Break Even Analysis

Coffee has played an important role in many societies throughout modern history. India is seventh largest exporter of Coffee. Coffee is an important export commodity. Noted as one of the world’s largest, most valuable legally traded commodities after oil, coffee has become a vital cash crop for many countries. Over one hundred million people in developing countries have become dependent on coffee as their primary source of income. Coffee has become the primary export and backbone for our Kodavas also.

Coffee Plantation are fairly low maintenance, although there are seasonal peak labour requirements, Coffee in our area is not seriously affected by diseases or insect pests. (Except the Borer )

Before going in deep with the topic let me provide some info on Coffee plantation which most of our urban people might not be knowing. One who knows about coffee plantation can ignore this italic part for reading

A shade grown coffee farmer stands in his coffee estate mixed with orange, avocado (butter fruit ), lemon and scattered high-canopy trees. Birdsong ,crackle of animals and fallen leaves surrounds him on all sides. Spotted sunlight filters down and shines off the glossy green leaves of his mature coffee bushes. That is the beauty of the Coffee estates.
New planting is carried out during the rainy season. Seedlings that have been raised in nurseries are transplanted to field locations with adequate shade. Seedlings begin flowering after 2 -3 years, with white coffee flowers, green berries, and ripe red cherries often coexisting on the same tree. Full maturity and maximum yielding is not achieved until the trees are 5 years old.
The cycle for robusta coffee, from flower to mature cherry is 9 - 10 months. The start of harvesting corresponds with the early part of the dry season: the months of November through to February are generally drier than the other months of the year. According to Scientist, it takes about 140 litres of water to grow the coffee beans needed to produce one cup of coffee
Each coffee cherry usually contains 2 coffee beans, covered by a silvery skin and parchment occasionally, there is only one bean and is known as a peaberry. In about 5-10% of any crop of coffee cherries, the cherry will contain PEABERRY rather than the two usually found. , which is smaller and rounder than a normal coffee bean. Some claim that peaberries have a different flavor profile in the cup, while others dispute this.
When manually harvesting, the workers hangs a bag around the neck or spreads a cloth or tarpaulin under the coffee tree to collect the harvested cherries. These methods of collection keep the hands free to harvest only the ripe cherries. The cherries are spread in the sun on concrete floors or drying mats to dry. To prevent fermentation, the layer of drying cherries must be kept quite shallow and even. It is raked and turned several times a day to prevent fermentation and discoloration, and the beans dry in one to two weeks. Care is taken to avoid contamination and any possibility of the coffee beans becoming wet. If rain threatens, the coffee is covered or collected into bags and stored under shelter. When fully dry, the coffee is transported to the gunny bag normally weighing 50 Kgs of dry cherry..
To produce a maximum yield of coffee berries the plants need substantial amounts of water and fertilizer. Calcium Carbonate and other Lime Minerals are sometimes used to reduce acidity in the soil, which can occur due to run off of minerals from the soil in mountainous areas. The Caffeine content in coffee "beans" is a natural defence, the toxic substance repelling many creatures that would otherwise eat the seeds.
The coffee tree will grow fruits after 3–5 years. The blossom of the coffee tree is similar to jasmine in color and smell. The fruit takes about nine months to ripen. Worldwide, an estimate of 15 billion coffee trees are growing on 100,000 km² of land.
The seeds are then roasted, undergoing several physical and chemical changes. They are roasted to varying degrees, depending on the desired flavor. They are then ground and brewed to create coffee. Coffee can be prepared and presented in a variety of ways. – Cappuccino, Espresso etc..

One should also know what is a Acre of Land.
1 Acre = 4050 Sq Mtr = 43560 Sq Ft ( 18 Nos of 60’ x 40’ Site available in cities )
I have worked out various costs involved in coffee plantation in a year, professional planters please do correct me if I am wrong, and also consider that these are just approximate costs :

1. Sprinkler Cost : Rs. 2,700 / Acre of land. This is in the month of Feb & Mar. This has become mandatory now a days as we cannot rely on rain. I have considered a hire rate of Rs.500/- per hr and 8 hr/ shift which covers around 1.5 Acres of land.

2. Backing Cost : Rs 1,400 / Acre of Land.This is normally done in the month of April. This also has become mandatory to get a good crop. I have considered the same rate but shift of 4 Hrs.

3. Fertilizer Cost : Rs 2,800 / Acre of Land including labour charges To get good yield coffee plants needs fertilizer at least thrice in a year depending upon the rain and availability of fertilizer also. Normally May-August-October should be fine but it again depends on the situation. I have considered around 450 coffee plants in one acre of land. Each plant requires around 300 gms of fertilizer three times, thus 900 gms is essential for each plant per year and all together 0.9 x 450 = 405 Kgs / Acre. Currently the market rate for fertilizer is Rs.300-400 per bag of 50 Kg.

4. Mowing, Pruning Mulching & Other Cost : Rs 3,150 / Acre of Land. These are well known as “ Kapathu” , “Removing Chigru”, “Erathe” or Clearing Vegetation and also Tree trimming carried out during Sept to Nov. Here for kapathu , I have considered Rs. 3 per plant. Chigru removing as Rs 1 per plant and Erathe as Rs 2.5 per plant. All together it should not be more than Rs 7.00 per plant.

5. Picking and Drying Cost : Rs 5,000 / Acre of LandLast but not the least, picking is where our farmers are finding great difficulty in coping with the labour problem. Off late it has been big issue for our farmers. There is a big shortage as well as everyone wants to finish the work before they could start it which make the condition even more unstable. Considering the slow pick rate of Outsiders at the rate of 4-5 Tins per day at the rate of Rs 100-150 per day and total ouput of 25-30 Bags of dry coffee per Acre, I have derived the above rate.

Totally it shall cost us approximately Rs.15,000 per acre of Land. Note : This will be as low as Rs 10,000 for big planters.

Output and Costs : This is variable. Both the value of the 50 Kg Dry Coffee bags as well as the yearly output varies. One farmer who gets a yield of 30 bags / Acre this year cannot expect the same next year. Today he gets Rs 2,100 per Bag , tomorrow maynot be the same. This is where we fail, we never plan for tomorrow. There is saying “One should remain within the limits of what one has or what one can afford” which is not followed by many of us. Who thought Crude Oil which was traded above 150 $ / Barrel will see a day of less than 40 $ / Barrel. We hope that coffee growers will not have to face such a situation.

Following assumptions are considered in my analysis :
1. Farmer is growing Robusta coffee only and has a land of 3 Acres on an average. He also has provision for River / Pond for sprinkler.
2. Yield is 30 Bags / Acre of Land, hence total of 90 bags output.
2. No other income apart from coffee, other income can be considered as Bonus.
3. A annual income Rs 1,00,000 is required to have a decent and simple life in Coorg.

Note : This analysis is done keeping small coffee growers in mind. You can change these assumptions according to your needs in the attached excel sheet.

Now let us make a break even and check at what rate of coffee he can sustain and lead a decent life.
 Check the attachment - Excel

Break Even Analysis - Excel

Kiran Arjun Chappanda

Still Learning