High coffee prices stimulate a surge of interest in African coffee production
30 January 2012
In December 2011, the International Coffee Organisation (ICO) reported that coffee bean prices had fallen to their lowest level in 2011. This followed ICO’s upgrade of the coffee harvest estimate by 1.2 million bags to 128.6 million bags. Nevertheless ‘output was set to fall from the previous season’.
Despite these price declines, 2011 was a good year for coffee, with prices in the first half of the year over 50% higher than in the corresponding period in 2010, and still between 10 and 31% higher in the second semester than in 2010. Compared to 2010, the markets ended 2011 15.2% down for robusta (London) and 5.7% down for arabica (New York). However, this scarcely dented the 77% increase in prices achieved in 2010.
Analysts believe that markets in 2012 will continue to be uncertain for both arabica and robusta, due both to short-term purchasing, supply uncertainties and the unpredictable financial markets. The ongoing credit crisis, while not negating market fundamentals which ‘continue to favour firm prices’, could impact on liquidity in the coffee sector, which when combined with higher production costs could lead to reduced supplies in the medium term.
Press reports indicated that strong international coffee prices were bringing real benefits to Kenyan coffee producers, with export earnings set to rise 7% in 2011 compared to 2010, according to the Coffee Board of Kenya. This followed a substantial increase in earnings in 2010 compared to 2009, up from KSh10 billion to KSh26 billion (€235 million). A process of financial restructuring is underway in the Kenyan coffee sector, with the Ministry of Finance announcing ‘a bailout plan that will see it write off Sh3.7 billion in coffee debts before the end of the financial year’.
In Cameroon, the National Coffee and Cocoa Board (ONCC) reported a substantial 39% drop in coffee production in the 2010–11 season to 34,417 tonnes. Production of robusta coffee fell from 53,000 tonnes to 31,840 tonnes, while production of arabica coffee reportedly fell from 3,423 tonnes to 2,577 tonnes. However, extensive smuggling of arabica coffee into neighbouring Nigeria is suspected, suggesting the production decline may not have been as great as the recorded figures suggest.
The decline in Cameroonian coffee production is variously attributed to the predominance of aging coffee plants, disease, smuggling of coffee to Nigeria and the market disruptions associated with political turmoil in north African markets. However, in 2010 Cameroon adopted a 5-year recovery plan for the sector: this aims to increase production to 125,000 tonnes, with a budget of 26 billion CFA francs (€39.6 million) for the replacement of aged plantations with improved varieties, increased use of fertilisers, the promotion of modernisation of equipment and tools, and better training for farmers. The ONCC is forecasting production of 65,000 tonnes for 2011/12, 55,000 tonnes of this robusta.
CommodAfrica report a surge of interest in the coffee sector in Africa, with Uganda, Kenya and Tanzania also renewing their coffee plantations with resistant varieties and seeking new markets. They report figures from the InterAfrican Coffee Organisation showing that while African coffee production stagnated at around 16 million 60-kg bags for the last 5 years, it rose to 18 million bags last year (13% of world production, compared to 30% in the 1980s), and may rise a further 2 to 5 million bags in the next 5 years. The analysts note that many farmers stopped growing coffee in the 1980s and 90s, when the sector was liberalised and the arrival of new intermediaries led to lower prices being paid to producers.
Editorial comment
In Kenya, the coffee sector has declined significantly from its heights as the major foreign exchange earner in the 1980s. By 2009 coffee contributed a mere 4.7% by value of domestic exports compared to tea (21.3%) and horticulture (20.2%). In the face of poor returns following poor management of coffee factories, rising input costs and institutional and policy uncertainties in the sector, coffee farmers have uprooted trees and left the sector. Sub-division of land and its conversion in peri-urban areas of Nairobi to commercial property use have also reduced production.
Governmental moves to write off coffee sector debts may serve to stem the departure of producers from the sector, particularly if higher average global coffee prices are sustained. However, high international prices alone may prove insufficient to stimulate improved Kenyan coffee production. Further industry reforms are likely to be necessary to improve returns to farmers, who traditionally receive only a fraction of the international sale price of coffee, including a policy framework to strengthen the governance and functioning of the global coffee value chain.
Support for strengthening producers’ organisations, reducing smallholder costs and improving productivity are also likely to prove necessary. Effort could also be deployed in developing local and regional demand for processed coffee products, given the growth of middle-income consumers in the region.
While the reforms and policy framework needed are complex, it appears that a number of African countries have taken up the challenge with enthusiasm and are returning to the crop as a long-term investment option.
