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Covid-19 pushes coffee sector further into fiscal woes

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The crisis triggered by the novel coronavirus (Covid-19) outbreak has aggravated the woes of the Indian coffee sector, which has been reeling under the impact of multi-year drop in prices and the changing climate patterns.

The United Planters Association of South India (UPASI), the apex planters’ body, has urged the Centre to immediately intervene and rescue the coffee sector stakeholders with a relief package on the lines of Special Coffee Term Loan (SCTL) provided in 2004.

Loan repayment

It has also suggested short-term measures such as extending interest subvention and rescheduling the repayment of crop loans, term loans and interest falling due between March 15 and June 30 this year by six months.

In a memorandum to Coffee Board, UPASI president AL RM Nagappan said the Covid crisis has resulted in severe cash crunch in the sector. Not only have the plantation activities been impacted by the flight of migrant labourers, but the cancellation of contracts and restrictions on movement of plantation commodities have also contributed to the drying up of cash flows.

As a result of the lockdown, farmgate sales of coffee have stopped as no buyers are coming forward to purchase. Also, there’s difficulty in moving coffee to the curing works, Nagappan said. Further, no curing is taking place due to the restrictions on the numbers of workers allowed (5 workers including staff) at the curing works, Nagappan said. As a result, the trading activity in coffee has virtually stopped and consumption has been impacted.

Exports stalled

The coffee export trade has also come to a standstill, further squeezing the cash flow. The disruption in supply chain has hit the movement of coffee from the farmgate to the curing works and finally to ports, thereby hurting the exports. The exporters are not able to execute export orders due to the closure of ports.

As the impact of Covid-19 is expected to be protracted, it is too early to estimate the loss to the coffee sector at this point, Nagappan said. He suggested that the Centre look at measures such as providing interest subvention of 3 per cent to all loans to coffee industry. The Centre should also reschedule the repayment of crop loans, term loans and interest falling due between March 15 and June 30 this year by six months. Further, the crop loan limits should be enhanced by 25 per cent to tide over the immediate crisis.

Claims settlement

Nagappan also suggested that all committed incentives under various developmental schemes of Commodity Boards should be settled immediately. The coffee replanting subsidy claimed by growers on expenses incurred has to be settled immediately. Such claims have not been settled by the Coffee Board due to unavailability of funds. In view of the inordinate delay in settling claims, growers should be adequately compensated, he said.

In the medium term, export incentive schemes such as MEIS should be continued at higher rates at 5 per cent to incentivise export as was prevalent up to 31-12-2019. Based on the data available, the Centre should come out with a relief package on the lines of Special Coffee Term Loan, which was provided in 2004, Nagappan added.

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