Mumbai: Rising freight rates and high domestic transportation costs are seen spoiling the party for coffee exporters, who are keen to exploit the benefits of a weak rupee and higher production, industry officials said.
“Freight rates have increased substantially to importing countries,” said Ramesh Rajah, president of the Coffee Exporters Association of India.
Freight rates to Italy have jumped to $1,900 (Rs86,830) per container from $1,200 a year ago, while rates to other European nations have moved up to $1,700 from $1,200 earlier due to higher oil prices,he said.
Coffee exports rose 6.4% so far in 2008, compared with an 11% fall last year. Traders expect exports to touch about 225,000 tonnes, slightly up from 223,565 tonnes a year-ago. Official estimates for exports were not available.
India exports coffee mainly to Italy, Germany and Russia. Italy accounts for 25% of the country’s exports, followed by the Russian Federation and Germany with 9% and 8%, respectively.
Total production during 2008-09 is expected to be 293,000 tonnes, compared with 262,000 tonnes in the previous year. In 2007-08, coffee exports were hit by a strong rupee and lower production.
The rupee appreciated more than 12% against the US dollar in 2007. However, it has lost 13% so far this year. Rising transportation and processing costs due to higher oil prices are also hitting the exporters, officials said.
Oil prices soared nearly 16% to more than $120 a barrel on Monday—the biggest one-day gain on record—in a rally sparked by the expiry of the front-month futures contract and weakness in the US dollar.
Domestic transportation costs from the main coffee growing regions such as Karnataka and Tamil Nadu to the Kochi and Mangalore ports have increased more than 10%, said M.P. Devaiah, general manager of Allanasons Ltd, a large coffee exporter.
Karnataka and Tamil Nadu account for about 80% on the country’s total coffee output.
Coffee processing and curing costs have also moved up substantially due to a power shortage in Karnataka, which is forcing exporters to use more expensive diesel, Rajah said. Processing of coffee is the method of converting the raw fruit, or cherry of the coffee plant into coffee beans.
Exporters are also not being able to encash the benefits of a weak rupee as most of the orders were booked when it was at the level of Rs40 a dollar, said Milan Shah, chief executive of General Commodities Ltd, India’s largest coffee exporter.