• Coffee cultivation of India is facing serious damages due to changes in climate patterns.
• Hundreds of coffee growers in Kodagu, Chikkamagaluru and Hassan districts of Karnataka are worried due to 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.

Challenges for India’s Coffee Industry

1. Climate Changes Concerns

• 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.
• As per Coffee Board of India’s post-blossom estimate, production for the 2022 crop year was at 3,93,400 metric tonnes.
• But given the extreme climatic conditions, it is anticipated to be some 30% lower.
• Most growers fear that the frequently occurring pattern of droughts and floods could wipe out plantations.
• Sturdy and weather-resistant varieties of coffee may help, but the government is not providing adequate funds to coffee research stations to develop these.

2. Cost of Financing and Existing debts concerns

• Climate change has only compounded the financial issues of coffee growers.
• The volatility in market prices and the reduced influence of producers in the value chain render coffee cultivation an increasingly loss-making proposition.
• Coffee is rapidly turning out to be a buyer-driven commodity market.
• 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.
• The cost of financing is one of the biggest challenges of the coffee sector.  Most private banks insist that growers provide collateral for financing.
• Since small and medium-size growers are not in a position to provide collateral, the interest rates are high.
• International interest rates are negligible, mostly in single digits. This is an advantage for competing coffee-producing regions.
• There were around 1,98,000 short-term loan accounts and 5,05,000 long-term loan accounts outstanding, amounting to ₹395.54 crore and ₹40.4 crore, respectively.
• The increase in input costs, along with the growth in labour and benefit costs, which account for 60% to 70% of all plantation expenses, has left coffee farmers with very little cash on hand.
• Banks have not restructured the loans.
• The accounts of many coffee growers have turned to non-performing assets (NPAs).
• Coffee growers are now facing recovery proceedings under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
• Under the act, banks have the right to possess the security provided by the defaulting borrower against the loan and sell it to recover losses, without any intervention by any court of law.

3. Low productivity

• 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, it accounts for about 65%.
• It is possible to bring down the cost of production to some extent through mechanisation, 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.
• There is no official price setting mechanism even in the domestic market. So, traders and curers are fixing prices, and growers are at their mercy.
• 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 around coffee has increased by almost 20% in a year.
• Plantations face power cuts during the summer months.  This 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, notes President of India Coffee Trust and a large planter in Kodagu.

4. Shortage of Labour

• There is increasingly a shortage of labour 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.
• 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.
• It 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.

5. Identity crisis for India in global markets

• Although the country started exporting coffee actively before the 19th century, Indian coffee is still facing an identity crisis in global markets.
• Indian coffee is highly rated and commands premium prices in the global coffee markets.
• 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.
• As per Former member of Coffee Board, Indian coffee was never considered a separate origin coffee. It was always used as filler.
• This is despite Indian coffee offering innumerable flavours, aromas and blends.
• 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.
• But around 20 years ago, with the IT and services sector dominating the exports industry, coffee lost its prominence in the power corridors, especially in the Ministry of Commerce.

Importance of Indian Coffee Industry in the Global Market

• Coffee has high value and high imagery potential at home and overseas markets.
• India has several speciality coffees and over three dozen estate brands for the global markets.
• Indian green coffee on its own is capable of fetching premium prices in the global markets.
• 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.
• The Coffee Act introduced a pooling system, where each planter was required to distribute their crop to a surplus pool managed by the Coffee Board of India.
• After the liberalisation, the coffee Board longer maintains its monopolistic control over the marketing of Indian coffee.
• It earned recognition across the agriculture, commerce, finance and environment ministries as a serious forex earner for the exchequer.
• India’s share in the global coffee market may be less than 5%.

Suggestions

• A special package in line with the Special Coffee Term Loan should be implemented to rescue coffee growers.
• Coffee plantations should be excluded from the provisions of the SARFAESI Act and from the purview of CIBIL (Credit Information Bureau India Limited).
• A lot of effort, time and energy has to be invested in training migrant labours.
• The branding and promoting Indian coffee better in the global market, finding alternative sources of revenue and increasing domestic consumption is necessary.
• Th growers should create additional revenue streams through inter-cropping or through innovative measures.
• The 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.
• 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.

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 Organisations, hopes to boost coffee in the domestic and international markets and counter the problems the industry faces. It is hoped that Coffee Act and the new Coffee (Promotion and Development Bill), 2022, will bring change that all the stakeholder are looking for.