By Jackson Okoth

It is boom time for the coffee industry as sizzling hot demand for the commodity, both at the Nairobi Coffee Exchange (NCE) and on the world market, pushes up prices.

And for the past three years, coffee farmers have been smiling all the way to the bank, earning between Sh100 and Sh150 per kilogramme of clean beans.

Incidentally, it is when prices are asgood as demand high on the world market that those ugly scenes, reminiscent of the 1970s when coffee was stolen from the farms, warehouses or milling plants, are slowly creeping back.

And lurking in the deep dark shadows is a powerful clique of coffee barons and cartels, busy strangling the industry and scheming to buy off cheaply, the Sh6 billion worth of assets belonging to the giant Kenya Planters Co-operative Union (KPCU), an umbrella farmers struggling to wriggle out of a crippling Sh700 million debt.

Although demand for Kenya coffee is high, the country is not able to supply the quantities.

"We are only producing an average of 2kg of berries per coffee tree, a yield that is still too low and cannot meet the high demand out there," Prof Kaburu M’ Ribu, Board chairman, Coffee Research Foundation (CRF) told Financial Journal.

While addressing a recent capacity building workshop at Kenya Coffee College in Ruiru last week, a forum for coffee co-operatives societies from Central Kenya and Bungoma, Prof M ‘Ribu said the challenge lies in increasing productivity, yield per tree and improving quality.

Short supply

"We have one of the best coffee research facilities in the world and even the best quality, but we are unable to meet demand," said Prof M ‘Ribu.

To increase supply, CRF is exploring the possibility of introducing growing of coffee in parts of South Nyanza and Teso districts, already identified as suitable for growing of Robusta coffee.

On a global scale, demand for coffee in Asian countries, especially China and India is high and growing. In South American countries such as Brazil are importing more coffee owing to changing consumer trends.

"I urge coffee producers to step up efforts and fully exploit existing opportunities. This is more so now that world coffee prices have increased significantly over the last few years," said President Kibaki. He made these remarks recently while opening a milling plant at Sasini, in Kiambu.

In Africa, coffee production increased slightly from 15.8 million bags in 2009/10 to 16 million bags in 2010/11, according to the International Coffee Organisation(ICO) Annual Review, 2010/2011.

Total output

While production was lower in Ivory Coast as a result of political problems there, Cameroon also recorded reduced production.

However, Ethiopia, Kenya, Tanzania and Uganda all saw increased production. Ethiopia and Uganda are the region’s leading producers accounting for 46.5 per cent and 20.4 per cent of African production in 2010/11 coffee season.

The top 10 leading coffee producers in the world in 2010/11 were Brazil 48 million bags, Vietnam 19.4 million, Indonesia nine million, Colombia 8.5 million, Ethiopia 7.5 million, India five million, Mexico 4.8 million, Honduras 4.3 million, Peru 3.97 million and Guatemala 3.95 million bags.

While demand for Kenya’s coffee remains high due to its blending properties, a coffee farmer here is unable to supply this quality due to a myriad of challenges including lack of seedlings, high cost of fertilizers and other inputs such as chemicals and spays equipment. This is not to mention adverse effects of climate change.

Further, land under coffee is slowly dwindling as farmers abandon the crop in favour of what they view as more profitable ventures. This problem is acute especially around Nairobi’s Kiambu road area where most land previously under coffee are disappearing, to be replaced by real estate development.

"We are rapidly losing the acreage under coffee due to construction of highways and rapid urban development in areas around coffee growing regions. We need to devise new laws to protect agricultural land, like it happens in the developed world," said Mary Kamau, Director of Training and Extension, ministry of Agriculture.

The industry is dealing with issues of declining land holding sizes, ageing coffee plants, competition from other agro businesses such as horticulture and invasion of prime land by real estate developers.

"As part of the ongoing land reforms, we should put into law measures that will protect agricultural land, like it happens in countries such as China," said Kamau.

While Kenya consumers only less than 10 per cent of coffee produced, this is small compared to Brazil which has a strong local demand, at over 50 per cent of what it produces.

But perhaps the worst problem facing coffee sector is theft of beans from the factory, warehouses or even from the farms where berries are picked at night.

Figures show that coffee farmers in the country lost more than Sh7.4 billion in the 2010/11 crop year following massive theft of the beans from the factories.

Coffee Board of Kenya (CBK) confirmed that about 30 per cent of total clean coffee recorded was stolen from the factories and warehouses between October 2010 and September last year.

Data from the board also shows that total production of coffee registered through official channels – auction and direct sale reached 36,000 tonnes, while another more than 12,000 tonnes was stolen.

However, despite the drop in production recorded, farmers earned Sh22 billion compared to Sh16 earned in the 2009/2010 season.

"If all the output was captured in our systems the country would have registered a yield of 48,000 tonnes. Out of preliminary audit that we have carried out since cases of coffee were first reported slightly above 12,000 tonnes of coffee was stolen by thugs and smuggled through the porous borders," said CBK Managing Director Loise Njeru.

Incidences involving theft of coffee beans has been on the rise mainly due to the prevailing high prices and the presence of mills within coffee growing areas, a fact that has attracted criminal gangs eager to supply these plants.

Problems arising from theft of coffee beans appear to have permeated to the weekly auction, where authorities recently shut this market in what they described as collusion, theft of samples and other malpractices.

Interestingly, while armed personnel are employed to guard coffee in Brazil, Colombia or Guatemala, Kenyan farmers employ club and arrow wielding guards to protect coffee worth millions of shillings.

With more than 150,000 hectares of arable land in Kenya under coffee, this industry employs over 700,000 small-scale farmers and a few large estates, supporting an estimated 10 per cent of the country’s population through both forward and backward linkages.

Liberalised sector

Trouble for the coffee industry begun way back in 2006. This is when the Government liberalised the marketing of coffee, removing the Coffee Board of Kenya from doing this job. The Government also introduced direct sales so that farmers can sell their produce to any coffee mill, stripping the KPCU of its monopoly status in the milling business.

In a liberalised environment, coffee farmers are able to receive payments in US dollars, access buyers’ directly in overseas markets through the auction and choose where to mill their produce. But this is where the good story ends and the bad begins.

Unlike the 1970s when coffee was the leading foreign exchange earner in Kenya, it is now ranked behind horticulture and tea.

"Our coffee is used to blend other brands on the world market and that is why we should not sell it in bulk but do value addition in order to get better returns," said Kamau.

With the collapse of KPCU, importation of such inputs such as fertiliser for farmers has been disrupted. Individual farmers are not able to import inputs cheaply from the world market due to lack of economies of scale