Nestle India, HUL raise coffee prices by 10-12%

Consumers in India already paying more for many essential commodities now need to pay more for their favourite cup of coffee. FMCG companies Nestle India and Hindustan Unilever have raised prices of their coffee brands Nescafe and Bru respectively by 10-12% over the last couple of months, according to retailers and a research report by JP Morgan.

The price hikes by FMCG companies come in the wake of a sustained rise in cost of raw materials over last several quarters. Prices of raw coffee have surged globally amid supply hiccups.

For instance, price of the most consumed Arabica variety of coffee rose 50% in a year, according to a Bloomberg report. However, coffee prices may be at their peak right now and the rally could end due to record output in Central America, the report says.

Global production of Arabica will outpace demand in 2011-12, analysts say. Netherlands based bank ABN Amro last month forecast a global Arabica surplus of 6.90 lakh 60 kg bags in season beginning October.
FMCG companies in India have been facing pressures from a spike in raw materials across the board. Nestle India’s input costs, for instance, rose over 12% in April-June, while Hindustan Unilever’s raw material costs were up 26%.

Hindustan Unilever and others like Godrej Consumer Products , Bajaj Corp and Dabur have raised prices of some of their products, especially in personal care products and soaps & detergents by 3-10% over June-August. Colgate Palmolive India too has raised prices of some of its toothpastes by 3-6%.
Most FMCG stocks have outperformed the broader markets this year as investors have sought cover under defensive sectors amid an overall volatile market.

The CNX FMCG index is up 1.7% in the last three months, even as the broader Nifty has fallen 7.3%.
Nestle shares ended at Rs 4,454.10, up 1%, while HUL closed up 0.2% at Rs 320.50 on Wednesday.

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Farmers raise coffee quality in bid to boost their incomes

Small-scale coffee farmers are expected to earn premium prices in world markets with the support of a Netherlands NGO. Solidaridad has offered to work with farmers to implement quality requirements for the produce under the Utz and Fair Trade certification schemes.

“Solidaridad gets funds from donors to help smallholder farmers in implementing certification codes,” said Mr Karugu Macharia, the organisation’s regional director. Farmers have in the past blamed certification, which is an expensive affair, for locking them out of the lucrative speciality coffee markets.
Certification through Utz, for instance, costs Sh1.6 million while through Rainforest it costs Sh580,000 and Four Seas Sh400,000.

Safety standards: The amounts are usually denominated in hard currencies such as the dollar and the euro, which were exchanging at Sh94 and Sh135 against the shilling, respectively, last week.

Other costs include paying for regular audits conducted by independent firms, which check implementation of certification standards. Auditors are sometimes flown from abroad at the cost of the farmers whose produce is being certified.

Implementation itself can also be very expensive since it may require a complete overhaul of production process, such as fertiliser and chemical application, health and safety standards, record keeping, and fair labour practices. Solidaridad helps farmers mainly through training, consultancy and budget support.

Certified coffee: The support programme has already helped seven coffee co-operative societies to implement certification while eight more are on the waiting list.

The quality standards ensure that farmers meet a set code of environmental, social and economic parameters in coffee production, including documentation, to facilitate tracking of the certified coffee.

After meeting these standards, their coffee is labelled as certified through several of the available certification schemes such as Utz, Fair Trade, Four Seas and Rainforest Alliance.

Buyers in key coffee markets are willing to offer premium price for the certified coffee that would boost farmers’ earnings. To help bring down the costs of certification, farmers have been advised to carry out their own regular internal audits which will help reduce the time it takes for external auditors to inspect them.

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