Coffee's share of exports falls five-fold over 30 years

A farmer in Kenya is likely to receive only a fifth of the sale price at auction if he sells his coffee through a cooperative, Nation Newsplex has found.

The lowered earnings have seen farmers turn away from coffee, in turn leading to reduced production in Kenya as other countries increase production.

Over nearly three decades, coffee’s share of Kenya’s exports has plunged five-fold. In the 1987/1988 season, Kenya’s highest ever total production was achieved, at 128,700 tonnes placing Kenya in the 12th place worldwide. By 2013 the country had slipped to the 24th position, producing only 39,800 tonnes.

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As production in Kenya has stagnated, a number of countries that produced less coffee than Kenya in 1988 now produce more. The biggest strides have been made by Vietnam, which is now the world’s second largest producer, India, Honduras, Peru and China.

Kenya has struggled to navigate the more competitive markets created after the International Coffee Agreement collapsed in 1989, even if its coffee is still prized around the world.

Even countries that do not grow coffee, such as Germany, which is the largest buyer of Kenya's coffee, and Switzerland have built a thriving industry on importing and re-exporting coffee.

Figures from the International Coffee Organisation (ICO) show that from 1990 to 2011, the value of Germany’s re-exports increased five-fold, from Sh61.2 billion ($600 million) to just over Sh362.2 billion ($3.6 billion).

While some coffee is passed through Germany’s transport system to reach other countries, the country also roasts coffee and creates specialised products such as instant and decaffeinated coffee.
Germany accounted for 22 per cent of Kenya’s exports in 2014. It was followed by Belgium (16 per cent), the United States (14 per cent), Sweden (10 per cent), Finland (seven per cent), South Korea (four per cent) and France, the United Kingdom, Sudan and Canada (all two per cent).

A cup of coffee sold in a coffee shop in those countries will make the farmer only one cent for every shilling in the sale price, while buyers, processors, roasters and retailers split the other 99 per cent.

While Asia and South America increase coffee production, the African continent continues to lag. A 2013 study by the Food and Agriculture Organisation shows that while quotas set by the ICO were in force, Africa produced 19.1 million 60kg bags of coffee a year, which plummeted to 15.8 million 60kg bags after the agreement collapsed, suggesting that quotas concealed inefficiencies on the part of African countries.

In 2014, the gross commodity price paid out to coffee farmers was Sh391.86 per kilogram, according to the Kenya National Bureau of Statistics. Four years earlier in 2010, the gross commodity price was slightly higher at Sh396.78 per kilogram.

In December of that year, farmers who sold their coffee through cooperatives received Sh76.50 per kilogram, according to a 2013 study by the European Commission. This means that in 2010, a coffee farmer who had sold through a cooperative received 19.5 per cent of the auction proceeds, before accounting for labour and inputs. Going by that proportion, last year a farmer would have received Sh74.48 per kg for his coffee.

MORE COMPETITIVE MARKETS

The EC study complements a breakdown of the coffee value chain, which was done by the International Labour Organisation in 2004. It found that levies took up nine per cent of the auction price comprising the Coffee Board of Kenya (one per cent), the Coffee Research Foundation (two per cent), Coffee Cess, which is divided between the Roads Board and local authorities (one per cent) and marketing and auction fees (five per cent).

Another six per cent of the auction price was taken up by milling and transportation to the miller, while 20 per cent was paid out during primary processing.

Kenya has struggled to navigate the more competitive markets created after the International Coffee Agreement collapsed in 1989, even if its coffee is still prized around the world.

In fact, Kenyan coffee was more valuable at auction than both Colombian and Tanzanian coffee for nine of the 15 years from 2000 to 2014, according to available ICO data. In addition to Kenya, Colombia and Tanzania are the other main producers of Colombian Mild Arabica Coffee.

DROPPING YIELDS

In Kenya, coffee yields have shown a declining trend from 1990 to 2014, although there have been increases in specific years. From the 1990/91 crop year, yields dropped almost by a third from 930 kg/ha to 680 kg/ha.

Large estates enjoy almost double the yields of smallholder farms on average. Only on five occasions in the years from 1990 to 2013 have the farmers who market through cooperatives enjoyed a yield higher than the lowest yield enjoyed by estates, which was (417kg/ha). These were 1990/91, 1991/92, 1994/95, 1996/96 and 1999/2000.

High yields were experienced in 1995/96, 1999/2000 and 2011/2012 years. The increased productivity in these years was attributed to regular payments to farmers, the reduced presence of diseases, and favourable weather conditions coupled with the maturing of high-quality varieties of coffee, respectively

PRICE AND VALUE CHAIN

The production of coffee in Kenya is influenced by a range of factors, including weather conditions and diseases. Good prices received in a certain year, coupled with better farming practices and conducive weather are often associated with good production in a subsequent year.

For example, production in the 1999/2000 year was the highest since the record production in the 1998/1999 year, with a total of 100,700 tonnes produced. This was a reaction to high prices, according to the Economic Survey, as well as good husbandry practices. Since 1999, production has dropped to 49,500 tonnes in 2013/2014, a drop of 51 per cent.

The coffee supply of Brazil, the biggest supplier in the world, is known to have a significant effect on coffee prices. Frost in Brazil usually leads to global shortages, and subsequent price increases. However, despite a rise in the global prices of coffee, production in Kenya has continued to flag.

From 2001 to 2014, auction prices rose by 67 per cent. However, the coffee sold at auction failed to rise, staying around 50,000 tonnes. In 2011, the coffee sold at auction dropped to 30,000 tonnes, before rising to 42,000 tonnes in 2014.

The amount of land dedicated to coffee has also decreased in recent years. Historically, smallholders who process their coffee through cooperatives have usually farmed 75 per cent of all the land that produces coffee in the country, while estates control the remaining 25 per cent. However, this proportion seems to be changing.

The loss of quotas in the wake of the International Coffee Agreement did not lead to a decrease in land under coffee. The acreage under coffee stayed largely stable until 2005, when it fell 37 per cent from 170,000 to 106,900 in 2010.

While cooperatives lost 35 per cent of their acreage, 42 per cent of land under estates was lost. Provisional figures from the 2013/2014 season show that the coverage has increased marginally to 110,000 hectares, a rise of just under three per cent.

In 1985, the Ruiru Coffee Research Station introduced the Ruiru 11 variety, which while having improved resistance to Coffee Berry Disease and Leaf Rust disease, had a less attractive taste.

In the 2009/2010 season estates made up 23 per cent of all land under coffee. That was the first time since 1988, when estates fell below 24 per cent. Since then the proportion has fallen further, to 22 per cent from 2011 to 2014.

One likely reason for this change is the shifting of land from coffee growing to other crops, as well as real estate development. Real estate developments, including Migaa, Thika Greens, Tatu City, sit on land that once held coffee.

Another likely reason has to do with the introduction of new varieties of coffee. Historically, Kenya cultivated the Scotts Laboratory varieties (SL-28 and SL-34) of the Bourbon cultivar of Arabica coffee.

In 1985, the Ruiru Coffee Research Station introduced the Ruiru 11 variety, which while having improved resistance to Coffee Berry Disease and Leaf Rust disease, had a less attractive taste.

In response to these concerns, the Coffee Research Station created the Batian variety in 2010 which while also resistant, produces a more attractive taste at the cupping stage.