Global deals offer a whiff of hope for embittered coffee farmers

Coffee farmers sort berries at Dedan Kimathi University of Science and Technology in Nyeri on October 3, 2023. [Kibata Kihu, Standard]

After decades of fruitless toil, things are starting to look up for Kenyan coffee farmers.

This is in the wake of a resurgence of international attention towards Kenyan coffee, following a series of government-supported agreements and the recovery of coffee prices and quantities at the Nairobi Coffee Exchange (NCE). 

Deputy President Rigathi Gachagua recently indicated that prominent global coffee companies, including Starbucks and Java Coffee Company, have expressed a strong interest in directly purchasing coffee from local farmers.

These initiatives aim to enhance farmers’ earnings and uplift their financial well-being.  Kenyan coffee is among the most celebrated in the world due to its complex flavour and aroma. Developments at NCE have equally reignited hope among farmers that the once-thriving coffee sector is on the path to recovery.

Prices and volumes of coffee traded at the NCE hit new records during this week’s auction for the first time since the relaunch of the trading platform in mid-August, in a boost to ongoing reforms overseen by Gachagua.

According to the latest NCE market report, the auction held on Tuesday saw the price of a 50-kilogramme (kg) bag of coffee surpass $200 (Sh30,000). Additionally, the volume of coffee traded during the auction also exceeded 11,000 bags.

On average, purchasers acquired the 50kg bag for $207.67 (Sh31,150.50 at an exchange rate of 150 units per dollar). This marks a multi-month high and the highest price since trading on the NCE resumed following the fulfilment of strict requirements set forth by the Capital Markets Authority (CMA).

The current auction recorded a significant increase of 5.44 per cent from the previous average of $196.96 (Sh29,544) per bag, which took place on October 11. Moreover, it witnessed a remarkable surge of 35.2 per cent from $214.59 (Sh32,188.5) during the September 26 trading session, which was marked by a market boycott.

The elevated cost brings a glimmer of optimism for long-suffering farmers, who have endured meagre profits despite the local produce being globally recognised for its exceptional quality and its utilisation in blending with other varieties worldwide.

The NCE market data indicates that the average price for top-grade coffee AA in the sale on Tuesday was $290.13 (Sh43,519.50) per 50-kg bag, reflecting a 3.01 per cent increase from the previous trading price of $281.66 (Sh42,249). The latest auction saw a significant increase in the number of bags of the commodity presented for sale, with 11,339 bags compared to the previous auction’s 6,554 bags, representing a 73 per cent jump.

International buyers

The total value of the volumes sold was $2.90 million (Sh434.88 million), a significant increase from the previous auction’s $1.38 million (Sh207.53 million), as indicated in the report. 

A source at the NCE credited the exchange’s rebound to the resurgence of international buyers, who had previously refrained from participating in the market due to the CMA’s reforms, which led to a decrease in demand and subsequently, a drop in prices. 

“All the established multinational coffee companies which were said to have boycotted the market are now all back to the exchange,” a source, who did not want to be identified as he is not authorised to talk to media, said via text.  

“They have come back for fear of being outflanked and outplayed by the newly licenced brokers who have not only entered the market with gusto but who’ve also been travelling around the world to scout for buyers.”

The trading activities of the exchange were reinstated on August 15 following the long-awaited implementation of the Capital Markets (Coffee Exchange) Regulations, 2020.

The ceremony, which was overseen by DP Gachagua, marked the resumption of trading under the new regime after years of delay under the new rules. The coffee trading rules required trade to be conducted by CMA-licensed traders and settled through a Direct Settlement System (DSS) for transparent and efficient settlement of all sales proceeds. Co-operative Bank of Kenya in August landed the lucrative deal to handle billions of shillings that pass through the now-regulated coffee exchange market.

“The Direct Settlement System will lead to speedy and transparent clearing and settlement of the coffee sale proceeds to the coffee farmers,” said Cooperatives Principal Secretary Patrick Kiburi Kilemi at the time. 

“This will help improve the accountability and governance of our co-operative societies [engaged in coffee production].”

Gachagua had earlier expressed frustrations in his mission to dislodge profiteers from the lucrative coffee industry. He, however, struck a more positive tone this week after presiding over a deal with Java Coffee Company for the purchase of 10,000 bags of coffee directly from farmers. 

Earlier, the DP said Kenya is engaged in negotiations with Starbucks Corporation, a US-based coffee chain, for a deal supported by the US government and facilitated by the American Ambassador to Kenya Meg Whitman.

The government recently vowed it would not relent on coffee reforms in a bid to rein in cartels in the sector.

Cooperatives Cabinet Secretary Simon Chelugui told farmers last week that the government is aware that private profiteers “who have controlled the market and set whatever prices they wanted to pay for our coffee are not happy with these reforms.”

“They will do all at their disposal to derail these reforms. Some of them will be approaching you in a bid to defeat government reforms,” said Mr Chelugui.

“We urge you not to listen to them and support the government and your leaders in these initiatives, which will set you free from exploitation and increase your coffee earnings.”

Coffee was at some point a leading foreign exchange earner, accounting for 40 per cent of forex earnings, but production has dropped over the years.

The crop raked in Sh27 billion in 2022, a notable increase from Sh10 billion in 2020 but a negligible contribution to Kenya’s total exports of Sh873 billion last year.

Coffee production stood at 52,000 tonnes in 2022, according to data by the Kenya National Bureau of Statistics (KNBS). Former President Uhuru Kenyatta in March 2021 issued an executive order on coffee sector reforms, which envisioned reforms across different areas, including access to credit for farmers and the tabling of the Coffee Bill in Parliament.

More than 800,000 farmers and another five million Kenyans are employed by the industry, but they continue to suffer low incomes due to a dysfunctional system that appears to favour middlemen and other “cartel” members, according to the government.

The government and industry analysts contend that it is no longer acceptable that Kenyan coffee continues to fetch premium prices globally, with coffee consumers paying top dollar, yet the farmer receives abysmal proceeds that cannot even cover production costs.

Successive regimes, including the current Kenya Kwanza administration, have blamed unnamed cartels for running down and profiteering from the coffee sector, which was once a leading foreign exchange earner. The result has been low earnings, which have seen thousands of farmers abandon the crop.

The Ruto administration has embarked on a coffee sector reforms, hoping that it can take on the challenges crippling the once-vibrant industry.

Beans from small Kenyan farms end up in speciality coffees from Berlin to San Francisco. But low prices, rising temperatures, and erratic rainfall have been pushing farmers to the brink.