The coffee industry in Kenya
The coffee industry has been one of the key pillars of Kenya’s economy since independence from Britain in 1963. The sector has been a significant earner of foreign exchange for the economy and provider of jobs. However, the exposure of the industry to the world economy and other emerging challenges at home provide policy makers with a huge task to ensure this sector retains its relevance and importance to Kenya’s economy
On a cold and breezy afternoon in the middle of July, we arrive at the gate of Mbumi Coffee Farm located a few kilometers from the centre of the city of Nairobi. Mumbi Coffee Estate is one of the large coffee estates in Kenya, situated within the coffee growing former ‘White Highlands’.
Sitting on over 300 acres of land of pristine landscape full of coffee bushes, this farm, run by a family since the 1960’s, is a clear manifestation of what is wrong and what is right with the coffee industry in Kenya
On our walk around the farm, one of the best maintained coffee farms, the Manager proudly shows us the best of coffee farming in Kenya: coffee trees that are over 100 years old, a pulping station, a coffee processing facility and a small coffee roasting machine for sampling.
As the harvest season approaches, the Manager shows us trees full of green coffee berries, a few of them turning red, the smile on his face telling the whole story of the good work the farm had done and the bountiful harvest they expect come the full harvest period
However, it is our journey to the coffee farm that left us with a sense of fear for the future of Kenyan coffee. Our journey took us along the magnificent Chinese built Thika Highway, an eight lane behemoth that stretches into Central Kenya, with significant opportunities for growth of retail, residential, institutional and other investors, but that could spell a death knell to coffee farming in this area.
We also drove past several gated communities and high rise residential homes that were at various stages of occupancy, including the clearing of a farm just before we turned into Mumbi estate, where some Chinese workers were busy clearing and erecting a fence – probably for a new development.
In fact, as we stood on a hilly part of the farm, we could not help but notice the rows of neatly arranged set of houses about 2 kilometres from the farm that seemed to be already occupied, young kids playing on the streets within the estate.
On any trip into the former “White Highlands” of Kenya the scene above seems to be replicated. Be it Muranga or Nyeri, Thika or Kiambu, development seems to be knocking at the door of these communities long used to growing and selling coffee, through the good times of the 1970s to the lows of the 1990s-2000s.
Whether Mbumi Coffee Farm manages to withstand the onslaught of development and go on with its legacy of producing some of the best coffee remains to be seen
Importance of Coffee in Kenya
No other crop is intertwined with the history and economic development of Kenya, the state, as coffee. Coffee was introduced into Kenya at about the same time the Colonial masters were just commencing their journeys into Africa and has remained a major contributor to the country economy over the more than a century it has been cultivated.
It is also almost coincidental that the best times in Kenya have coincided with some coffee ‘boom’ of sorts. From the early 1970s when fast economic growth of the country coincided with the Coffee Boom, to the 1990s when low economic growth was punctuated with low coffee prices and devastation in the sector, coffee has always had a special place in the country’s economic well being
And the international consumers and buyers of Kenyan coffee have not failed to appreciate the good work done by the thousands of farmers who till the land to provide some of the best coffee the world produces.
The Economic Value of Coffee
Agriculture is the second largest contributor to Kenya’s Gross Domestic Product (GDP), after the service sector. In 2005 agriculture, including forestry and fishing, accounted for about 24 percent of GDP, as well as for 18 percent of wage employment and 50 percent of revenue from exports.
Coffee is one of the major cash crops in Kenya, coming third after tea and horticultural produce. In 2005 horticulture accounted for 23 percent and tea for 22 percent of total export earnings.
Coffee has declined in importance, accounting for just 5 percent of export receipts in 2005. Even with this decline over the last 10-20 years, the coffee industry injected over 100 billion shillings to the country’s Gross Domestic Product over the last 10 years to 2011, according to the Office of the President
It is estimated that over 700,000 small-scale and large-scale farmers are involved in coffee farming. In addition, the coffee industry, due to its forward and backward linkages, directly and indirectly benefits about 5 million people in the country.
The contribution of coffee into the economic well being of the country cannot therefore be wished away, considering it touches the lives of about one-eighth of the population
Coffee earnings have been adversely affected by reduced world prices since the 1970s highs that occurred as a result of collapse of quota agreements in the early 1990s that had been put in place by members of the International Coffee Organization since 1963. The collapse of the quota system led to a drastic reduction in coffee prices around the world; Kenya felt the full effect of the low prices.
Farmers who had been used to fairly stable prices for many years could not afford to take good care of the crop any more due to steep rise in input costs (due to the effect of the Structural Adjustment programs pushed for by the IMF and World Bank on Kenya) on one hand, and a steep fall in prices of the crop on the other.
They therefore abandoned the crop in the farms or in the extreme, cut down the whole crop and used the farms for alternative crops
The net effect of this was a drastic fall in coffee production with the country coming from a high of 130,000 metric tonnes in 1989 to a low of 50,000 metric tonnes in 2000/01.
Kenyan coffee is well known for its intense flavor, full body, and pleasant aroma with notes of cocoa. Coffee from Kenya is of the ‘mild arabica’ type that is used around the world by blenders and roasters to boost the quality of their blends.
Coffee from Kenya has a distinctly bright acidity and potent sweetness with a dry winy aftertaste. Among the best Kenya coffee, one can find intoxicating black-currant flavor and aroma, according to the Coffee Board of Kenya
The coffee industry in Kenya is noted for its cooperative system of production and processing. About 60-70% of Kenyan coffee is produced by small scale holders.
The major coffee growing regions in Kenya are the High Plateaus around Mt. Kenya, the Aberdares Range and some parts of Nyanza and Rift Valley. The high plateaus of Mount Kenya, plus the acidic soil provide excellent conditions for growing coffee.
A total of 150,000 hectares of arable land in Kenya is planted with coffee.
Although coffee has lately benefited from an increase in global prices, output has contracted from a high of about 130,000 metric tons in 1989 to 50,000 tons in 2012.
Experts are worried that the dramatic 50% fall in coffee production in Kenya in the year 2000 from over 100,000 tonnes to just above 50000 tonnes will never be recovered in the country, with the coffee sector going through a myriad number of challenges
Challenges in the sector
Low local consumption – Compared to its Northern neighbor, Ethiopia, Kenya performs dismally in consumption of its coffee. Ethiopia produces not only produces more coffee than Kenya but also consumes about 50% of its coffee, resulting to a per capita consumption of 2.4 kg per person per year, while Kenya consumes just about 7% of its coffee, or 70g per person per year.
Despite several initiatives by the Coffee Board of Kenya and the government, the coffee culture has yet to penetrate into the culture of the average Kenyan consumer. This, compared to the Ethiopian way of life and culture that contributes to its high consumption
Tied to the low consumption is the fact that Kenya, like many African countries, exports the bulk of its production in products with low extra value added, leading to a reduction in incomes that accrue to the local economy
Competition with other economic activities – The growth of horticultural crops for the export market, especially in the 1990s, provided farmers with an opportunity to dump coffee for produce with higher and more stable prices, the result of which was a reduction in new plantings and reduced production
To compound the industry’s troubles further, the growth of populations around major towns in Central Kenya and that of the city of Nairobi has placed huge pressure for the owners of the farms in this area to convert their farms to other economic activities including the construction of housing estates, roads etc
Climate change and changing weather patterns – The effect of climate change and its effects on coffee production has led to unpredictable weather patterns and with it fall in production. The recent case in 2007 when a change in rainfall patterns led to a severe bout of Coffee Berry disease that reduced yields by a huge 10,000 tonnes is a case in point.
Further, with regular droughts and less rainfall in marginal areas continuing to be seen, production has plummeted in many areas
High production costs – According to a report by the Institute of Economic Affairs in 2000 the Coffee Berry disease has devastated the sector.
This rise in the production cost was not only due to inflationary pressure within the country, but to a large extent also due to the massive resurgence of Coffee Berry Disease. In nominal terms, most farmers incurred costs in disease control that took up a total of 30% of the market prices
Further, high production costs are experienced in the whole chain: from high input prices, high credit costs, high milling and transport costs
Problematic Regulatory Environment – The recent widely publicized war of words between the Coffee Board of Kenya and the Kenya Coffee Producers and Traders Association over the running of the Nairobi Coffee Exchange is indicative of the unease within the coffee industry regulation in Kenya.
Writing in the Business Daily recently, Jaindi Kisero, a columnist, bemoaned what had become of the coffee industry, saying that “Coffee is just one of the few crops in this country where you still have archaic rules governing movement controls issued by district commissioners.
We have a situation where the regulator and the Agriculture ministry can wake up one morning to pronounce an edict that says that a farmer can only sell his crop through a coffee society”
Hindering further growth in the sector value chain are restrictive trade barriers put in place by the Coffee Act, including a requirement one is not allowed to hold multiple licenses within the chain including milling, marketing, roasting etc, a regulation that flies in the face of the CBK’s push to encourage value addition within the sector.
High licensing fees (e.g. the license to export coffee into external markets is USD 1 million – KSh 86 million) provide further disincentive to the sector
However the world-over coffee is a fairly tightly regulated crop and Kenya is not alone. From the establishment of the International Coffee Organisation, ICO, in 1963 the coffee industry has been run through International Coffee Agreements, the latest one coming into force in 2007