Commodity prices mostly get nullified and in real terms are still on a decline: UPASI President

It has been a blend of both challenges and opportunities for the plantation sector as the year witnessed an interplay of climatic extremes, geo-political turbulences, and market dynamics, each leaving an indelible mark on production, pricing, and trade of key plantation commodities. The plantation commodities like tea, coffee, natural rubber, cardamom and pepper in south India which are under UPASI’s domain, have experienced hurdles as well as certain silver-linings, shaping the trajectory of both domestic and global commodity markets. Geopolitical tensions further complicated the global economic outlook in 2024 and the ongoing conflicts in regions like Russia, Ukraine and West Asia had resulted in disruptions to the key maritime routes like Suez Canal and the drought situation also affected the freight transit through Panama Canal which resulted in inflated transportation costs for the commodities.

The price increase was largely a supply-side phenomenon rather than a demand-side factor, as there has been a decline in production due to the adverse impact of climate change, which is indeed not a very encouraging scenario. The price increase in the plantation commodities, hence, must be seen in the right context against the increase in the cost of production and it may be noted that the higher prices do not necessarily translate to higher profits, as the input costs like increase in wages and increase in costs of fertilisers, pesticides, petrol, diesel, etc. have all gone up manyfold. The present price rise therefore mostly gets nullified and as a matter of fact in real terms the commodity prices are still on a decline.

As mentioned earlier, the present price rise in most of the commodities was either due to domestic shortage as in the case of tea and natural rubber, global shortage in the case of coffee, and both domestic and global shortage with regard to cardamom and pepper. As per the latest report from ICRA, tea prices are expected to soften going forward and with the anticipated revision in wage rates, margins are expected to come under further stress whereas for coffee and spices, the prices in the short term are expected to be positive.

Importantly, what needs to be done, is to have a holistic approach for all plantation commodities, to enable the sector to be cost competitive in the marketplace by optimizing mechanisation, while simultaneously, also investing in long-term field developmental programs, which are highly capital intensive and will require government support in terms of subsidies, to be sustainable. Special focus is also required in Research and Development by increasing financial allocations for which government support is critical, to enable cutting edge research to quickly release new climate-resilient clones to help plantations improve both yield and quality which will enable cost reduction and product premiumisation .On the demand side, there is a requirement to initiate augmenting domestic consumption of tea, coffee, and spices, through generic promotion measures and a well-structured brand-building exercise for positioning the Indian plantation products, in emerging and traditional markets, so as to recapture and increase the share of Indian plantation products in the global market space.