Explained: Why the Centre is planning to stir up the coffee industry by repealing 80-yr-old Act

The Centre has decided to repeal the decades old coffee Act as it says many of its provisions are too restrictive and have become redundant.

The Centre will replace the Coffee Act, 1942, with the Coffee (Promotion and Development) Bill, 2022, in the Monsoon Session of Parliament.

The Coffee Act, 1942, was introduced to protect the struggling Indian coffee industry from any economic fallout of World War II.

Let’s take a closer look at why it was introduced and what the new bill says:

Origin of Coffee Act, 1942

In the 1930s, the Indian coffee industry faced a slew of issues – extensive damage from pests and diseases and of course, the great depression’s impact on the world economy, as per Asiana Times.

The government approved the Coffee Cess Act (XIV of 1935) and established the first Indian Cess Committee in November 1935 to promote the sale of coffee and increase local and global coffee consumption.

Then, World War II broke out in 1939 and things went from bad to worse.

Since the Cess Committee could not handle the issues of the industry, the government established the Coffee Board through the adoption of the Coffee Act, 1942, under the supervision of the Ministry of Commerce and Industry

The Act’s main goal was to make provisions for the growth of the coffee industry and the board was tasked with assisting the sector with marketing, consumption promotion, funding, and research & development, as per the report.

The pooling system under the Act made it mandatory for each planter to contribute their whole crop — aside from the meagre amounts allowed for domestic consumption and seed production — to a surplus pool run by the board.

The coffee had to be harvested, dried, and sent to a curing plant where the producer would be paid in advance.

The Coffee Board would pay registered private contractors to clean, sort, and grade coffee using a point system in exchange for a charge, which would then be subtracted from the grower’s payment.

Asiana Times quoted World Bank Economist Takamasa Akiyama the board split the pool into two separate auctions where 30 per cent would go to domestic markets and the rest for foreign.

The cost of domestic coffee was purposefully kept low to encourage domestic consumption, as per Akiyama.

The board, considering the amount of points their coffee received at the curing factory,  pooled the proceeds from these auctions and paid the producer in instalments over the course of the year.

Then came liberalisation in 1991.

 

As per Indian Express, post liberalisation the board, though still the chief government body overseeing the industry, does not maintains its monopoly over the marketing of Indian coffee.

The board’s authority was piecemeal reduced through a series of amendments and in 1996 the pooling system was finally abolished.

Growers could thus sell straight to processing firms.

The coffee market was deregulated and the growers left to the free market.

The Coffee Board now serves in more of an advisory role, and aims to increase production, promote export and support the development of the domestic market.

What does the new bill say?

The draft Coffee (Promotion and Development) Bill, 2022, underlines that substantive portion of the existing Act dealing with pooling and marketing of coffee have become redundant/inoperative.

Commerce and Industry Minister Piyush Goyal earlier in July said the new legislations is aimed at promoting ease of doing business and helping small farmers.

“These are very old laws and the idea is only to simplify them, make it easier to do business, ensure that the small people in the different areas like coffee growing, tea growing do not have to suffer from high levels of compliance burden,” Goyal told PTI.

He was replying to a question about the objective behind introducing new legislations. When asked if there is any opposition on the move, he said there is consensus among stakeholders concerned.

“Our stakeholder consultations have gone very well and we have been able to satisfy the various stakeholders involved,” he added.

 

A senior official told Financial Express the new bill aims to address several new areas of functions of the Coffee Board including support for production, research, extension, quality improvement and the promotion of coffee and skill development of coffee growers.

“Many of these activities were originally not included in the mandate of the Coffee Board but now they need to be incorporated into its functions and powers,” a senior official said.

An official speaking to the Financial Express said India’s coffee production is estimated to rise 15 per cent in 2022-23 to 393,400 tonne.

Coffee exports reversed a COVID-induced slide to record a 42 per cent year-on-year jump last fiscal, to exceed the $1-billion mark for the first time, the official said.

In the decade starting 2010, the country’s coffee exports have maintained a roller-coaster ride, having remained shy of the $1-billion mark at least twice, the official added.

This warrants additional efforts and better regulations to ensure both production and exports move up steadily, boosting farmers’ income in this process and the new bill is aimed at doing just that, the official told the newspaper.

With inputs from agencies

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