Coffee economics

Kenya’s coffee farming resurgence

Story by Daniel Howden The Tuesday ritual began on 18 January just as it has every other week at the Nairobi coffee exchange. The same 30 or so buyers w

ere crammed into their wooden desks in the steep rows that give the auction room the appearance of an old school lecture hall. The prices flickered as usual across the LED board behind the auctioneers, their arrival and departure marked by a sharp ping.

Then something unusual began to happen. When the bidding started on lots of the highest grade coffee it refused to stop. When it finally did a single 50 kilogram bag had been sold for $1,022 – the highest price of its kind fetched anywhere in the world.

“It was a big surprise, even after seeing the upsurge in global prices,” admits Daniel Mbithi, an official at the Kenya Coffee Producers and Traders Association. “It was something I had never seen.”

Mbithi, who has worked the weekly auction that is the centrepiece of the Kenyan coffee industry for long enough to remember the brief boom in the late 1990s, said that the atmosphere in the auditorium was one of “mild shock”.

“We expected something but coffee at more than $1,000 a bag? That’s unprecedented.”

Among the coffee bags that broke the thousand dollar mark was a batch from Komothai Co-operative Society – a group of smallholders whose travails and successes in recent years reveal the underlying causes of Kenya’s coffee renaissance.

Nahashon Nyagah inherited his “shamba” – or small farm – of 300 coffee bushes in the hills outside the town of Kiambu in central Kenya when his father died 23 years ago. He has been tending them ever since, but has only been able to devote full time attention to them since he retired from his job as headmaster of a local school.

The 62-year-old admitted that in the wake of the record prices there has been a surge in local interest. “Now they’re all asking about coffee because of the prices.”

The co-op, which is typical of the groups that make up the bulk of Kenya’s 600,000 coffee producers, boasts a membership of 9,900 farmers but that figure is set to rise. The returns for farmers who had crop to sell were “spectacular” this year, he says.

“Our members were getting up to 60 Shillings (about 70 cents) per kilogram. Even the poorest paid got 34 Shillings.” To put that in perspective, he adds, “two to three years ago it was unheard of to get 25 Shillings, most got 11 Shillings.”

The quality was exceptional this year he insists, with coffee from the higher altitude fields producing “the best this society has ever seen.”

Komothai has lived through the highs and lows of Kenyan coffee since the first plantations using varieties imported via Tanzania from the French missions on La Reunion and via Scottish missions further north which used Yemen Typica seeds. When world prices slumped during the 1980s and again in the 1990s thousands of small farmers like Nyagah abandoned coffee.

“The prices we got before couldn’t sustain a family, but now with even 100 bushes you can be guaranteed to get some good money to cover the basics,” says Nyagah.

The Komothai co-op includes more than 1,000 “inactive farmers” who have let their bushes go wild and switched to cattle or cereals, but that trend has reversed in the last year. “People who had neglected coffee are coming back, farmers are now coming up,” he says. “We are telling other farmers the prices won’t go bad like they did in the past.”

The former headmaster said the income has made life more comfortable for his family and may even entice his son, working abroad in London, to invest in farming back home.

“What I get is enough for me and my wife and to help a few people around our shamba.”

The co-op now boasts 13 factories or “wet mills” with plans for a roaster so that growers can start to cup and sample their own coffee. Until now this has meant a journey to the Coffee Research Foundation in Nairobi.
“Until now we have to offer Coke or tea which is not so good,” says Nyagah. “I’m a fan of coffee.”

While the record prices have meant a windfall for existing farmers they do not necessarily add up to an immediate Kenyan boom, according to the exporter who bought January’s record-breaking batch.

Jeremy Block, chairman of C Dorman, Kenya’s main exporter, says unusual weather conditions played the dominant role in driving up prices for top-notch AA coffees.

“It’s been very much weather related,” he says. “Two years ago drought drove down production by 30 per cent, then unseasonal rains last year reduced it by a further 50 per cent.”

That left buyers like C Dorman with contracts to fulfill and very little coffee to do it with, resulting in “the price achieved this year being higher than ever before”.

However, weather is not the only check on growth in Kenyan coffee, Block argues. Historically production in East Africa’s biggest economy has been falling with highs of 130,000 tons in 1989 to 47,000 tons by the end of 2009. A combination of global slumps in price and local problems with inefficient marketing agents absorbing profits combined to make coffee progressively less attractive to farmers, prior to the recent upsurge.
An equally powerful check has come from real estate. Kenya’s first coffee bushes appeared on mission farms in the hills around Nairobi but in the last five years the same hills have seen an unprecedented building boom.

“Coffee offers the best horticultural returns in Kenya right now,” says Block. “But it can’t compete with a bunch of houses.”

A quick flight over the outskirts of the Kenyan capital in almost any direction confirms the chairman’s observation. The urban sprawl is spreading at an extraordinary rate consuming the old coffee estates as it goes.
“Out in the bush you know it’s been great, the coffee farmers have been thrilled, getting three or four times the cost of production.”

For Kennedy Gitonga, an economist with the state-funded Coffee Research Foundation (CRF), what has happened is a simple case of supply and demand.

“The supply was down because production was low due to the weather just as demand was going up worldwide,” says Gitonga. Exporters had to cover their contracts, which created a “scramble” for the available high grade coffee.

However, while Gitonga anticipates that the “exceptional” prices seen in January will not become the norm, higher prices are here to stay and will mean expansion for the industry as a whole. The foundation says demand for coffee seedlings which in 2009 – 2010 was at 2.7 million had risen to 14.9 million in 2010 – 2011.

The sudden spike had surprised the CRF which increased supply from over 3 million seedlings last year to 4.4 million, but were now having to turn to private nurseries to meet the vast shortfall.

The demand was coming both from new farmers and non-traditional coffee areas, says Gitonga, with five new regions expressing interest.

“In the Western Rift Valley, where farmers are more into cereals, they are now planting coffee in a big way,” he says.

Another element in the success story has been a cleanup in the marketing system that was notorious for non-transparent deals that saw scant returns getting through to farmers on the ground.

Lucy Murumba, who heads the Kenya Co-operative Coffee Exporters (KCCE), a venture wholly owned by co-ops, believes that cleaning up the system will improve yield and quality.

“The farmer is an economist and he won’t keep growing if he’s not getting a return,” she says. “Small scale coffee farmers have had little reason to invest in higher quality production leading to a vicious cycle of declining earnings and lower yield per hectare.”

Now with more access to international markets and a better understanding of the auction process the disincentives are disappearing, she says. The new focus has been on educating existing farmers to increase yields and by bringing younger Kenyans to an industry where the average age among her members hovers towards 70 years old.

The KCCE believes that an education campaign can bring up yields among smallholders from lows of 1.5 kilograms of berry per tree to an average of 5 kilograms and in the future to as much as 20 kilograms.

Quality remains a constant theme. While Kenyan industry figures understandably insist they have the best product in the world, independent tasters have also been giving exceptional marks.

Thompson Owen, a coffee expert with the US gourmet buyer Sweet Maria’s, gave his verdict on Kenya’s best coffees after a recent tour: “A really great Kenyan is a distinctly intense taste experience, with a bright and lively flavour profile, with layers of fruit and berry flavour, syrupy mouthfeel and fairly high intensity overall.” He went on to compare the “complex fruit flavours” in Kenya’s coffee to a “fruit salad”.

The CRF has reported huge interest in a new drought-resistant variety it has developed called “Baitan”. Hopes are pinned on the hybrid to help farmers combat increasing cycles of drought without sacrificing the famous quality.

Traditionally Kenyan growers have relied on SL-28 – a variety developed under the colonial administration – and Riuru 11, an earlier effort from the CRF. While Riuru has been less susceptible to the blights of Coffee Leaf Rust (CLR) and Coffee Berry Disease (CBD), it has also failed to reach the exceptional quality of the SL 28 berries that have earned Kenya its international reputation.

As well as driving up the price, the severe drought has encouraged large scale farmers in Western Kenya – where rainfall is higher – to reconsider coffee.

Samon Chemai is one of them, with his farm in Kapsabet, near the Western Rift Valley town of Eldoret, an area more renowned for its runners than its coffee.

“Most likely there will be a boom in Kenya but it will take time as we recruit new farmers in non-traditional areas,” he says. He owns 23,000 bushes and is looking to expand that by a further 7,000, as well as sitting on Kenya’s EU-funded steering committee looking at increasing coffee acreage. “With these kinds of prices it is not going to be too difficult.”

While renewed interest among small farmers may improve yields and therefore production, Chemai believes that land pressure means the only significant spare capacity for coffee to grow into is in existing larger holdings.

“In the North Rift Valley and Western Kenya these areas have large-scale farmers who can reallocate acreage,” he says.

The former diplomat, who was Kenya’s ambassador to Washington during the Clinton administration, argues that the record prices have woken a sleeping giant in the East African coffee industry and that Kenya must take advantage by investing in research and development. “I think we should aim higher. We have a good product to offer the world.”

Farmer Fact
The average age of a coffee farmer with the Kenya Co-operative Coffee Exporters, hovers at around 70 years old.

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