Kenya's Plan to Sell Roasted Coffee to China Hits a Snag

Solomon Mburu
Business Daily (Nairobi) via All Africa

January 28, 2008

The deal to sell 100 per cent Kenyan roasted coffee to China has hit a snag following a surge in the prices of the commodity.

Prices of Kenyan coffee have been rising since late last year, with Mbuni heavy and Mbuni light which are the cheapest coffees from Kenya shooting up from $ 50 and $70, to $75 to $100 per 50 kilogramme bag, respectively.

The price rallies have been caused by concerns over reduced supply due to low production expected this season.

Experts say changing weather patterns were responsible for the 20 per cent drop in production.

It has now emerged that due to the unprecedented price increases, the deal to open up the Chinese market for Kenyan coffee will have to be delayed.

This will consequently hold up efforts to diversify the export market for Kenyan coffee, ensuring farmers get better value from the crop.

The Kenya Planters Co-operative Union (KPCU) which is spearheading the deal said renegotiation has to take place first and the prices agreed on earlier revised.

"The prices we had quoted earlier have to be revised now," said Mr Kokoth Sylvester, the value addition manager at KPCU.

Mr Kokoth said the Chinese buyers have been given revised prices and that KPCU was waiting for their response.

According to Mr Kokoth, the deal was initially meant to provide coffee farmers with better prices and prices lower than those in the market will not be accepted.

"We don't want to get into a contract that will not help farmers and we are keen on the pricing aspect," he said.

It has also emerged that the Chinese companies involved in the deal were new institutions which did not have a ready market for the Kenyan products.

This has created anxiety among the Kenyan sellers who have been used to dealing with well established international traders who have ready markets .

These include Philip Morris, Sara Lee and Nestle who make internationally popular brands like Tasters Choice and Hills Brothers. These two brands are made using the Kenyan blend.

The Chinese companies collected samples of Kenyan coffee and sent them to prospective buyers in Asia.

So far, no coffee has yet been sold to China through the deal that was negotiated by the Government and was signed between KPCU and the All China Federation of Supply and Marketing Cooperatives.

It was meant to sell 100 per cent Kenyan roasted coffee to the Chinese coffee market which is the fastest growing in the world.

Chinese buyers were initially expected to order coffee worth not less than Sh700 million and bigger quantities later, according to the agreement.

The deal was made as a strategy to diversify the Kenyan coffee market which is dominated by European countries.

Currently, Germany buys 37 per cent of Kenyan coffee, while the US gets 10 per cent, Nordic countries eight per cent, Asia Pacific three per cent and the rest is taken up by other smaller buyers.

With the huge size of the Chinese market, it was expected that China would soon take up more than 70 per cent of the total production in Kenya creating a supply shortage thus rallying prices upward.

Currently, no Kenyan marketing agent sells coffee directly to China. Only big buyers such as Starbucks, which has 400 coffee stores in China, buy speciality coffee from Kenya for the Chinese market.

KPCU was planned to be the first marketing agent in Kenya to sell directly to China which is seen as the fastest growing coffee market in terms of per capita consumption in the world.