Indian coffee planters lose out to Vietnam, Philippines

The Indian coffee industry may face a tough time ahead due to emergence of low-cost producers like Vietnam, the Philippines and other south-east Asian nations.

The Indian coffee industry may face a tough time ahead due to emergence of low-cost producers like Vietnam, the Philippines and other south-east Asian nations.

“The cost of cultivation for Indian coffee increases 12-15 per cent every year due to high wages and fuel prices. But, this is not the case in Vietnam and other south-east Asian nations,” Ramesh Rajah, president of the Coffee Exporters Association said.

The quality of Vietnamese coffee was good, giving tough competition to the Indian produce, he added. While Vietnam produces 12-15 million bags (one bag is equivalent to 60 kg) of coffee every year, India’s output is around three million bags per annum. The Robusta variety, which accounts for 97 per cent of Vietnamese output, accounts for 65 per cent of India’s production.

“The reduction in cost competitiveness has been reflected in the price realisation per bag in recent times. Indian robusta, which used to get a $400 premium per bag five years back, is receiving around $100-$150 premium as due to competition from the Vietnamese coffee,” Rajah said.

He also said that greater mechanisation along with cheap labour cost were the contributing factors for Vietnamese low cost of production. Rajah also pointed towards the stagnant growth rate of Indian coffee production along with exports. “While Vietnam has come to the level of producing around 12-15 million bags in the last 30 years, India’s coffee production and exports have been same for last ten years,” he said.

Coffee Board officials have a similar view regarding this matter. “Efficient resource allocation in Vietnam and other south-east Asian nations are the prime factors for cost advantage over Indian coffee,” Jabir Asghar, vice-chairman of Coffee Board of India said.

He, however, said that the scenario is not bad and would have impact on exports in the medium term only. A Kochi-based coffee broker also said that unless India finds ways to deal with cost factors, coffee had to face the same fate as other plantation crops like pepper, rubber among others.

Commodities from India, like pepper, are facing tough competition from Vietnam as it no longer enjoys the cost arbitrage. Referring to this matter, Chowda Reddy, an analyst of JRG Wealth Management said that as compared to India, Vietnam had emerged both as a major producer and exporter in the world within a very short span of time.

“While India takes cue from international coffee prices, Vietnam has a say in determining prices of robusta variety in the international market,” Reddy said. He also said that coffee planters had to reduce their operational expenditure to remain competitive in the near future. – Business Standard

Tags: Vietnam Coffee, vietnam coffee exports