Kochi: An appreciating rupee, higher freight rates, stiff competition from other nations and an expected lower crop this year are likely to dent the exports of Indian tea, coffee and rubber.
However, spices could be one plantation crop where India is expected to dominate global exports.
The tea industry, which may see exports down by 10-15%, hopes to cash in on the post-poll violence in Kenya, a stiff competitor on the lower quality CTC (cut, tear curl) tea variety, producing more than 390 million kg. The violence has disrupted tea auctions in Mombasa in Kenya, a major centre where teas from other African countries such as Uganda, Tanzania, Mozambique and Rwanda are sold.
“The auctions have resumed this week but the continued violence may make buyers such as Pakistan, Egypt and the United Arab Emirates look to other sources and India can be a major supplier,” says J.K. Thomas, former president of the growers’ forum, United Planters Association of Southern India. He, however, admits that this could be a temporary phenomenon.
A drought in 2006 in Kenya reduced tea production to around 310 million kg. This forced Pakistan, a Kenyan tea buyer, to source nearly 16 million kg tea from India last year but with Kenya recording good production, Pakistan has resumed imports from the African nation and Indian exports to Pakistan this year are likely to be less than 10 million kg.
Sashi Shah, senior vice-president of the Indian Merchant Tea Exporters Forum, says violence in Kenya will not affect its tea exports for long and, in fact, turbulence in Pakistan, following Benazir Bhutto’s assassination, may affect Indian tea exports to Pakistan.
Indian tea exports are expected to be down by 10-15% from 202.6 million kg during 2006-07, says Basudev Banerjee, chairman of the government trade promotion body, Tea Board. Up to November, exports have been sharply down to 100.47 million kg, from 152.2 million kg during April-December 2006. Tea production, too, is expected to be down by nearly 30 million kg in 2007-08, from 947.17 million kg the previous year
Banerjee admits that while India has been able to make some inroads into Egypt, more than $7 million export proceeds have been held up in Iraq since the local traders have not paid for a good part of the 42 million kg they had imported during 2006-07.
“The Iraqi market is practically closed but we are making efforts to retrieve the money,” the Tea Board chairman says.
Iran is another emerging market for India. However, the pressure mounting on Indian banks not to accept the letters of credit (LoC) from some of the major banks in Iran that have been blacklisted by the US on charges of funding terrorism is affecting exports. But the industry can tackle this problem by routing trade through European banks in Iran, point out Thomas and Shah. LoCs are a form of guarantee that the bills drawn under these instruments will be paid by the banks in case of any default, provided the terms and conditions of the LoCs are fulfilled.
Coffee exports volume may go down 20%
Coffee production is estimated to be down by 9% to 262,000 tonnes in 2007-08, as per the post-monsoon projection of the government trade promotion body, Coffee Board. This will be the lowest production in the past decade.
Though there might be a 20% decline in volume in exports, the industry is confident of achieving the export target of $365 million set for this fiscal. There is a decline in production and this will force instant coffee manufacturers to import coffee, raising the level of import to the tune of 20,000 tonnes.
According to Ramesh Rajah, president of the Coffee Exporters Association of India, two things have stood against the coffee export industry—the rupee appreciation and the high freight rates.
“While the India-Europe freight rates are at $90 a tonne, Brazil and Argentina thatcompete with India pay a lower rate at around $55 per tonne. A freight subsidy can change the industry outlook,” Rajah says.
Rubber exports down 60% in April-December
Rubber production as well as its exports are expected to be down this fiscal. While production is estimated to be down to 819,000 tonnes in 2007-08 from 853,000 tonnes, exports in the first three quarters of this fiscal up to December have been sharply down to 21,097 tonnes, from 50,655 tonnes in April-December in the previous year.
What’s brewing: A tea plantation in the Balacola region near Coonoor. Post-poll violence in Kenya is expected to help the Indian tea industry, if only temporarily, by diverting that country’s buyers to India.
According to the government trade promotion body, Rubber Board, the major reason behind the declining exports has been fluctuations in domestic prices. “Rampant speculations in the futures trade saw prices go up to over Rs100 a kg and it could rise even further. This has forced the growers to hold back their stock and dented export prospects,” says Sajen Peter, chairman of the Rubber Board. The board is taking initiatives to boost exports.
The International Rubber Study Group, an inter-governmental organization represented by various governments and the industry, projects that global rubber consumption is expected to outgrow supply by calendar year 2009 when global production will be around 10.16 million tonnes and consumption 10.36 million tonnes. During 2008, production is expected to be 10.31 million tonnes against 9.8 million tonnes in 2007, though consumption will remain high at 9.97 million tonnes. Imports, meanwhile, will be more than 90,000 tonnes in 2007-08, at least 3,000 tonnes more than imports during the last fiscal, according to both the Automative Tyre Manufacturers Association and the All India Rubber Industries Association.
Indian spices rule the global market
The appreciation of the local currency against dollar has not affected exports of spices where India is an undisputed market leader. Between April and November, spices exports crossed $700 million, about 40% higher than the corresponding period of the previous year.
V.J. Kurian, chairman of government trade promotion body Spices Board, says the target of $857 million for this fiscal will surely be met. He is even hopeful of touching the $1 billion mark. “Most of the products in the spice export basket have been doing well, we expect the situation to continue for some more time,” Kurian says.
According to Sushma Srikandath, chairperson of the All India Spice Exporters Forum, chilli exports have crossed the 125,000-tonne level and other crops such as coriander and fennel are in short supply in global markets and India is expected to rule the market.
Global supply of pepper is expected to be lower at 263,000 lakh tonnes in calendar 2008, down from 271,000 tonnes in 2007 and till the arrival of the Vietnamese crop in early April, India will rule the market, traders say.
However, cheap import of cardamom from Guatemala is a threat to the industry. While domestic prices rule above Rs600 a kg in India, cardamom from Guatemala costs Rs150 a kg even after paying 70% customs duty.
“Fearing cheap imports, we have requested the government to fix an import tariff, based on the average price of Rs 325 per kg at the auction that existed during the last cardamom season between August 2006 and July 2007,” says Kurian.