India became one of the top 10 coffee-producing countries, with about 3% of the global output in 2020. Indian coffee is one of the best coffees in the world due to its high quality and it gets a high premium in the international markets. India produces two types of coffee: Arabica and Robusta. Arabica has higher market value than Robusta coffee due to its mild aromatic flavour. Robusta coffee is mainly used in making various blends due to its strong flavour. Robusta is the majorly manufactured coffee with a share of 72% of the total production. The industry provides direct employment to more than 2 million people in India. Since coffee is mainly an export commodity for India, domestic demand and consumption do not drastically impact the prices of coffee.
Indian Coffee Exports in 2024
India’s coffee industry reached a milestone in the fiscal year ending March 2024, as the country saw a record high in the value of its coffee exports despite a slight drop in volume. The year marked the third consecutive year of record-setting performance for Indian coffee shipments abroad. The total value of Indian coffee exports rose by 12.5%, reaching $1.26 billion, up from $1.12 billion in the previous fiscal year. In local currency terms, the export value increased by 16%, amounting to ₹10,491 crore, compared to ₹9,033 crore in the fiscal year 2022-23. Interestingly, this growth in value came despite a marginal decrease in the quantity exported, which saw a 2.5% decline to 3.88 lakh tonnes from 3.98 lakh tonnes in the previous year.
Impact of Global Supply Fluctuations and Domestic Market Trends
The price of robusta coffee, the predominant variety grown in India, has hit a 30-year high due to supply constraints in major producing countries like Vietnam and Brazil. These high global prices have significantly benefited Indian coffee exporters, with per unit earnings for robusta rising by about 20% during the 2023-24 fiscal year. Recent trends in the Indian market have seen farmgate prices for robusta surpass those of arabica varieties. Indian robusta parchment AB is now fetching a premium over the London terminal prices, demonstrating the high demand and strong market position of Indian coffee.
Challenges of Coffee Production Industry in India
The Impact of Environmental Degradation
Over the past decade, coffee plantations have been increasingly affected by environmental degradation. This trend is exemplified by the rising international coffee prices, which have increased by over 25%. While consumers may see this as unfavourable, the reality for growers is even grimmer: the cost of cultivation has surged by 250%. This significant rise in costs has eroded the profit margins of coffee plantations, leading to a vicious cycle of underinvestment in crucial infrastructure. With 98% of coffee growers being small-scale farmers, these financial pressures exacerbate existing cash flow problems, posing a severe threat to the industry’s sustainability.
Ecological Challenges and Their Effects on Coffee Production
Several ecological factors contribute to the challenges faced by the coffee industry:
Deforestation has led to reduced rainfall and diminished irrigation sources, crucial for coffee cultivation. Man-animal conflicts, such as wildlife straying into estates, disrupt farming activities and pose risks to both animals and crop yields. The decline in local bee populations, crucial for pollination, has been linked to habitat loss and is detrimental to coffee production.
The broader impacts of climate change, including increased frequency of droughts and floods, are profoundly affecting coffee-rich regions. While global rainfall volumes are increasing annually, the distribution is highly unpredictable. Some regions experience excessive rainfall, leading to soil erosion and landslides, while others face droughts. Such extreme weather events threaten to transform nearly 50% of current coffee-growing areas into barren lands within the next 30 years.
Additionally, the coffee plant’s biology requires a delicate balance of wet and dry periods for optimal yield. Flower buds, in particular, need 2-4 months of dry season to flourish. Anomalies in rainfall patterns can therefore significantly reduce coffee yields.
Coffee Processing Industry
In the coffee processing industry, companies often secure their coffee supplies through their own agents or by contracting private collecting agents to procure rush coffee. Those entities equipped with wet-processing facilities typically purchase green coffee directly from farms. This initial step is crucial as it determines the quality and type of coffee beans that enter the processing stages.
To prepare the coffee beans for export, companies engage in a reprocessing phase where the beans are refined to meet stringent international standards. During this phase, the beans are classified into various quality levels based on size, flavour, and other characteristics. Despite these efforts, imperfections often remain due to the use of inadequate processing technologies. Common issues include humidity, the presence of black and broken beans, and various impurities that can detract from the quality of the final product.
A small proportion of processed coffee, ranging from 3% to 6%, undergoes roasting and grinding for sale within the domestic market. This segment provides coffee processing companies with an opportunity to diversify their product offerings and cater to local consumer preferences.
Conclusion
Despite the challenges, the coffee industry has been notably proactive in seeking solutions. Initiatives like promoting “coffee tourism” can provide additional income streams for struggling plantations. Encouraging the cultivation of alternative commercial crops could also diversify income sources for farmers, although these crops face similar environmental challenges.
Improving the profitability of coffee plantations is another critical area. By assisting farmers in processing beans to world-class standards rather than selling raw coffee cherries, the industry can enhance both its resilience and profitability.
Experts in the field suggest that establishing a new instant coffee manufacturing plant capable of producing 3,000 tons per year and meeting export quality standards requires significant investment. To achieve the desired production capacity and quality, companies must invest in facilities and equipment from renowned professional brands. The estimated minimum investment for such an endeavour is around US$ 20 million. This substantial financial commitment is necessary to equip the plant with advanced technology that can efficiently handle the complex demands of coffee processing.
By addressing these key aspects, the coffee processing industry can enhance its productivity and quality, thereby strengthening its position in both domestic and international markets.
