The Russia-Ukraine conflict has disrupted shipments of instant coffee, but a global supply shortage and resulting price surge have boosted exports of Indian green coffee — unroasted coffee beans.
After hitting a 10-year high of $2.60 per pound in February, the benchmark ‘C Price’ for Arabica on the New York ICE market for coffee futures dropped to $2.1 per pound. Indian coffee contracts were now being fulfilled against the earlier higher price.
Arabica’s price has been softening in recent weeks, in part because traders view the continued lockdown in China as affecting demand. Bloomberg reported on the weekend that the majority of coffee consumption happened in the big cities like Shanghai, and these were the places heavily affected by the country’s ‘zero tolerance’ lockdown policy.
Exports of coffee increased by 25% to 148,402 tonnes between January 1 and April 27, according to the Coffee Board of the Indian Government.
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News site Money Control reported a quote from Ramesh Rajah, president of the Coffee Exporters Association. “Exports are brisk in April. In the previous months also, there was good demand. But what we are shipping is for prior orders.” Normally, India expects exports to drop once Brazil’s harvest comes into the market; however, there is a current shortage of containers leaving from Brazil, which is likely to constrain their ability to fill demand, leaving India perhaps, with an opportunity to step in and meet that demand.
Exports are brisk in April. In the previous months also, there was good demand. But what we are shipping is for prior orders.
Ramesh Rajah, president of the Coffee Exporters Association
Brazil’s struggle
Brazil’s national supply business Conab predicted the 2022/23 coffee crop at 55.7 million 60 kg bags in its early-year projection for the forthcoming coffee season.
As the country enters the “on-year” in the biannual arabica production cycle, this represents a 16.8 per cent increase over 2021. However, the forecast is lower than 2020’s record yield of 63 million bags.
Compared to 2020, the decrease in production this year is due to severe weather conditions with drought and a severe frost affecting the major coffee producing regions in Minas Gerais, São Paulo, and Paraná, primarily in July and August 2021, according to Conab.
“Brazil is experiencing container shortage problems, and hence its shipments are at least two months late. But the country could be exporting more this year because of a better crop and depreciation in its currency against the dollar,” he added.
India’s rise
Most of India’s coffee production is Robusta, and much of this is consumed internally – see chart below.
However, the country now is seeing increased demand for Robusta from other countries. Money Control reported that the Coffee Board was disappointed with the level of Arabica production, which has fallen short of the 99,000 tons expected. Most of what has been produced has already been exported to take advantage of the record high market price. The current estimate is for 235,000 tons of Robusta to be produced for 2021 to 2022.
Arabica fetched a high price of Rs 16,000 (circa US $208) per 50 kg bag this year compared with Rs 9,000-10,000 (circa US $117 to $130) last year. Unfortunately, the growers couldn’t cash in on it much as the output was low. Robusta crop is much better but may be 20% lower than the previous year. The price level of Robusta is almost similar to last year.
N Ramanathan, chairman of the Karnataka Planters’ Association
In general, India is in competition with Vietnam, the world’s second-largest coffee producer, and Indonesia, both of which mostly export Robusta, which big European roasters use for making lower-cost instant coffee.
However, due to the location, these countries are currently suffering from abnormally high freight charges to Europe, while India’s freight rate to Europe is lower by contrast.
N Sathappan, director of SLN Coffee, said, “The freight rate hikes have helped India match the coffee rates of Vietnam and Indonesia on the global market and attract more buyers”.
The freight rate hikes have helped India match the coffee rates of Vietnam and Indonesia on the global market and attract more buyers.
N Sathappan, director of SLN Coffee
Indian Instant Coffee Market
Consignments of instant coffee have been impacted since the Russia-Ukraine conflict in February. India sells 40,000 tonnes of instant coffee, with Russia as its major buyer. (see chart 1) Unlike some Western countries, and companies like Nestle pulling out of the coffee business in Russia, India has maintained a trading relationship with the country.
Sathappan said, “Earlier, the exports used to be in dollars. But now, after the sanctions imposed by the Western countries, banks are not accepting dollars. We are waiting for the proper notification to export in rupees or roubles”.
Reportedly some local Indian roasters that imported beans previously are now using local sources to counter the weak Rupee, which has made imports more expensive.
Imports of coffee beans are tax-free for re-export but have a charge of 110 per cent for consumption in the domestic market. CCL Ltd and Tata Coffee Ltd, two of the world’s largest instant coffee exporters, import enormous volumes of beans destined for exportation.
For domestic sales of brands like Nescafe and Bru, multinationals like Nestle India Ltd and Hindustan Unilever Limited use Indian coffee beans.
The future of coffee production
The demand would surpass output by 3.1 million 60 KG bags this coffee year (October 2021 to September 2022), based on April’s forecast from the International Coffee Organization (ICO); however, this was made prior to the lockdown in China, which, as we noted earlier, is expected to have an impact on demand.
The organisation estimated total production at 167.2 million bags, down 2.1 per cent from the previous years, circa 170.8 million bags.
The ICO expects global coffee consumption to increase by 3.3 per cent to 170.3 million bags in 2021/22, up from 164.9 million bags the previous year. Variations in supply and demand may be influenced by a global economic slump, higher input costs, and the situation in Ukraine, according to the report.
Photo by: Abdulla Al Muhairi | Flickr
