East Africa advised to take actions to avert a repeat of the 2001/2 coffee crisis

World Market Wakes Up and Smells Region's Exciting New Aroma

Scola Kamau
allAfrica.com

November 8, 2010

Nairobi - The aroma of coffee from East Africa is permeating the world market, an indication of increased revenues, as supply from South and Central America take a nose dive.

Coffee is among the leading contributors to the region's gross domestic product. According to Eastern African Fine Coffees Association (EAFCA), in 2008/2009, Uganda the leading exporter from the region and the second in Africa, earned $291.7 million from coffee exports while Kenya and Tanzania earned $141.8 million and $132.2 million respectively. Rwanda derived 22 per cent of its export revenues from the product, earning $42m in the same year.

According to a report by the Africa Development Bank (AfDB) published last month title Telling Africa's Development Story, East Africa will reap from the increased Arabica prices that have seen a faster rise than Robusta. The trends in the composite coffee price show wide differentials between the two coffee varieties.

“Robusta prices declined from $105.28 per 60 kilogramme bag in 2008 to $67.25 in March 2010 before recovering to $77 in June 2010," reads part of the report. On the other hand, Arabica has jumped to more than $142 per 60 kg bag, up from $43 in the same period. Experts argue that even with available favourable prices, the movement of coffee from the local auctions to the international markets still remains a challenge.

“We have very many issues in terms of logistics and infrastructure which means that coffee moving from point A to the final buyer is a lot longer. The time taken in terms of delivering coffee from the warehouses to the ports affects the quality as well because of the temperatures, moisture and humidity," said Mr Samuel Kamau, EAFCA's acting executive director.

It takes about 100 days to deliver coffee from the ports of Mombasa and Dar-es-salaam to the US, which Mr Kamau says affects both its quality and the prices it fetches. The region's contribution to the total global supply is anticipated to fall from the present 4.2 per cent of Africa's 12 per cent contribution in 2009, due to unfavorable weather conditions up to the second quarter of the year.

Uganda contributed 2.4 per cent, Tanzania 0.7 per cent, Kenya 0.6 per cent while Burundi and Rwanda contributed 0.2 and 0.3 respectively. Uganda, anticipates reduced production hence reduced exports. According to statistics from the Uganda Coffee Development Authority, the production and export of coffee has declined due to bad weather experienced in 2009.

The Authority, which had earlier in the year forecasted exports of at least 3.05 million bags in 2009/10, revised the figure downwards to 2.8 million bags. The report points out that production has dwindled over time as farmers abandoned the cashcrop citing low returns.

“They receive at most 25 per cent of the retail value of their product in importing countries. This is due to either high transport or commodity broking costs, marketing and distribution costs or wholesalers in consumer markets exercising market power in expense of exporting countries," reads the report.

Experts however say East African countries will realise increased coffee revenues by exporting to the New York market, where the price of Arabica was highest at $229 per 60kg bag in June this year followed by the German market where it fetched $221 for the same quantity.

In readiness to access the New York market directly, 10 African countries, all East African Community members included, have laid a strategy under EAFCA. The strategy involves each farmer being given a password to access NYSE coffee prices through the Internet, giving him an upper hand in bargaining power.

“Main traders will appoint brokers in New York and trade directly to the stock exchange bonded warehouses," said Samuel Kamau, EAFCA's board member. Other EAFCA member countries are Ethiopia, Zambia, Zimbabwe, Malawi, and Democratic Republic of Congo.

With the exception of Kenya, the rest of East Africa coffee production slowed down in 2009 compared with the previous year due to unfavorable weather condition. The trend will continue following heavy rains this year that caused the spread of the coffee berry disease.

As Kenya's production increased to 783,000 bags in 2009, up from 572,000 bags, Tanzania's fell to 875,000 from 1.2 million, Rwanda to 400,000 from 433,000 and Uganda's to 3 million from 3.2 million, while Burundi's production dropped to 250,000, down from 388,000. The supply constraint is reflected in reduced global exports in 2009 at 94.7 million bags compared with 97.7 million bags in 2008.

However, it is feared that if all countries increased production, the 2001/2 crisis would be repeated in the near future with supply surpassing demand occasioning a price collapse. Coffee takes an average of three years to mature, meaning all newly planted crop in the region would mature at the same time, given similar weather conditions.

Experts argue that the region might as well use the auctions to maximise on profits incase of surplus production through value addition. "We spend more money in exporting our products in raw form and later import them as finished products at a higher cost. We would rather develop our infant industries to consume the exports while creating jobs," said Peter Munya, Assistant minister in Kenya's Ministry of East African Community.