Indian Robusta Growers Were About To Reap A Windfall. Then They Ran Out Of Water

In July 2021, at the height of the Covid-19 Delta wave, a herd of 14 elephants entered Jagannath Ballupet’s Nanjundeswara estate in Sakleshpur, inadvertently damaging his coffee crop. It was already a bleak time for the industry. Exports were banned because of the pandemic, resulting in over 21,000 tonnes of coffee — harvested by debt-saddled growers — being stuck at curing centres.

Even so, that wasn’t the worst time for him.

Between 2000-2004, a global coffee crisis triggered a price collapse of arabica coffee to the point where more planters in Kodagu, Karnataka, started switching to the hardier robusta variety. Ballupet was one of them. The robusta to arabica ratio on his estate is now 70:30.

Good thing it is, because farmgate prices for robusta berries reached a record high of Rs 172 per kilo last month in Wayanad, India’s second-largest robusta-growing region after the coffee epicentre of Kodagu. Robusta beans fetched Rs 315 while arabica fetched Rs 305. This would’ve been unheard of up until 2022 or so, when the premium arabica fetched at least 50% more than its once-lowly cousin.

This turnaround is thanks to a major supply shortage in the world’s largest robusta producers, Vietnam, Brazil, and Indonesia. Vietnam alone produced 40% of global output but has been hit by the ravages of El Nino since 2023. The weather phenomenon, which increases sea surface temperatures in the Pacific Ocean, triggered drought and crop degradation. That helped robusta exporters in India make a killing as they came in to fill the supply gap. Yields in India were affected by inclement weather too but the value of robusta exports skyrocketed as Asian countries, particularly Malaysia and the UAE, took in more Indian shipments. This helped Ballupet keep his head above water. And yet, he is wary.

“Climate change is creating a dangerous situation here. The rains are scant and delayed, and our tanks have run out of water,” he says. Because of the Securitisation Act [the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act], coffee farmers unable to pay agricultural loans are seeing their estates sold off to the highest bidders.”

Throw in mounting production and shipping costs, and you’re presented with a situation where prices will correct after buyers hit a spending ceiling and demand eventually cools. This titbit comes from none other than the former chief business officer of India’s National Commodity and Derivatives Exchange (NCDEX), Kapil Dev.

Future Imperfect

Before we get to the coffee supply chain and trade, it’s important to understand why coffee prices are particularly volatile. As Dev explains:

Unlike staples such as wheat and sugar, coffee has no minimum support price in India. That leaves planters and exporters alike at the mercy of dollar-adjusted prices since the benchmark is set by the Intercontinental Exchange (ICE). Moreover, unlike other agricultural commodities, coffee is a low-volume, high-value crop whose trade is highly speculative. Major exporters are also major importers and vice versa, a dynamism further fuelled by the rise of an up-and-coming “hipster bean”: liberica.

Because of this, coffee traders hold carry-on buffer stocks in times of short supply. That happens with cotton and sugar too but the prices of those commodities have corrected over the past few years. That of coffee hasn’t. And buffer stocks are fast depleting because of global weather disruptions.

Because of this on-again, off-again trend, NCDEX reintroduced robusta coffee futures contracts in 2022 to manage risk for Indian coffee growers (as the term suggests, future contracts are agreements to buy or sell at predetermined prices in the future). ‘Reintroduced” is the operative word here. The exchange had first launched this in the early aughts… in vain. After an initial trading spurt, liquidity waned due to a combination of lack of awareness, high speculation, and poor warehousing. That last bit has come back to bite as temperatures soar and seasonal blossom showers peter off. The 2022 initiative hasn’t worked either.

This is happening while demand for robusta is stronger than ever. Data from the Coffee Board of India shows that the country exported 74,998 metric tonnes of robusta cherries between Jan 1, 2024-April 23 2024, an increase of 14,367 tonnes from the same period a year before. Exports of instant coffee, in which robusta is used, were up 851 tonnes year-on-year. Domestic consumption is increasing too thanks to the expansion of coffee chains such as Cafe Coffee Day, international players such as Tim Horton’s having entered the Indian market, and venture capitalists pouring money into specialty coffee startups.

The hiccups are many. Planters had issues with grades set by the Food Safety and Standards Authority of India (FSSAI). Awareness about risk hedging and financing is still low in Coorg. And infrastructure issues remain.

“There’s still a shortage of open warehouses that are operational throughout the year, which you need as an exchange. So supply continues to be withheld. At some point, sky-high demand will rationalise because importers will only pay so much even for costly coffee,” Dev tells The Core.

Off The Chain

Operational warehouses are one thing. Moisture control in times of wet bulb temperature stress is another. So are rising freight costs.

Coffee hates humidity. Because beans are bagged when they’re still green, they were traditionally transported in fabric bags made mostly of jute. This allowed for free air circulation and limited wetting to the beans’ outer layer as the commodity goes from estate to processing mill to curer.

This is gradually changing as the Indian monsoon becomes unpredictable and unevenly distributed. Freight operators such as Hapag-Lloyd, one of the largest shippers of coffee, are lining containers with steel floors and cardboard to minimise moisture damage. Even coffee drying methods are changing, said M Senthilkumar, research director at the Coffee Board of India.

“To mitigate risk in times of humidity buildup, we’re encouraging solutions other than tray drying and traditional drying on cement floors. These include mechanical driers and solar tunnel driers,” he said. The board is also introducing drought-ameliorative sprays.

All this is to say that the costs of producing and transporting coffee are increasing across the value chain.

“Total inflation in coffee from grower to retail was in the range of 14-15% up until December 2023. When you pare this down, about 1/3rd was due to transportation costs,” Ankur Bisen told The Core. Bisen is senior partner at Technopak and heads the consumer, food and retail division at the management consulting firm.

Raajesh Bhojwani, CEO of RBB Shipping, concurred. According to him, disruptions in the Red Sea and drought in the Panama Canal, a critical waterway for coffee shipped from South America, have made international trade more expensive, leading to a domino effect on packaged coffee.

To protect their margins, major brands have increased the proportion of powdered chicory in instant and filter coffee. The caffeine-free coffee substitute enhances the aroma and taste of the real deal. India’s chicory-growing hubs of Gujarat and Uttar Pradesh have also increased exports of the ‘filler’, which has triggered a price rise for the root too.

Water Stress

Irrigation is a major money sink in a region whose water table is drying up.

Baba PS Bedi would know. A former chairman of the Karnataka Planters' Association, Bedi owns a coffee estate between Sakleshpur and Chikmagalur in Karnataka. By his own admission, he’s got capital that small-scale growers don’t. Smallholder farmers account for up to 98% of Indian coffee output.

Groundwater levels in the coffee hub have been receding since the early 2000s. This coincided with growers’ switch to robusta from arabica, as mentioned up top. For all its purported hardiness, robusta — it doesn’t need as much shade as arabica, meaning it can withstand a higher temperature range — is a water guzzler. Because its roots don’t go as deep into the soil as arabica’s, it needs at least two inches of rain for a healthy blossom. Drought effectively kills it. And so, planters are installing more borewells, water pumps, and sprinklers because of a rain deficit, digging deeper into parched earth. Bedi claims new wells being dug in his district are going down as far as 400-500 feet.

Making matters worse is arabica’s vulnerability to leaf rust and the white stem borer pest. Estates that grow a mix of both major coffee varieties are replanting arabica as crops succumb to disease. Newly-planted shrubs take about four years to bear fruit, and that too is causing a deficit.

“Fertiliser prices have also gone through the roof after the Russia-Ukraine war. Manure and insecticides have become more expensive as well. Yet, my production was down nearly 40% last year because of the rain deficit [and ensuing water reduction in wells]. The returns are diminishing,” Bedi tells The Core.

Like other coffee growers in Karnataka, Bedi is supplanting coffee with pepper and areca nut. Kodagu farmers have also been betting on avocado for years, whose high retail prices help offset any setbacks from growing coffee. But this is an ouroboros situation: avocado is also highly water-intensive.

Some Indian growers are projecting a robusta yield shortfall of at least 30% this year. If prices are due to correct regardless, as former NCDEX executive Kapil Dev calls it, we are in for a crisis that goes far beyond a horribly expensive brew.