The Hindu Business Line : Coffee crisis begins to claim victims

IT is a cup that has not only turned bitter but is also threatening to be dangerous. Coffee, a major cash crop until a couple of years ago, has currently turned out to be a loss-making proposition that the growers are now caught on the wrong foot.

Coffee growers are in a mess as prices for the commodity are ruling very low. Compounding their problems are low returns, lack of funds for crop inputs and maintenance, high labour costs, loans and rising interest burden. The situation in the sector is so bad that at least half a dozen planters have committed suicide in the last couple of months in the growing areas of Chikmagalur and Kodagu in Karnataka. The latest to commit suicide is a couple from Kodagu unable to bear the burden of loan, according to plantation sources.

"The situation is really bad. The growers are looking for divine intervention to help them out," the sources said.

Coffee prices have been ruling low during the last two years on supply glut. The glut is due to excess production by countries as Vietnam and Brazil. India, too, compounded things by producing a record 3.01 lakh tonnes of coffee during 2000-01 (October-September) and a little over 3 lakh tonnes during the current year. Vietnam, which has been dumping cheap coffees in the global market, has during the period, emerged as the number two producer in the world.

"Firstly most of the suicides or deaths related to coffee loans as reported are the result of outright cheating by unscrupulous traders who disappear overnight. Many coffee growers do not still comprehend the volatile price movements and still nurture a fear that coffee once removed from their farm will be subject to various deductions at the factory level and tend to encourage traders /agents at the village level," according to Mr Arun Bidappa of the Karnataka Coffee Brokers Ltd.

"These persons vary their modus operandi from short-changing on weights to outright non-payment and the grower is usually left with no option. They cannot even complain due to lack of proof of the transaction," he says.

The Coffee Board Vice-Chairman, Mr Bose Mandanna, says that the interest burden on the growers is so high that it is double the principal that is due. "We had a look at these in the Coffee Board and found that interest dues were very high," he said.

Currently, against the input cost of Rs 63 a kg for arabica, the growers are getting only around Rs 40. For robusta, they are getting Rs 22 against an input cost to the tune of Rs 30.

Growers pay interest rates ranging between 14 and 15 per cent for the loan the avail of. "There is an urgent need to cut the rate of interest. Though the rates have come down, much needs to be done in this regard," the sources said.

The low prices and poor returns have also forced the growers to attempt selling off their estates. But the efforts have met with offers much below the growers' expectations.

Some growers with an entrepreneurial streak in places such as Kodagu have opened resorts in their estates, trying to tap the tourism potential of the place. "Besides inter-cropping, this sort of venture is helping a bit. Otherwise, there is not much hope," the sources said.

Prospects of a short-term rise in prices appear bleak. This is despite projection of a decline in Vietnam production to 7.5 lakh tonnes next season from nine lakh tonnes this season. Brazil, on the other hand, is seen producing a record 37-39 million 60-kg bags next season.

Though coffee prices are off the historic lows witnessed during July 2001, they are still ruling low. During the weekend, arabica for September closed at 47.75-47.80 cents a pound, while in London, robusta September closed at $503 a tonne.

Efforts by the Association of Coffee Producing Countries (which has become defunct since the beginning of this year) to raise prices through cut in exports have failed, while doubts still linger whether the plan to destroy bad quality coffee will work.

On their part, the Union Government and the Reserve Bank of India (RBI) have unveiled a new relief package for the coffee sector after detailed discussions and consultations with the trade.

As part of the new package, all types of coffee loans (short, medium and long-term including re-phased/rescheduled loans) which are outstanding as on June 30 and not classified as non-performing assets (NPAs), have been consolidated into a single term loan viz, special coffee term loan (SCTL). The repayment schedule of the SCTL would range between 7 and 9 years including an initial repayment holiday (moratorium) of two years.

A pilot project to offer interest subsidy has also been launched by the Coffee Board.

"But there is an urgent need to regulate the unorganised sector. The Coffee Board should initiate steps to register all agents buying and selling coffee so that the growers can be advised on who to deal with," says Mr Bidappa.

A redressal mechanism should also be set up to deal with complaints, he says. "Similarly, the sales tax authorities should enforce the registration rule for all hulling /curing units and remove purchase tax on coffee," he adds .

"These measures will remove most of the loopholes in the system and pave way for more open and transparent trades which may bring about a greater confidence among growers and the curing industry. This will also help prevent cash transactions," says Mr Bidappa.

Send this article to Friends by E-Mail

Stories in this Section
PM scraps petrol pump allotments

Coffee crisis begins to claim victims

Rain drops enough to bring cheer to markets

It's back to `gully' cricket for Kapil

75 pc of districts facing imminent drought

DCA appoints outside auditor for Xerox probe