The Ministry of Commerce and Industry is planning to replace the 80-year-old Coffee Act with the new Coffee (Promotion and Development Bill), 2022, which has been listed for the Monsoon Session of Parliament.

What is the Coffee Act?

• The Coffee Act, 1942 was first introduced during World War II, in order to protect the struggling Indian coffee industry from the economic downturn caused by the war.
• In the 1930s, the Indian coffee industry was facing significant problems, such as large-scale damage by pests and diseases, and the global economic downturn caused by the Great Depression.
• With coffee planters making significant losses, the government passed the Coffee Cess Act (XIV of 1935) and established the first Indian Cess Committee in November 1935.
• This aimed to promote the sale of coffee and increase consumption of Indian coffee at home and abroad.
• These problems from the 1930s were compounded with the outbreak of World War II, as low demands and a loss of foreign markets led to a sharp decline in coffee prices.
• Since the Cess Committee was not able to deal with the crisis faced by the industry, the government formed the Coffee Board, through the introduction of the Coffee Act, 1942.

Purpose of the Act

• The purpose of the Act was to provide for the development of the coffee industry.
• The Board was tasked with supporting the industry in marketing, promotion of consumption, finance and research and development.

Why scrap the old law?

• The government is now trying to scrap the law because it claims that many of the provisions have become redundant and are too restrictive.
• It has also proposed to repeal the decades old laws on tea, spices and rubber, and introduce new legislations in order to increase the ease of doing business and promote the development of these sectors.
• These are very old laws and the idea is only to simplify them, make it easier to do business.
• It aims to 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.

Major contentious factor: Pooling System

• Before India liberalised its economy in 1991, the Coffee Board controlled the marketing of the commodity in its entirety, both in India and abroad.
• The Act introduced a pooling system, where each planter was required to distribute their entire crop to a surplus pool managed by the Board, apart from the small quantities that were allowed for domestic use and seed production.
• The Board marketed 70% of the total pool for export and 30% for domestic markets, and sold them in separate auctions, according to Takamasa Akiyama, an economist affiliated with the World Bank.
• In order to spur domestic consumption, the price of domestic coffee was kept artificially low.

The changes since liberalization

• While the Coffee Board no longer maintains its monopolistic control over the marketing of Indian coffee.
• Through a series of amendments, the Board’s authority was reduced, and in 1996, the pooling system was abolished and growers were allowed to directly sell to processing firms.
• The coffee market was entirely deregulated and the growers exposed to the free market.
• Since liberalization, the Coffee Board plays more of an advisory role, and aims at increasing production, promoting further export and supporting the development of the domestic market.

What are the proposed changes?

• In order to facilitate growth and ease of doing business, the government would remove the restrictive and redundant provisions.
• The centre wants to introduce a simplified version of the Act to suit the present needs of the industry.
• The government would not close the Coffee Board, but would rather shift it from the Ministry of Commerce to the Ministry of Agriculture.
• Here it aims to ensure that the benefits of all agricultural schemes are extended to coffee growers.
• The new legislation is now primarily concerned with promoting the sale and consumption of Indian coffee including through e-commerce platforms, with fewer government restrictions.
• It also aims at encouraging further economic, scientific and technical research in order to align the Indian coffee industry with “global best practices.”

Back2Basics: Coffee Production in India

• India is the third-largest producer and exporter of coffee in Asia and the sixth-largest producer and fifth-largest exporter of coffee in the world.
• The country accounts for 3.14% (2019-20) of the global coffee production.
• Coffee production in India is dominated in the hill tracts of South Indian states, with Karnataka accounting for 71%, followed by Kerala with 21% and Tamil Nadu (5%).
• Indian coffee is said to be the finest coffee grown in the shade rather than in direct sunlight anywhere in the world.
• Almost 80% of Indian coffee is exported.
• The two well-known species of coffee grown are the Arabica and Robusta. The first variety was introduced in the Baba Budan Giri hill ranges of Karnataka in the 17th century.
• Brazil is, the largest coffee producer in the world.

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