Recent disruptions in the Red Sea shipping route have led to a substantial increase in freight rates, soaring by 50-75%, as ships opt for detours to avoid conflict zones. Amid these challenges, Indian coffee exporters are encountering heightened competition from Uganda in key European markets, particularly Italy, for premium robusta coffees.
The surge in freight and insurance rates poses difficulties for both buyers and sellers, with the cost burden largely falling on buyers for Indian coffee shipped to Europe on a cost and freight basis. Exporters are adjusting prices upwards to accommodate rising freight costs, leading to dissatisfaction among buyers navigating the crisis.
Apart from India, other Asian exporters like Vietnam and Indonesia are also grappling with the repercussions of heightened freight rates. The Coffee Exporters Association President, Ramesh Rajah, emphasizes the need for prompt resolution of these issues while acknowledging the temporary lull in the market. The increased costs must be absorbed to sustain market presence.
Adding to the complexities, Uganda is intensifying competition by entering the premium robusta market in Italy with lower prices. Italy, a significant buyer of Indian coffees, may exert pressure on premiums if the current crisis persists.
As of now, Indian robusta parchment commands a premium of $800-850 over LIFFE prices, and Indian Robusta cherries hold a premium of $400-500 over London terminal prices. However, coffee exports have witnessed a sluggish start in the new year, down 8.5% in export permits issued during the January 1-16 period, attributed to lower coffee availability, slow picking and processing, labor shortages, adverse weather in Karnataka and Kerala, and grower reluctance to sell amid firm global prices. In 2023, Indian coffee achieved a record $1.16 billion, marking a 4.5% increase from the previous year.