India's Coffee Harvest Expected To Be Lower Than Estimated This Year

India's coffee output this year will be significantly short of estimates due to deficit rainfall during the critical period.

"The blossom showers were delayed, and Karnataka got only half of the expected rains, so there is already a 20–25% drop in yield," Coffee Board Secretary and Chief Executive Officer, KG Jagadeesha, told BQ Prime. "If the rainfall situation improves and gets well distributed across regions by October end, then can we expect to get the remaining 75% of our forecast."

The Coffee Board makes two coffee output estimates every crop year, the first after the blossoming of the crop in March–April and another in October–November, after the monsoon retreats. In its early production estimates, the board pegged the 2022–23 crop at 3.74 lakh metric tonne on favourable weather conditions, which aided the blossoms this year.

Of this, the board pegs the robusta crop, which is widely cultivated in the country with a share of 72% of the total production, at 2.61 lakh tonne this year, up from 2.5 lakh tonne in the previous year. The arabica production is forecast at 1.13 lakh tonne, up from 1 lakh tonne last year.

Costly Coffee

The global coffee supply has been trailing demand for a third year now, jacking up prices. But Jagadeesha is not worried about the price rise.

After severe frosts hit the world's largest coffee producer two years ago, the shortage of coffee pushed up prices in the global markets. The prices of the widely grown robusta crop recorded a 20% jump between April and August compared to the previous year, according to data from the Coffee Board.

The coffee prices in India are largely influenced by the prices at the international commodity exchanges—the Intercontinental Exchange in New York for arabicas and ICE, Europe for robusta.

India, however, continues to benefit at the expense of Brazil's losses.

The inflated prices have increased the demand for Indian coffee, putting the country's farmers at an advantage.

"In the last 10 years, we have seen our coffee growers make losses in at least six years, either because of erratic monsoons or natural calamities like floods or droughts. They are now earning more than they are producing," Jagadeesha said.

Jagadeesha expects prices to remain firm another year before production in Brazil improves and the global coffee supply normalises.

Extreme weather conditions due to El Nino are fueling concerns that robusta coffee beans in major producers like Vietnam and Indonesia could also be hit. That means higher prices are coming for your cup of instant coffee and espressos, which are often made with robusta beans.

Companies such as Hindustan Unilever Ltd. and Nestle India Ltd. have also warned that prices of robusta coffee beans are significantly inflated, having a bearing on margins. They expect the prices to remain volatile for the rest of the financial year. Nestle and HUL also hiked prices by 8–10% in the last two months, according to Kotak Institutional Equities' monthly price tracker. In the past six months, these companies have seen a cumulative hike of 6-22%.

Eyeing Doubling Output

India is currently the world's seventh-largest producer and fifth-largest exporter, with 3.6 lakh tonne production volume per year.

Compared to nations like Brazil and Vietnam, however, India made little progress in terms of improving the yield because there were limited areas to grow the crop. But to capitalise on the surging demand, the Coffee Board is mulling to double the country's coffee production over the next 10 years.

Currently, India produces 3.3 lakh metric tonne of coffee, and it is grown on about 4.72 lakh hectares.

The statutory body under the Ministry of Commerce and Industry has proposed to take a two-pronged approach. Firstly, as the major coffee-growing regions—Karnataka, Kerala, and Tamil Nadu—are now saturated, Jagadeesha said around two lakh hectares have been identified to be brought under cultivation in the non-traditional regions of Odisha, Andhra Pradesh, and the north-eastern states. Secondly, the Board is also looking at a national replantation policy for the traditional states, where a majority of the coffee estates have now crossed the economic age.

"About 60% of our coffee estates in Karnataka, Kerala, and Tamil Nadu are older than 50 years," said Jagadeesha, adding that the new plants can boost productivity by almost 50% of the production in these regions.

"The yields start declining in Arabica plants after 40 years and in Robusta after 50 years. And if we don’t take up replanting in these states now, then our yields are bound to go down," he said.

The Centre may roll out subsidies to encourage beleaguered coffee growers to replant ageing bushes and for the proposed area expansion. 

Jagadeesha said that the Board has sent a proposal to the Commerce Ministry for absorbing the interest costs on the loans availed by growers to take up replanting in the traditional areas for a period of five years. It is awaiting the government’s approval.

The country is hosting the fifth edition of the World Coffee Congress between Sept. 25–28 in Bengaluru, where delegates from 75–80 countries are expected to participate. "India produces one of the finest coffees, but there still needs to be more awareness. So, this conference will provide a platform for brand building and attracting investments for the domestic market."

The Indian market is more skewed towards specialty coffee than a commodity, and the market is poised to grow driven by innovation, investment, and skilling, according to Jagadeesha.