Coffee prices rise as Brazilian drought affects Arabica crop

Global prices of coffee, especially that of the Arabica variety, are expected to see a spike, impacted by a severe dry weather in Brazil. This has sparked a sharp rally in coffee prices in India over the past few days and domestic raw coffee prices, by up to 45 per cent in the past one month alone.

In fact, the increase in domestic prices of coffee followed a report by a commodities trading firm that projected a global coffee shortage for the first time in three years.  The report predicted that coffee supplies will be about five million bags lower than the expected consumption demand during the 2014-15 season.

This is in contrast with the 25 per cent fall in Arabica coffee futures last year, in the wake of increased supplies and an expected glut in the market.

With export demand driving up farm-gate prices of Arabica, domestic prices have started increasing and roasters who sell grounded coffee have already started passing on the price spike to consumers.

India, which on an average exports two-thirds of the nearly three lakh tonnes of coffee it produces every year, could export a little more this season, raking up coffee prices further.

At Thursday's auction, the prices of key grades of raw coffee were up Rs30-40 a kg, an increase of almost 20 per cent over the previous week while roasters have planned to increase prices by 20-30 per cent.

Coorg Coffee, which retails powder and speciality blends under the same brand, has already effected a price hike of 20 per cent.

Domestic consumption of coffee is also growing at an annual rate of around six per cent and with modern coffee shops egging on the young and fashionable to consume coffee and spread the café culture, prices are expected to go up further.

Major producers like Tata Coffee, however, are closely watching the market before announcing any hike in prices.

Meanwhile, the Coffee Board has lowered its estimates of India's coffee production by about 10  per cent and has pegged the size of the current crop at 3.1 lakh tonnes, mainly  because of untimely rains in Karnataka, the main producing state.

The price of coffee in New York's ICE exchange due for delivery in March reached the highest point in about 14 months at $1.72 a kg.

The worst drought in decades that hit Brazil's coffee belt destroyed crop yields and caused prices to shoot up by more than 50 per cent so far this year. The drought has forced authorities in Brazil to ration water in more than 140 cities, with some neighborhoods receiving water only every three days.

Brazil produces more Arabica coffee than the next smaller 10 coffee-producing nations combined. The country produces 39.2 million 60-kg bags of Arabica - nearly four times the volume expected from next-biggest grower Colombia -- and six times that of No. 3 producer Ethiopia.

A mere 10 per cent reduction in Brazil's output of Arabica would wipe out 100 per cent of the entire Arabica crops of Bolivia, Burundi, Cameroon, Congo, Cuba, Ecuador, Haiti, Jamaica, Madagascar, Malawi, Panama, Paraguay, Rwanda, Sri Lanka, Tanzania, Uganda, the Dominican Republic, the Philippines, the United States, Yemen, Zambia and Zimbabwe combined.