Farmers hit hard as global coffee prices go into free fall

The earnings of local coffee marketers are down 47 per cent this month compared to January prices as the impact of the eurozone crisis hits home.

And the returns for coffee farmers have been decreasing as marketers squeeze the payout margins.

According to data compiled by the Sunday Nation, coffee prices have been dropping consistently from January to August, down about 47 per cent from what the crop fetched at the beginning of the year.

At the the latest auction at the Nairobi Coffee Exchange on August 22, a 50kg bag of coffee sold for an average of Sh14,061 ($167.4) down from Sh26,308 ($313.2) in January.

The highest price premium coffee fetched this year was Sh26,889 ($320.11) for a 50 kg bag at the January 17 auction. But the price has been falling consistently since the beginning of the year due to the high supply of the crop against declining gobal demand.

The slump

Commercial Coffee Millers and Marketing Agents Association executive secretary Martin Ngare observed that the decline reflects the slump in international prices by a similar margin to Sh13,440 ($160) in July this year from an average of Sh25,200 ($300) per 50 kg in June 2011.

Data from the Nairobi Coffee Exchange also shows that volumes for all grades of the crop sold at the August 22 auction stood at 1.49 million kilogrammes fetching Sh411.6 million ($4.9 million).

The average volumes for coffee in August stood at 1.45 million kg, fetching Sh408.9 million ($4.87 million) compared to 1.48 million kg, which fetched Sh777.2 million ($9.25 million) in January this year.

Speaking to the Sunday Nation by phone, Kenya Coffee Traders Association chief executive Isaac Muchomba noted that the decline in coffee prices can partly be attributed to falling prices on the international market and the poor quality of produce due to the effects of unpredictable weather patterns.

“If the rain comes at the wrong time, it affects flowering. For instance, this year, the rains should have started in March, but they instead came later in April. This affected coffee in some parts of the country like the Machakos region,” Mr Muchomba said.

He noted that the prices of coffee have fallen to below half of those seen last year due to a decline in the price of the crop at the New York Coffee Exchange, which is the global benchmark for trading Arabica coffee.

According to Coffee Research Foundation director Joseph Kimemia, demand for seedlings has remained flat compared to last year prior to the rise in the price of the crop.

“But we should see demand going up again in September, which is the planting season even though there has been no notable change in the demand for coffee seedlings since April this year,” he said in a telephone conversation.

The demand in other areas of the country has slowed down but remained high in parts of Central and Eastern regions of the country.

As prices Kenyan coffee is fetching decline at the coffee exchange, the shilling could lose some of the support it receives from foreign currency inflows.

According to the Kenya Coffee Producers and Traders Association, coffee sold through the Nairobi Coffee Exchange last year generated Sh19.01 billion ($221 million). This figure is set to be maintained this year on higher volumes compared to last year despite the price decline.

A statement from the Coffee Board of Kenya indicated that coffee prices this season (2011/12) have plummeted to the disappointment coffee producers around the world.

Last year farmers were paid between Sh80 and Sh100 per kilo of cherry, compared to the Sh50 and Sh75 they are being paid this year. The variation in the payments depends on the quality of coffee delivered.

However, a 10 per cent statutory levy is slapped on the amounts.

In addition, farmers receive their payments between 14 weeks and three months after all the coffee has been sold.

Kenya’s Arabica coffee is famous for its unique and high quality flavour, and the crop is sought after by international producers to blend with their varieties.