In mid March 2014, the Tanzania Coffee Board (TCB) confirmed that prices of a 50-kg bag of clean coffee had increased at auction from US$125 to US$240 since the beginning of the year. Efforts in Tanzania to boost yields by introducing new varieties have been undermined by low coffee prices. The TCB is optimistic that improving prices should help farmers to meet the production target of 80,000 tonnes projected for 2015/16. In the coming season, Tanzania is projected to produce some 67,000 tonnes, up from 49,000 tonnes in the last season. The TCB’s director-general has called on farmers to use improved returns to improve coffee quality.
The projected price increase was attributed to drought-affected production in Brazil. However, there is disagreement over the prospects for the Brazilian crop in 2014 and 2015. Producers are warning of poor harvests in both 2014 and 2015, while traders are more upbeat. But forecasters do agree that the 2016 and 2017 harvests should be much better.
Coffee: Global prices for arabica and robusta (US cents/lb)
|Arabica||Monthly % change||Robusta||Monthly % change|
Source: Indexmundi Commodities, http://www.indexmundi.com/commodities/?commodity=other-mild-arabicas-coffee and http://www.indexmundi.com/commodities/?commodity=robusta-coffee
The recent price increases are welcome – while the Ugandan Coffee Development Authority (UCDA) recently reported a 25% increase in the volume of coffee exports between April 2013 and March 2014 (from 3.02 to 3.77 million bags), earnings only increased by 4.8%. This suggests a decline in the average price of 16% per bag, falling from US$131.1 to US$110.1 per bag. Robusta exports increased by 12.18% by volume and 1.37% by value, while arabica exports increased by 14.44% (by volume) and 6.59% (by value).
One bright spot for the Ugandan coffee sector has been the growth in local consumption, with a growing number of coffee shops boosting local consumption from 2% of production a decade ago to 5% in 2013. The roasting of coffee for local consumption has increased fourfold from 50,000 to 200,000 bags. Figures from the UCDA show that Uganda exported 3.5 million bags of coffee in 2012, earning US$266 million. But experts have pointed out that “if just 20 per cent of the exported coffee had undergone the full value addition process of roasting and grinding, it would earn… at least $443 million”. There is thus seen to be considerable scope for local value addition.
While the economic benefits of value addition are clear cut, the question arises: which market components should local value-added processors in East Africa seek to target?
Should the focus be on Eastern and Southern African regional markets, the wider African continent, or on new emerging markets such as China? Which market components should be targeted – the growing coffee shop culture or the home consumption market? If the latter, then for which products – instant coffee, vacuum-packed beans or ground coffee? Or the single-serve market, where the greatest vale addition lies – but which in East Africa is in its infancy?
Identifying market opportunities for value-added production, mobilising the requisite expertise and sequencing the necessary investment can be challenging for relatively small-scale producers. The experience in the Caribbean rum sector, however, suggests that real value can be added from developing common quality standards at the regional level and jointly undertaking market analysis and initial market positioning work. The Caribbean rum experience demonstrates how, by accessing larger markets, the constraint of intra-regional competition can be overcome.
There would appear to be scope for similar regional initiatives in the development of markets for East African quality-differentiated, value-added processed coffee products. Indeed, where markets such as the Chinese market for premium coffees are being targeted, a case can be made for pan-ACP market identification initiatives.