Representative image.
Forecasts of a lower crop in Vietnam, the world’s second largest coffee producer, may raise the demand for Indian coffee in the coming months.
According to reports, skyrocketing prices of inorganic fertilisers have led to increased use of organic fertilisers in Vietnamese coffee plantations, which has triggered concerns of a lower yield in marketing year 2022-23 (October to September).
The current forecast pegs a 2 percent crop reduction from the previous year at 29.83 million bags (each of 60 kg). Moreover, though shipping constraints have eased and some traders have started bulk exports, the country fears that uncertain global logistics could affect coffee consignments in 2022-23. The threat of tropical storms later this year also looms large on the coffee sector in the country.
A Bloomberg survey of traders in Vietnam said stockpiles will halve by the end of September from a year ago, leading to a drop in coffee output from the country in 2022-23. Carryover stockpiles were seen at 200,000 tonnes at the start of the new season on October 1, compared with an estimated 400,000 tonnes a year earlier, according to the survey. Output may fall 6 percent to 1.72 million tonnes in 2022-23, the survey said.
India’s coffee outlook is better in comparison. The Coffee Board has projected a bumper crop in FY23 at 393,400 tonnes, up 15 percent from last year.
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Vietnam and India share a similarity in that the coffee grown is mainly of the Robusta variety, which is used more in instant coffee. Vietnam accounts for largest Robusta production globally, while 70 percent of India’s 340,000 tonnes of coffee production is of the same variety.
Both countries also have a strong export market in Europe. Italy is the biggest buyer of Indian coffee while Vietnam has been gaining ground in the country in the last couple of years. “If the crop is lower, then Vietnam may not go for aggressive marketing in Italy, which may be good for Indian coffee,” said Ramesh Rajah, president of the Indian Coffee Exporters Association.
India has been doing better in coffee exports this year with consignments rising 14 percent from January to August 2022 compared to the corresponding period in the previous year. “With the prediction of a lower crop in Vietnam, most of their customers may prefer to wait till the country goes into harvest by November before placing orders,” Rajah said.
India also has a growing presence in South Korea, which is one of the significant markets for Vietnam.
As in the case of Arabica coffee, which is higher priced and widely used, Robusta prices also have been rising this year and will get a fillip on the news of a possible slump in Vietnamese crop. Robusta futures prices have seen about a 12 percent jump.
The Arabica price uptick is linked to the supply worries from Brazil, the world’s biggest coffee producer. Since no rain has been predicted for the rest of this month in Brazil’s coffee growing regions, there are fears that excessive dryness could reduce yields. Arabica coffee futures prices, after hitting a record $2.60 per tonne early this year, dropped before rallying again to $2.21 per pound.
Though Brazil’s Robusta crop is projected to be good, the shift in consumer preference from higher-priced Arabica to Robusta in the wake of rising inflation has led to the latter’s increased demand globally. Apart from a lower crop in Vietnam, another factor that may keep coffee prices high is the fact that fund managers are finding the beverage a good avenue to invest compared with metals and bullion, said a senior executive of a coffee exporting firm.
The price rise may affect instant coffee exporters from India who import coffee from Asia and Africa for processing and re-export. Earlier this year, logistical problems had pushed up the cost of imported beans, leading many instant coffee producers to buy from the Indian market. As a result, Indian Robusta prices saw a 30 percent rise this year to Rs 4,500 per 50 kg.
CCL Products, the largest instant coffee exporter from India, buys coffee based on customer demand. “Most buyers prefer soluble coffee made from the coffee of Indonesia, Vietnam and Uganda. Since we adopt a cost-plus pricing model, any increase in coffee prices is reflected in the export prices. Last quarter we saw a 25 percent increase in sales,” said Challa Shrishant, MD of the company. Though Indian coffee is superior in quality, relatively high prices make it an unviable option for instant coffee makers.
Since CCL supplies to over 100 countries, the price rise may not be much of a worry. But a smaller company like Indus Coffee fears a demand drop from African countries. “The demand from Africa has slowed for our instant coffee as prices increased though the requirement from Europe has remained strong,” said Alok Ranjan, general manager sales, Indus Coffee.
