A macro look at Kenyan coffee
In the heyday of Kenyan coffee in the late 1980s, the country’s farmers produced almost 120,000 tonnes of the cash crop each year. A decade later, despite the government’s efforts to encourage production, output had dropped by more than 50 percent.
There were several reasons behind this precipitous drop. During the 1960s, 70s, and 80s, Kenyan coffee benefited from the International Coffee Agreements (ICAs) that were in place, which helped keep prices stable, in part by keeping supply steady through a system of export quotas. According to experts, the ICAs was in some ways beneficial to developing countries, giving them the ability to organize collectively and shielding their vulnerable smallholders from market volatility; though some smaller producers were dissatisfied with their smaller market shares. The end of the 1983 ICA in 1989 suspended the export quota system, enabling countries like Brazil and Vietnam to produce more coffee, forcing global prices down, and making it more difficult for Kenyan coffee to compete.
Although the 1990s ushered in a period of productivity for the industry, the effects of disease and pests, along with the steady decline in coffee prices between 1998 and 2002, caused both production and yields to plummet in the early 2000s. In 2009, following a prolonged drought, output fell to its lowest since 1961—34,000 tonnes—almost a quarter of peak production levels. In the following years, numerous initiatives designed to increase cultivated area and yields helped buoy production, and output rose by about 14 percent annually between 2009 and 2013.
Several of these production-boosting initiatives have come out of the nation’s Coffee Research Institute (CRI), a division of Kenya’s Agricultural & Livestock Research Organization (KALRO) which gets funding through special taxes levied on farmers, the Kenyan government, and donations from the international community. The EU, the largest market for Kenyan coffee, has invested millions into the CRI over the last decade, which has helped the CRI develop disease-resistant coffee varieties, and in more recent years, funds have been directed towards training and greenhouse construction. Despite these efforts, however, production continued to falter.
Coffee yields suffered significantly in 2011 thanks to erratic rainfall which allowed disease and pests to thrive. And unfortunately, experts fear that yields may only continue to suffer into the future, thanks in part to climate change. A recent study, published in the journal of Agricultural and Forest Meteorology, found that in Tanzania, where temperature trends are very similar to those in Kenya, a 1°C increase in nighttime temperatures can cause crop yields to decrease between 14 and 27 percent per hectare; and Tanzania is expected to experience nighttime temperature increases of between 2-4°C by 2100.
Yields have also been dampened by farmers’ lack of access to financing and their resultant inability to afford high-quality fertilizers and pesticides. Their inability to afford such products is in part due to the fact that Kenyan coffee farmers, like many smallholders across developing countries, receive very little money for their product. Farmers report being paid as little as 30 KSH ($0.30 USD) per kilogram for their raw coffee. That same Kenyan coffee can eventually retail at major western chains for more than 100 times that. Even with the introduction of new seed varieties like the Ruiru 11 and Batian, whose disease resistance inexpensively increases yields; farmers estimate that they would need to be paid between 152-203 KSH ($1.50-$2.00) per kilogram to break even.
On the Nairobi Coffee Exchange, where about 85 percent of Kenya’s coffee is sold, beans often fetch more than double that. Over the 2014/2015 season, prices for Kenyan beans averaged $227 per 50kg bag (454 KSH/kg). Prices reached a market year peak in February 2015, when 50kg bags sold for an average of $267 (490 KSH/kg). Throughout the market year, higher grades sold for as much as $335 (616 KSH/kg). Even the lowest grades of Kenyan beans averaged $123 per bag (246 KSH/kg), and these made up less than 5 percent of all beans sold on the exchange.
Although farmers technically retain ownership of their crop until final sale at the exchange, this has not prevented them from being taken advantage of by middlemen. Some farmers sell their unprocessed coffee cherries at the farm gate to brokers when they need immediate payment. Although this is often far less lucrative, farmers using marketers and the Nairobi Coffee Exchange may have to wait up to six months to receive payment. Though this system is supposed to pay farmers within 14 days, the sheer number of hands that the beans and money have to pass through and the consistency with which delays occur along the way means that farmers cannot rely on timely payment.
Those who have the luxury of waiting for payment typically join cooperatives, but these organizations are not immune to corruption or price exploitation either, as cited in a report by the European Commission and explained by insiders to Kenya’s Daily Nation. They must work with millers and marketers to get the crop processed, listed, and sold on the exchange. Both parties have been repeatedly accused of various types of fraud by Kenyan governors and local news outlets such as the Daily Nation and The Standard. Millers report high milling losses and marketers report erroneous fees and lower coffee grades (all of which are close to impossible to verify) in order to pass back less of their eventual sales revenue to cooperatives. What’s more, there are only 9 licensed coffee mills and 8 marketers in the country, leaving competitive options limited. Even more troubling, more than half of these marketers own one of the commercial mills, making it even easier for bean theft and the fraudulent reporting of losses, grading, and fees.
Barriers to entry, both legal and illicit, make it difficult for new competitors to emerge or for cooperatives themselves to mill and market their own product. Licensing fees are high and infrastructure investment is expensive. Most prohibitively, a bank guarantee of $1 million is required to sell on the Nairobi Coffee Exchange. When these hurdles have been overcome or farmers have tried to engage in direct sales, there have been reports of intimidation by existing players and thefts of coffee that authorities believe to be coordinated.
As farmers face pressure to sell their crop for a tenth of the average going rate on the exchange, their plight is finally garnering attention from the government. Kenya’s parliament is currently considering a bill that would implement a minimum price guarantee for coffee and tea. The new legislation would also grant farmers payment upon delivery. Irungu Kang'ata, the author of the bill, is an MP from Murang’a County, where 60 percent of small-scale farmers grow cash crops of tea or coffee. Kang'ata remarked that the policy forces “the government [to] shoulder all market inefficiencies and the attendant corruption in the value chain as exposed by the Nation newspaper."
Other initiatives have been introduced at the county level but the results have been mixed. For instance, in 2013, the Governor of Nyeri county, another major coffee producer in the Mount Kenya region, attempted to reform the local coffee industry and help farmers get better prices by bypassing traditional miller and marketer relationships and selling directly to international players. This meant mandating that all coffee in the county be milled through specified factories, in order to increase accountability and facilitate direct sales to the global market. Most notably, the governor, Nderitu Gachagua, promised a price guarantee of 130 KSH/kg ($1.30/kg) to farmers. The policy quickly backfired as the local government struggled to find international buyers. This meant that the coffee sat unsold and farmers were not paid for over a year.
Gachagua has not given up on reforming the industry. This past October, he announced a shift in policy, insisting that “as a county government we are not interested in marketing the county’s coffee, but to ensure that our farmers gets what they deserve from what they produce.” He is now pushing a law that would ensure the county’s coffee farmers are paid on time, limit cooperative fees paid by farmers, and ban multiple licensing so that millers and marketers cannot be owned by the same entity. He has also worked to provide coffee farmers with subsidized fertilizer and implemented a partnership with the local university to have students audit losses and grading efforts at the county’s mills.
But most of these reform policies have yet to be implemented, and coffee farmers in Nyeri and surrounding counties are threatening to boycott harvesting more than 60 million kilograms of raw coffee cherries and quit cultivating the crop altogether.
Given the meager returns coffee farmers have been forced to accept over the years, it should come as no surprise that farmers are uprooting their coffee in favor of more profitable crops. If Kenya wants to expand production of its world-renowned coffee, it must first address the widespread concerns and grievances of the country’s coffee farmers.