After tea setback for Tata Global Beverages, coffee may turn bitter too

After tea plantation, coffee is turning out to be a major pain for the Tatas. Non-branded coffee business consisting of plantation operations, which performed poorly in the last fiscal due to adverse weather conditions impacting performance of Tata Coffee as well as its holding company Tata Global Beverages, would continue to be under pressure in the current year as well.

After a poor crop in India last fiscal, the current one is expected to be equally difficult, mainly because of a bumper crop expected in Brazil this year for both Robusta as well as Arabica varieties, which would keep prices under check.

“There has been a significant Robusta crop shortfall due to extreme unseasonal weather pattern. Arabica prices dropped from 138 cents at the beginning of FY18 to 118 cents per pound at the end of the year. A record harvest in Brazil is expected to keep Arabica prices under check. London coffee prices for Robusta also dipped through the year opening at $2,150 a tonne to $1780 a tonne. Conilon (Robusta in Brazil) is expected to have high crop leading to pressure on prices,” Sanjiv Sarlin managing director and CEO of Tata Coffee, told analysts.

Global coffee supplies would shift to a surplus position in 2018-19 with Brazil, the largest producer, expected to come up with a record crop of 60 million 60-kg bags, made up of 44 million bags of Arabica and 16 million bags of Robusta, a Reuters poll had predicted.

In India, the crop suffered in the previous year because of adverse conditions.

“Robusta in Coorg saw a very low harvest, probably the lowest in the last 10 years due to unseasonal rain pattern last year,” Sarlin said.

Tata Coffee is the leading player in the B2B business segment with presence in plantations.

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Tata Global Beverages has a 57.48% stake in Tata Coffee and would get impacted.

“Operating income and profit was lower impacted by abnormal weather conditions, resulting in lower coffee crop coupled with lower offtake in coffee extraction business,” Tata Global said in a presentation that it would present during Dun & Bradstreet investors’ conference in Singapore this week.

Tata Global has been finding it difficult to sustain its tea plantation businesses and has been even trying to sell them off.

Tatas had demerged its tea plantation business into two separate associate companies controlling estates in Southern and North Eastern parts of the country.

Tata Global has been trying to divest or turn around the tea estates in Assam and West Bengal on account of unpredictable weather and an onslaught of low-cost small plantations.

The company reported a 39.98% year-on-year rise in consolidated net profit to Rs 71.56 crore for the March quarter, led by growth in the firm’s branded business. The profit for the branded business segment grew 19%.

Total income stood at Rs 1,714.12 crore for the fourth quarter, against Rs 1,692.24 crore in the same period last year. The company exited the loss making businesses in Russia and China in the financial year, which resulted in higher profitability.

By Sumit Moitra, DNA Money