Asean FTA gives coffee growers sleepless nights

Leaders from Kerala have vociferously opposed the Asean free trade agreement (FTA) that could impact its farmers in future. The same cannot be said about many coffee growers who have little political muscle. Karnataka produces 70% of coffee in India.
The Asean, or Association for South East Asian Nations bloc, consists of 10 nations including coffee exporters such as Vietnam and Indonesia.

As per the FTA, import duties on commodities like coffee and tea would be progressively scaled down to 45% from the current 100% by 2019.

“Our knowledge on the FTA is only hearsay. Our costs have been increasing over the years and we may not be able to compete against cheap imports,” said Ullas Menon, secretary general, United Planters’ Association of Southern India (Upasi).
Industry insiders say that increasing labour and transport costs make them uncompetitive. Also, failing crops owing to the borer pests are plaguing the sector.

Some 17,000 coffee growers are seeking Rs 800 crore worth of loan waivers from the government.

According to Babu Reddy, agricultural economist at the Coffee Board, though the coffee from the Asean region is of lower quality, they are cheaper as they do not use shade cultivation unlike India.

The cost of production in India is over 20% higher as compared to Vietnam.
“Low-cost coffee from countries like Vietnam has already hit our exports. Now, the FTA will threaten domestic sales too,” said Ramesh Rajah, president of All India Coffee Exporters’ Association.

Growers might also be forced to bring down prices going ahead.

Exports witnessed one of the worst declines to 1.4 lakh tonnes during the first nine months of the 2008-09 crop year as against 1.78 lakh tonnes the previous year. India exports around 70% of coffee it produces.

Since 2000, domestic consumption has grown owing to increasing affluence and the spread of coffee chains.  From around 65,000 tonnes in 2000, India consumed nearly 1 lakh tonnes of coffee in 2008, and growers fear that cheaper substitutes might be preferred, going ahead. What makes matters worse is that roasters are open to imports, as it gives them twin advantage of lower costs and more coffee variety.

“Cheaper robustas will give us a price advantage while arabica coffee will add variety to our specialty coffee,” said Srikanth Rao, joint secretary of Indian Coffee Roasters Association.

However, Coffee Board officials contend that the FTA is a blessing in disguise. Anil Bhandhari, member of the Coffee Board, said that cheaper coffee will stir up consumption across the country.

Around 78% of coffee is consumed in south India.