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Coffee prices had favoured growers for most of 2014, after hurting from a sharp drop in prices in the second half of 2013. But prices have begun to fall again. India’s Coffee Board said in its 12 December market report that Arabica coffee futures are officially in a bear market, after prices fell below 20% over October’s high, fulfilling a bear market’s definition.

The main reason is better weather in Brazil, which has resulted in that country’s coffee crop estimate being revised upwards by 3% from its previous estimate, according to a recent US Department of Agriculture report. Even then, its output in 2014-15 is expected to be 6% lower than last year’s figure. Brazil is the main producer of Arabica, a premium variety compared with Robusta.

The International Coffee Organization’s Brazilian Arabica benchmark is down 6% since the start of December. The fall in Arabica prices seems to be affecting the Robusta variety as well, which is down by 4%. The steep increase in Arabica prices had seen companies blend more of Robusta in their coffee, to keep retail prices in check. In 2014, till November, the monthly average price of the Brazilian Arabica variety had risen by 59%, while Robusta was up by 17%.

India is a Robusta-growing country, a variety favoured by instant coffee companies and accounts for 69.4% of output in 2014-15, according to the government’s Coffee Board. It’s a good year for coffee growers, as domestic output in 2014-15 is estimated to be higher by 13.2%, though the cheaper Robusta takes the lion’s share of the credit with an 18.3% increase, while Arabica is estimated to increase by 3.2%. The Arabica-growing areas were hit by dry weather that resulted in pests damaging the crop.

As of now, Indian plantation companies are comfortable with both higher output and prices. Also, even if Brazil’s improving weather situation results in Arabica prices falling, the impact will be limited on Indian companies, who are more dependent on Robusta. Vietnam, a main grower of Robusta, is expected to see a slight decrease in its coffee production in 2014-15. Unless Robusta prices fall significantly, the situation appears in the favour of plantation companies, though consumers will perhaps end up paying a stiffer price for a drink that anyway is more expensive than tea.

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