajesh, secretary of Wayanad Coffee Growers Association.

Arabica prices have already hit rock bottom. The New York ICE arabica futures for December delivery reached $ 1.03 per pound, showing a 13% fall in three months. A good 'off year' crop in Brazil, the largest coffee producer, this year to the tune of over 50 million bags is said to be the major reason for this decline. Market reports suggest Brazil will have a good crop in 2014 as well, indicating a bearish price trend in the market in the coming months.

The exports are sluggish. "The growers are not interested in selling and the buyers are not aggressive though the prices have fallen drastically,'' said M P Devaiah, general manager of Allanasons, a major coffee exporter. Indian coffee export is only marginally down till the end of October. The exporters feel there may not be an increase during the year and it is likely to end up close to 3,10,612 tonne achieved in 2012-13.

Since there is an oversupply, the Indian coffee stock is likely to be sold at a discount before the harvest for the next crop begins next month.

According to market sources, the instant coffee makers could take advantage of the prices as they use robusta beans.

Meanwhile, India's next coffee crop is expected to fall below 3.47 lakh tonne projected by the Coffee Board because of heavy rains during the year