Investment in storage reduces vulnerability of Rwandan coffee sector to global price volatility
13 July 2014
In the first quarter of 2014, Rwanda’s coffee export earnings fell by more than half (56.5%) to US$5.05 million, down from $11.6 million, according to the Kigali-based New Times. In the same period, export volumes fell by 40.5%. The decline was attributed to a drop in international coffee prices. According to Celestin Gatarayiha, head of Rwanda’s National Agricultural Export Board (NAEB), “when the international prices are low, we export less and store the coffee until the prices improve.” The impact of the market developments was diminished, as January to March is the Rwandan off-season, so exports are taking place from stocks. Between January 2013 and January 2014, coffee prices fell by 14.7%, fully 44% down from the levels of January 2012. In the face of “uncertainty over the 2014/15 crop and dry weather conditions in some coffee producing regions”, international coffee prices began to improve from March 2014, and by April 2014 had reached levels not seen since February 2012.
Mr Gatarayiha noted that the NAEB was working with farmers to improve both the quality of coffee bean production and post-harvest handling and storage to prevent any deterioration of bean quality during storage. These are essential factors in enabling the coffee sector to choose when it sells its coffee.
Editorial comment
Investment in storage capacity for coffee would appear to enable the Rwandan coffee sector to manage price volatility, by withholding coffee from the market at times of low prices. Provided that bean quality can be maintained, this would appear to hold out prospects of higher earnings in the longer term. It would appear to contrast with the Ethiopian experience where, according to USDA analysis, the coffee sector was caught out by declining coffee prices from May 2013 (see Agritrade article ‘ Ethiopian coffee sector caught out by declining global prices in 2013/14’, 21 July 2014). With prices improving in March 2014, Rwanda may well be able to gain better returns from this deferment of exports.
It should be noted that Rwandan production is tiny in comparison to Ethiopian production, with coffee production being far less significant to the country’s overall export earnings than in the case of Ethiopia. Holding back supplies during periods of price falls is thus a more viable option for smaller-scale producers than for very large-scale producers.
Investments in improved and expanded storage capacity could nevertheless offer one mechanism for dealing with global market price volatility for smaller-scale coffee producers, provided that financial stability across the coffee sector can be ensured during periods of price decline.
