Domestic consumption could perk up African coffee industry

By William Clarke

Agrimoney

September 9, 2015

Coffee consumption has the potential to boom in sub-Saharan Africa, triggering a revival in the stagnated local coffee industry, according to Ecobank.

With sub-Saharan coffee consumption well behind other developing markets, even in Ethiopia where arabica originated, Ecobank sees the lack of a domestic market as a major problem for the industry.

But the Togo-headquartered bank said that sub-Saharan coffee consumption was set to soar, as local chains proliferate and coffee giant Starbucks prepares to enter the region, offering an opportunities to "revitalise" the industry.

High quality

Sub-Saharan Africa produces around 12% of world coffee output, with Ethiopia, Uganda and the Ivory Coast accounting for three quarters of that production.

And Ecobank noted that the region is notable for producing some very high quality beans, including high-value arabicas from Ethiopia and Kenya.

But Ecobank saw a number of factors holding back the regional coffee industry, including "weak and inefficient agricultural value chains, high production costs and the lack of a domestic market for the final product".

Coffee production in Uganda is held back by susceptibility to disease, while Kenya has an "erratic internal marketing chain," Ecobank said.

'Cash crop'

Despite an established domestic industry, sub-Saharan Africa has very low coffee consumption.

"As a historical cash crop, coffee has been grown for export while many African producers, notably Kenya and Uganda, have predominant tea-drinking cultures," Ecobank noted.

Ethiopia provides the largest coffee market, with 2.27 kilogrammes of coffee consumed per person per year, while Madagascans consume 1.0 kilogrammes per head, and Ivorians 0.9 kilogrammes per head.

This is well below consumption in many other emerging markets, such as Brazil and Algeria, while demand in the European Union has reached the equivalent of nearly 9 kilogrammes per head.

'Room for growth'

But Ecobank said that rapidly rising middle class incomes leave "plenty of room for growth", as consumer spending rises.

Local coffee chains are springing up in Ethiopia, Kenya and Nigeria, while US giant Starbucks is set to enter in the region next year, with stores in South Africa.

This has attracted the attention of global coffee giant, Starbucks, which is expanding into Sub-Saharan markets, creating tough competition for a number of local coffee chains, such as Kenya's Art Caffe (partly owned by local roaster, Dorman's) and Java House.

Domestic opportunities

Ecobank said that East African coffee producers are not in a position to raise output for now, due to infrastructure issues and the prevalence of crop to diseases - meaning that rising domestic consumption will likely squeeze the supply of beans, and undermine exports.

But domestic demand could provide opportunities for sub-Saharan growers to develop the domestic industry.

"The growth of domestic consumption of coffee and of local coffee retailers could provide the impulse to revitalise Africa's coffee sector and overcome its perennial problems," Ecobank said.

 "The key to capturing the full value of African coffee will be in building robust value chains that ensure that the beans flow seamlessly from farmers to African traders and roasters, and onwards to African consumers," Ecobank said.