Tatu City arm reaches for coffee cash

The management of Tatu City is developing a coffee value addition programme through its subsidiary, Kofinaf. It aims to tap into a growing coffee drinking culture among Kenya’s middle class.

In a communication to Smart Company, Kofinaf general manager Fabian Philippart said plans were underway to partner with Tatu City to develop customised, branded coffee products targeted at the local market.

The move will see Tatu join the league of Sasini, Dorman, and Java, who blend and market their own coffee and retail it through coffee shops.  “The middle class is booming in Kenya and their habits are changing. The move will open the market wider for consumption of coffee,” he said.

Kofinaf produces about 9 per cent of Kenya’s coffee and mills about 30 per cent of the product. Mr Philippart said the planned partnership with Tatu City would include coffee shops as well as ground and roasted coffee for local consumption.

Kofinaf owns seven plantations in Thika and Juja areas, including the Tatu Estate in Kiambu. In 2008, investors seeking to build a satellite city to Nairobi in Kiambu acquired Kofinaf in a Sh7.6 billion deal.

Kofinaf then sold part of Tatu Estate to the group of investors led by Russian bank Renaissance Capital to build the proposed 1,000 hectare Tatu City. Kofinaf retained its holding of more than 4,000 hectares of land surrounding the planned development.

In the year ending March 2012, 3653 tonnes of coffee were produced by Kofinaf in its various estates, with 193 tonnes coming from Tatu Estate. Mr Philippart said the firm expects to raise coffee production to 400 tonnes.

A growing middle class in emerging markets is expected to buoy coffee prices over the next 10 years. Demand from Brazil, India and China is on the rise.

“Five years ago, it was difficult to get even a decent cup of coffee in Nairobi. The situation today is much different,” said Coffee Traders Association secretary Isaac Muchomba.

Brands like Java and Dorman’s have gained success locally, supported by popular café chains across major cities. Kofinaf will be competing with these brands for market share in the coming years.

Encroach on plantations

Even with the positive outlook, there are worries that a growing real estate continues to encroach on coffee plantations.

A property development boom on the outskirts of Nairobi has seen former coffee barons abandon agriculture in favour of the billions promised in real estate.

In 2011 alone, 5,376 acres of coffee farms in Kiambu were cleared to pave the way for construction of housing projects. According to the Coffee Board of Kenya, about 10 per cent of coffee estates have been converted into infrastructure projects over the past decade.

Coffee output has mirrored this reduction of cultivated land, with steady declines recorded. In 2010, a total of 42,000 tonnes of coffee were produced, compared with the 1980s peak of 130,000 tonnes.

Part of the decline can be attributed to falling prices. However, international coffee prices have been on the rise in the past two years. Revitalisation of the sector has left stakeholders warning that Kenya could lose significant foreign revenue if coffee farming is swapped with urbanisation.

“Coffee production and agriculture cannot compete with real estate unless you have specific policies protecting it,” said Mr Muchomba.

However, the Tatu City management said that urbanisation, if planned properly, can co-exist with agriculture. Tatu City director Graeme Reide said a plan has been developed to uproot and replant coffee currently grown around the proposed city in line with its growth.

Additionally, he said, social amenities in the city will be build to accommodate this growing coffee culture. Part of this will be construction of a Coffee Museum that will allow visitors to explore the heritage of Kenya through the story of coffee.

Kofinaf and Tatu City are, however, currently embroiled in a court case that has stalled construction of the proposed city for over a year. Certain minority shareholders in Tatu have sought to wind up both companies, claiming that they had been sidelined in the project’s management. 

Last month, the National Environment Management Authority (Nema) issued an environmental impact assessment licence to Tatu City Ltd, effectively approving the construction of the project.