Should Not The GOI/Sebi Smell The Coffee?

Just a day before, coffee stocks were brewing hot in trade on hopes that the government may allow foreign direct investment (FDI) in rubber and coffee plantation sectors. But the hopes seem to have taken back seat after the Department of Industrial Policy & Promotion (DIPP) Secretary today said there are no plans to allow 100% FDI in rubber and coffee plantations.

Coffee exports are hit this year. India has produced more Robusta crop this year than Arabica crop. And since Arabica crop is more expensive than Robusta, India’s price realization is lower. Meanwhile, sharp decline in the coffee bean prices are a pain to the Indian coffee growers. Bean prices are on a decline mode since last October after news broke that Brazil would harvest a better-than-expected crop in 2015-16.

“The long dry weather in Brazil last year had led to a belief the country would harvest less crop in 2015-16. However, good rains in January and February in that country has now changed the outlook and it is expected to harvest a better crop than expected. This resulted in price fall everywhere,” says the Ramesh Rajah, President, Coffee Exporters’ Association.

Brazil produces about half of the world’s Arabica coffee beans. The country accounts for about 35% of the world’s coffee and nearly one half of the globe’s Arabica coffee bean crop. Despite recent rains, Brazil’s coffee-growing regions still face the worst drought since the 1930s. Output of coffee in Brazil is forecast to be down again in 2015 with its inventories at a decade low. Moreover, other countries like Vietnam and Colombia have also predicted strong harvest this year, thus weighing down on the prices of coffee.

So, FDI may help attract foreign investors to India which may bring in better technologies and thus bolster coffee production in the country. And most importantly, FDI may help the country to boost coffee exports. India exported coffee worth USD 803 million in 2014-15 against USD 799 million in 2013-14. However, as per the data from the Coffee Board, the country exported 166,067 tonne of coffee between January and July against 172,764 tonne during the same period last year.

While the coffee stocks reflected optimism among the plantation companies about the FDI, but the producers across the southern India believe that FDI will not help the coffee sector. This negative view about FDI is due to the disappointment following the 100% FDI in the tea plantation sector. FDI limit had been raised to 100% in 2002 but the producers say that the sector is yet to receive any foreign investments.

Ullas Menon, Secretary, United Planters Association of Southern India (UPASI) mentioned that “unless the restrictions in plantation sector such as the statutory requirement of sharing the social costs of labour and land use are removed, it may not be attractive for foreign investors.”