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Explained: Why the govt plans to scrap the decades-old Coffee Act

The government 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. Here's why

Coffee Act, India coffee laws, India Coffee Act, indian coffee, south indian coffee, indian expressThe Coffee 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. | (Photo: Wikimedia Commons/Petr Kratochvil)

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.

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. The government is now trying to scrap the law because it claims that many of the provisions have become redundant and are too restrictive.

The government 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, 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,” Commerce and Industry Minister Piyush Goyal told PTI earlier this month.

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The origin of the Coffee Act, 1942

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, in order 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, under the control of the Ministry of Commerce and Industry. 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.

The 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. It was previously in charge of collecting, storage, processing and sale for the growers as well.

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The Coffee 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 grower was required to take the harvested and dried coffee to a curing factory, where they would receive an advance. Registered private contractors would clean, sort and grade the quality of coffee on a point system, for which they would receive a fee from the Coffee Board which would be later deducted from its payment to the grower. The Board then 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 money that was generated from these auctions was pooled and the Board paid the grower in installments through the year, based on the number of points their coffee was given at the curing factory.

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The changes since liberalisation

While the Board continues to be the chief governmental body to supervise the industry, it 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 liberalisation, 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.

Why does the government want to scrap the law?

Union Commerce and Industry Minister Piyush Goyal had in September 2021 first announced the ministry’s decision to introduce changes to the Coffee Act, as many of its provisions, “have become redundant and are impediments to the coffee trade.”

In order to facilitate growth and ease of doing business, the government would remove the “restrictive and redundant” provisions and introduce a simplified version of the Act to suit the present needs of the industry, an official release said. Goyal also assured that the government would not close the Coffee Board, but would rather shift it from the Ministry of Commerce to the Ministry of Agriculture, to ensure that the benefits of all agricultural schemes are extended to coffee growers.

According to the draft Coffee (Promotion and Development) Bill, 2022 which was first released in January of this year, the substantive portion of the Coffee Act, 1942, which deals with pooling and marketing of the commodity, have become redundant/inoperative, as reported by PTI. 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.”

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While the Coffee Board continues to have limited control over marketing, exporters will still require a certificate from the statutory body.

First published on: 28-07-2022 at 07:52:31 pm
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