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Home / Agriculture / Shade Coffee at the Altar of Sacrificeby Dr. Anand Titus and Geeta N. Pereira Page 1 | Page 2 | Page 3 | Page 4 Global Coffee CrisisCoffee that is planted today will take 8 to 10 years to give economic returns. And when the plants are ready to yield; the prices may touch rock bottom. In 1990, the world coffee market was a $30 billion a year industry, with the grower's share hovering around $10 billion. Today, the market has increased to $54 billion, but the grower's share is only $11 billion. This represents a drop from 33% to 11% in just ten years. This decline in value translates into misery for the estimated 25 million people who are directly related to the plantations. Recently, an estimated 25,000 coffee producing families migrated to urban areas. Since the price of coffee has hit a 100 year low, the majority of the people who work in the coffee sector are struggling to feed their families while multinational corporations continue to prosper as a result of the low prices. For the past decade the supply of coffee was in the hands of the grower and this was a key element in helping them realize a better price. However for the past 5 years the coffee stocks is in the hands of a few roasters and grinders and they dictate terms to the market as well as to the grower. We support the packaging of Indian Coffee inside the WTO-inspired Green Box and hope that it will be a good beginning toward solving some of the inequitable distribution of coffee-related wealth. This industry is passing through a very critical period due to unprecedented crash in price since 1998. Added to this drought has hit the region for the past three years. The price of Arabica is lowest in past 35 years and that of Robusta Coffee the lowest in the last 100 years in Dollar Terms. There is a huge gap between the cost of production and realization. The gap is Rs. 20 / kg for Arabica and Rs 15/kg for Robusta. The estimated cost for Arabica works out to be Rs. 63 / kg and realization is around Rs.43/- kg only. Similarly, Robusta cost around Rs.31/kg, while realization is only Rs.16/ kg today (as per Mckinsy report) but growers are incurring higher losses / kg. Many traditional planters have sold their estate to Industrialists because of the increasing debt burden. This is affecting the very fabric of the 180 year old Plantation Industry. New Entrants with deep pockets have the capacity to pump in money from other Industries and run their plantations but the traditional grower is forced to either abandon his estate or sell it at a distress price.
Industry ContributionIndian coffee has supported the Government at a critical time when foreign exchange was scarce. More than 80% of the beans were exported and the best part of it all was that nothing in turn was imported for the plantation sector. Hence, coffee was a net foreign exchange earner. The coffee farmers without any external support managed to grow 300,000 tons of coffee, there by saving the Country millions of dollars of precious foreign exchange. When the going was good the farmers ploughed back every rupee earned; back into the plantation and improved the productivity. The Govt. Of India has mopped up huge sum of money from the growers in the form of Export duty (Rs.6.4 billion), Excise Duty (Rs. 1.78 billion) and Purchase tax to the State Govt. (Rs.9.97 billion). Employment PotentialCoffee is a labor oriented industry. About 1.2-1.5 million workers are directly or indirectly dependent on this industry. The workers are mainly from the lowest strata of the society. Most plantations, maintain a large work force in the estates on a regular basis. They are subjected to various statutory labor welfare measures like Plantation Labor Act, Payment of Bonus Act, Employees Provident Fund Act, and Group Insurance. They have to be provided work round the year. Whether there is a crop on the bush or not, the workers have to be maintained without interruption of work. The labor cost, therefore should be treated as a fixed Cost and not variable, i.e., related to production. Hence, the fixed costs are high in Coffee Industry. Plant vs MachineryPlants are biological entities. Each cell within the plant acts as a biological factory which needs constant care and supervision. If one were to compare an Industrial Factory with that of a coffee plantation, there is so much of complexity associated with the plantation. For example, if the cost of economics is not favorable in an Industrial unit, it can simply be shut and reopened during a favorable phase. Where as whether the plantation is productive or not, it requires to be tended like a garden, or else in no time will turn into a dense jungle. Pests and diseases will increase. To nurture it back to normalcy, it costs money and time. Also, Utilization of Machinery and Buildings is Seasonal. With changing trends in world coffee, growers need to get into value added forms like specialty coffee. The growers are forced to invest more on capital investments on the estates. Unlike the Factory, the machinery like sprinkler, sprayers, pulpers and buildings like store houses to keep fertilizers for which loans are advanced to the estates are utilized for hardly two to three months in a year. Plantation vs General AgricultureCoffee Plantations are categorized as perennial Crops. The major difference between an ANNUAL and a perennial CROP is that plantation crops have long gestation period. In case of an Annual crop the farmer has the flexibility to switch over from once crop to another whereas a coffee grower cannot. Coffee is a permanent shrub and is only replanted in Robusta once in 75 years and 30 years in case of Arabica. Also, Expenditure is not directly related to Annual Yield. Shade regulation, pruning of bushes, application of fertilizers, lime and other cultural practices have a long-term impact on the bush. For instance, pruning brings down the yield in that year, but the plants yield better in the subsequent years. Loss of Bush is a Capital Loss. As stated earlier coffee has a long gestation period of 10 – 12 years before it starts economic yielding. Therefore, when a plant is lost due to pest or disease or for any other reason, it is a capital loss, because the unit of production of the coffee bush declines. Devaluation of Currency vs U.S. DollarIn India the rupee was devalued in 2000 as against the year 1995 for other major Coffee Producing Countries (currency depreciation). This is in spite of the fact that India fared outstandingly well in production, productivity and quality during the last decade. The ultimate result is that India looses its competitive edge in realizing a better price for its produce. Also the local inflation rate within the Country is around 8 to 10%.
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