Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Rejuvenating the Indian coffee industry

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Coffee crop

Mains level : coffee Industry potential, issues and reforms

coffee

Context

  • Coffee cultivation is becoming an increasingly loss-making proposition in India. Already weighed down by the high cost of inputs and production as well as labor shortage, the industry is now also affected by changes in climate patterns, reports from Karnataka’s coffee heartland.

All you need to know about Coffee plantation

  • Coffee is a tropical plantation crop.
  • 16° – 28°C temperature, 150-250cm rainfall and well-drained slopes are essential for its growth.
  • It grows on hilly slopes at the height of 900-1800m.
  • Low temperature, frost, dry weather for a long time and harsh sunshine are harmful for its plant.

The status Coffee in India

  • India contributes about 4% of the world’s total coffee production. It ranks 6thin the world in coffee production.
  • At present, more than half of the total coffee production in India is produced by Karnataka alone, followed by Kerala and Tamil Nadu.
  • Coffee plants grow better in the laterite soils of Karnataka in India.
  • The Arabica variety initially brought from Yemen is produced in the country.
  • Indian coffee is highly rated and commands premium prices in the global coffee markets.
  • Indian coffee offering innumerable flavors, aromas and blends. The commodity, for several decades, enjoyed a special position in India’s export lists.
  • Coffee has high value and high imagery potential at home and overseas market. From being handled and sold as a berry, a green bean, a processed bean, a roasted bean and now a roasted and ground offering, coffee has climbed the hierarchy of value-addition.
  • Coffee was an important export item for the Union government, when the commodity’s exports were in the range of ₹4,000-₹5,000 crore annually.

coffee

Do you know the history of Coffee in India?

  • The history of Indian coffee dates back to around 1600 AD with the planting of Seven Seeds of Mocha by legendary saint Baba Budan in the courtyard of his hermitage in Chikmangalur, Karnataka. The coffee plants remained a garden curiosity before they gradually spread as backyard plantings, and later on to the hills of what is now known as Baba Budan Hills.
  • However, it wasn’t until the 18th century the British entrepreneurs started taking coffee cultivation properly and turned forests in Southern India into commercial coffee plantations

What are Challenges faced by Coffee cultivation in India?

  • Impact of Climate Change: Drastic changes in climate patterns over the last few years have adversely impacted India’s coffee production and the quality of the crop. There were dry spells between 2015 and 2017 and unseasonal heavy rains, floods and landslides between 2018 and 2022. According to the Coffee Board of India’s post-blossom estimate, production for the 2022 crop is anticipated to be some 30% lower than the estimated production due to the extreme climatic conditions.
  • Impact of heavy rains: Destruction caused by heavy rains between July and September. The impact of the rains continues, with diseases affecting plants, and estate infrastructure suffering long-term damage. Plantations in Wayanad in Kerala and Palani in Tamil Nadu have also suffered similar losses. fruit rot, stalk rot and root rot and other irreparable damage due to heavy rainfall and landslides, berries turned black and dropped.
  • Emergence of New diseases: Erratic weather conditions are helping pests to breed and new diseases to emerge, further stressing coffee plantation.

coffee

Crisis in Coffee Industry of India

  • No adequate fund support by government: Sturdy and weather-resistant varieties of coffee may help and stand against climate change, but sadly the government is not providing adequate funds to coffee research stations to develop these.
  • The volatility in market prices marginalizing producers: The volatility in market prices and the reduced influence of producers in the value chain render coffee cultivation an increasingly loss-making proposition. Producers are getting marginalized. This is rapidly turning out to be a buyer-driven commodity market.
  • Impact of Exports on cost competitiveness: More than 75% of Indian coffee production is exported. This has an impact on the cost competitiveness of Indian coffee vis-à-vis the coffee that is exported from other producer regions, especially since those growers get their finances at very low interest rates.
  • High Cost of financing: Most private banks insist that growers provide collateral for financing. Since small and medium-size growers are invariably not in a position to provide collateral, the interest rates are high, at around 12%. International interest rates, on the other hand, are negligible, mostly in single digits. This is an advantage for competing coffee-producing region.
  • Increasing cost of Inputs: Due to the rise in the cost of inputs year on year and the increase in the cost of labor and benefits, which constitute 60% to 70% of total plantation expenditure, coffee growers are left with very little money in hand which is not adequate to repay loans. The cost of inputs around coffee such as fertilizers and agrochemicals has increased by almost 20% in a year.
  • No pricing mechanism: There is no official price setting mechanism even in the domestic market. So, traders and curers are calling the shots and fixing prices, and growers are at their mercy.
  • Identity crisis for Indian coffee: On the brand front, Indian coffee is still facing an identity crisis in global markets, although the country started exporting coffee actively before the 19th century. The fact that India sells Robusta and Arabic at a price higher than the hugely advertised Colombia is an indication of the brand building done by the Indian exporter and the quality of Indian coffee. Yet, Indian coffee does not have an individual brand identity in the international markets, Indian coffee was never considered a separate origin coffee. It was always used as filler.

What are the reasons behind the High cost of production?

  • Rising labor charges: In India, production of coffee is low while the cost of production is on the rise compared to other coffee countries such as Vietnam and Brazil. In Brazil, labour charges account for 25% of the entire production cost, but in India, planters say they account for about 65%
  • Hard terrain and topography: It is possible to bring down the cost of production to some extent through mechanization, but India’s coffee terrains and topography limit this possibility. At the same time, Indian coffee has a unique positioning as it is shade-grown and grown at elevations, while other major producing countries grow coffee in flat lands.
  • High cost of Irrigation: Power cuts makes irrigation expensive as the cost of diesel is high. The high cost of inputs leads to the high cost of production which is the main problem for coffee growers. It makes coffee cultivation unviable. Earlier, the cost of production would go up by 4% to 5% annually, but now it goes up at least 20% annually.
  • Unskilled migrant labour and wage costs: There is increasingly a shortage of labor while the cost of labour is on the rise in the coffee sector. The children of workers in all the three coffee-growing States Karnataka, Tamil Nadu and Kerala prefer to move to urban areas. This means plantations are forced to depend heavily on migrant labours who are unskilled. A lot of effort, time and energy has to be invested in training migrant labours. As 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, which adds up some 30% more to the wages. Most plantations simply don’t find skilled labour, especially for tasks such as shade-lopping, pruning, and borer tracing.

coffee

Way forward

  • Alternative source of revenue: Finding alternative sources of revenue and increasing domestic consumption on the one hand and branding and promoting Indian coffee better in the global market on the other.
  • Creating in addition revenue streams: Growers should create additional revenue streams through inter-cropping or through innovative measures. In addition to traditional inter-cropping of pepper and cardamom, coffee growers could try planting exotic fruit-bearing trees, food crops, or getting into fish farming, dairy farming, apiary or green tourism to increase incomes from their coffee gardens. For instance, progressive farmers from Thandikudi in Dindigul district in Tamil Nadu, and from Sakleshpur in Chikkamagaluru district, are growing avocados, mangosteens, oranges, guavas and other fruit bearing trees, amid their coffee plants. In some seasons they say they have even earned more money from these than from coffee and pepper.
  • Government should permit to plant alternate crops: Considering the change in land use, the government could permit growers to plant alternate crops in a land not suitable for coffee cultivation. Timely conversion will prevent growers from going financially sick.
  • Coffee Act and the new Coffee (Promotion and Development Bill), 2022: India’s share in the global coffee market may be less than 5%, but the coffee sector is hopeful that the Coffee Act and the new Coffee (Promotion and Development Bill), 2022, will do away the 80-year-old coffee regulation and usher in change.

Conclusion

  • The coffee community in India, comprising close to 4 lakh coffee growers, hundreds of large planters, associations that represent growers, planters, curers and exporters, and over a dozen Fair Trade Organizations, hopes to boost coffee in the domestic and international markets and counter the problems the industry faces.

Mains Question

Q. Even after getting out of the shackles of the pooling system in 1996, the bean maintained a special status as a valuable export commodity for a long time. Discuss the problems of coffee industry taking a back seat in India and suggest solutions.

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