A tough decade for Indian coffee growers

In today’s Finshots we talk about the main issues facing coffee growers in this country

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The story

Coffee!

Every day, more than a billion people gulp down 2.5 billion cups of this steaming hot drink. What was called the devil’s drink in the 1600s has now become a staple concoction across the world. And there is a country that produces and exports most of this coffee: Brazil. In fact, it produces a staggering 40% of the world’s coffee and they are the undisputed leader.

But all is not well with Brazil. The world’s largest producer has gone through a difficult period. It was hit by fickle weather – cold snaps and frost, combined with a lack of rain. This has led to a rather lackluster harvest this year.

Now India sees a silver lining here. He thinks this could be an opportunity to export more of his own products. After all, the Coffee Board expects India to produce higher coffee production this year. And maybe Brazil’s loss could be India’s gain?

Well, not so fast. India has really not been doing well on the export front lately. In fact, from FY12 to FY21, coffee exports fell by 3% per year. And that’s because Indian coffee farmers face their own problems.

For starters, there is climate change.

You see, nearly 80% of India’s coffee production comes from the two southern states of Karnataka and Kerala. But the past few years have been a wet squib. The rains have been erratic. Some years the monsoon came early and other times it came with a vengeance. When the rains came early, the coffee fruits ripened too early and the yield was not good. When it rained heavily, floods and landslides wiped out crops. Farmers simply couldn’t take a break. And with the crops destroyed, yields have gone from 500 kg to 250 kg per acre for the arabica variant of the coffee bean.

Then there is the question of prices.

In 2019, coffee prices in real terms (i.e. after adjusting for inflation) were 45% below their 2011 level. In a sense, if you were a coffee farmer, you should reduce costs and increase production to maintain the same standard of living. In fact, in most cases, there has been no improvement. Farmers lost money at the fist. This situation has been further exacerbated by the oversupply of coffee beans from Brazil and Vietnam. Prices have taken a big hit.

But the costs did not follow the same trends. It was becoming more and more expensive to plant and harvest coffee. For example, according to the Karnataka Planters Association, the cost per acre of producing the arabica coffee bean variant has dropped from ₹50,000 to ₹85,000 per acre. It’s just in the last 3 years. Fertilizer prices have soared. Labor costs have also skyrocketed. And as a result, the coffee growing business is no longer so financially viable. Many small farmers have sold their plantations. Or even started growing other crops instead.

And finally, there is the matter of politics.

Even though coffee is a very important crop for India, it is not under the jurisdiction of the Ministry of Agriculture. It’s true! It’s actually part of the Ministry of Commerce. And this classification creates its own problems. For example, coffee growers may not receive the same subsidies and benefits as Indian farmers. And we’re not the ones saying that. Even a Senior Coffee Board Liaison, Yercaud and Kolli Hills, said, “Currently, we don’t provide any subsidies to farmers. And unlike many other crops, there is no Minimum Support Price (MSP) system in India that can help alleviate stress.

Now, even if we were to ignore all these problems, India would still not be able to rapidly increase coffee production. Quite simply because the culture of coffee does not happen overnight. It takes 3-5 years for coffee trees to mature and produce bright red coffee cherries.

And what is the government doing about all this?

Well they are trying to amend the decades old Coffee Act 1942 and replace it with the Coffee (Promotion and Development Bill) 2022. Although it is too early to tell details of the new law, I hope it will have measures that will bring some relief to struggling Indian coffee farmers.

But wait…there is always a long-term problem that no one is paying attention to.

You see, coffee is a pretty sensitive culture. It needs the perfect temperature to bring out the best aroma and taste from the beans. Even if things get a little warmer, it can negatively impact bean quality. And temperatures in the coffee-growing regions of southern India are expected to rise by around 2 degrees Celsius by the mid-2030s. How are we going to combat this? Nobody knows yet.

So yeah, it doesn’t look like Indian coffee farmers can sit on their porch with a cup of coffee and savor the tough times in Brazil.

Pretty sad that.

Until next time…


Ditto Insights — What No One Tells You About Health Insurance

Most people delay their first purchase of health insurance assuming they could get it in times of distress. We encounter a steady stream of people daily who want to purchase health insurance because they have been diagnosed with a serious illness. And it really hurts us to break the news. Most insurance policies are unlikely to review their application. And there are 3 main reasons for this

  1. Insurance companies want to mitigate risk on their end. They don’t want to insure a sick person and then pay large sums of money. So they completely refuse the application
  2. Even if your condition is mild, insurers can add waiting times and require you to pay extra. Waiting periods may seem manageable, but remember that this applies not only to your pre-existing condition, but also to any illness arising from your pre-existing condition. So, if you currently have high blood pressure and potentially face serious heart complications during this cooling-off period, the insurer may reject the claim if they can establish a link between blood pressure and heart disease. .
  3. Finally, some insurers will cover you even if you have a serious complication, but the policy itself can wear out. They can offer little or no protection while bringing home a significant premium. You don’t want to buy one of these policies.

So yeah, you should probably consider buying a health insurance policy when you’re healthy, even if it’s counterintuitive and don’t forget to talk to Ditto while you’re at it.

Until there…

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