Kenya’s Coffee Sector: On the Road to Recovery

Kenya’s Coffee Sector: On the Road to Recovery

After decades of stagnation, Kenya’s coffee-industry is on the road to recovery thanks to a government- driven initiative. And although many challenges still exist, there have been positive results and further growth is expected.

By Shem Oirere  Photos courtesy of Shem Oirere

The 1989 collapse of the International Coffee Agreement sent shockwaves across coffee-producing and consuming regions in the world leading to low prices that made it difficult for many producers in Kenya to repay their loans, hence impacting long-term production and marketing of the crop that contributes 0.2 percent to the country’s gross domestic product.

However, a government-driven initiative to reverse the long-term effects of the ICA collapse was launched in the early 2000s and has yielded some positive results – albeit not on a massive scale – but enough to set Kenya’s coffee industry on the right footing and on the way to recovery. Production and earnings for both the small-scale coffee farmers and estate producers have been fluctuating since 2000, but for reasons other than the collapse of the 1989 ICA.

By 2000, the average national coffee production in Kenya was 86,982 metric tonnes. The volumes dropped to 63,608 metric tonnes, and 49,479 metric tonnes, by 2001 and 2002 respectively, before a marginal increase to 56,650 metric tonnes was recorded in 2003.

Despite the mixed production volumes between 2000 and 2003, the price for the Kenyan coffee kept declining, hitting an all-time low of Sh117/kilogramme in 2001 before rising to Sh132/kg in 2003, and dropping again to Sh107/kg by the end of the 2003-04 crop period. Fast forward to 2011, and Kenyan coffee farmers had accumulated USD $46.4 million owed to their cooperative societies, savings and other organizations.

The Kenyan government, in a series of debt waivers, has offloaded USD $33.9 million from the coffee farmers’ shoulders with the remaining USD $12.41 million initially scheduled for clearance in the 2015-16 financial year. Kenya’s financial year starts in July of every year. However, only $4.8 million was made available for clearance of the coffee debt “leaving an outstanding balance of $7.6 million to be considered in the 2016-17 financial year,” according to Professor Joseph Kieyah, the programmes coordinator and principal analyst at the Kenya Institute of Public Policy Research and Analysis, an autonomous public institute.

Prof Kieyah chaired a committee appointed by Kenya’s President Uhuru Kenyatta to identify problems bedevilling the country’s coffee sub-sector and give recommendations on how the industry should be reformed to ensure the outstanding debts are cleared and production and earnings are improved.

In addition to the USD $46.5 million debt, Kenya’s coffee growers also owed the European Commission $16.49 million that had been advanced to them through the Cooperative Bank of Kenya as part of the Commission’s initiative to stabilize export earnings, also called Stabex funds, meant for ACP (African, Caribbean and Pacific Group) countries to mitigate harmful effects of the instability in export revenues by farmers. Other creditors include Kenya Planters Cooperative Union, one of the 18 coffee millers in the country, which is owed $41.3 million by both small-scale coffee producers and estate coffee farmers.

The Commodities Fund, which provides credit to farmers for needs such as farm improvement, farm inputs, farming operation and price stabilization, had also extended to coffee farmers USD $21.3 million by 2016.

“Although the Commodities Fund has a collection rate of 78 percent of the disbursed loans, about 7 percent of the loan portfolio is at risk, mainly due to governance and liquidity problems of some of the intermediaries used to disburse the loans,” said Prof Kieyah.

Five months after Prof Kieyah’s team submitted its report to President Kenyatta, the government announced that by October 2016 it had waived a total of USD $92.1 million in debt owed by coffee producers in the East African country. At the time, the coffee sector was reeling from a nearly $119.3 million debt, and the area under coffee production had dropped to 113,000 hectares (ha) down from 170,000ha in 2005 across the country’s 31 coffee-producing counties.

A Fresh Start

The coffee debt waiver was to give farmers a fresh start and ensure the USD $16.49 million Stabex arrears are converted into a revolving fund to support Kenya’s coffee sector as the financing was initially meant to be.

The waivers and kicking-starting of the Stabex revolving fund, which are part of the Kenya government initiatives, are key pillars in boosting the country’s coffee sector and was a key campaign plunk during the 2017 presidential election in Kenya in which President Kenyatta was controversially re-elected.

Some progress had been reported in Kenya’s coffee industry by the end of 2015. Both the estimated 700,000 smallholder coffee growers, who own less than five acres, and the 4,000 small and large coffee estate growers, recorded a 9.8 percent increase in coffee production because partial coffee sector reforms that had been launched in 2002-03 crop year.

According to Zachary Mwangi, director general of the Kenya Bureau of Statistics, Kenya’s 2016 coffee production by smallholder growers, through their cooperative societies, and by large scale producers, was 46.1 thousand tonnes up from the 42 thousand tonnes recorded in 2015 although the figure is lower than the 55.4 thousand tonnes achieved in 2003.

“The value of marketed coffee increased by 33.9 percent from USD $117.4 million in 2015 to $157 million in 2016,” Mwangi said in the Kenya Economic Survey 2017 report. During the 2016 coffee production period, acreage under smallholder production increased to 88.2 thousand hectares from 87.8 thousand hectares in 2015. A similar expansion was recorded by large-scale growers whose acreage reached 25.8 thousand hectares. up from 25.7 thousand hectares in 2015.

Despite the increase in acreage under coffee in 2016, Mwangi said there was a decline in yields per hectare among large-scale producers who harvested 595.3kgs/ha down from the 595.3kg/ha in 2015. This is far much less than the 1547.4kgs/ha projected for Brazilian farmers in 2017-18 year.

This trend of declining yields among large coffee growers, triggered by a mixture of global production trends, climate dynamics and challenges in sourcing and application of quality farm inputs, started in 2013 when it dropped to 726.6kgs/ha from the 894.3kgs/ha the previous year. The drop accelerated to 682.9kgs/ha in 2014.

The good news for Kenya’s coffee sector is that the smallholder coffee growers, who contribute more than 60 percent of the country’s total production, did not only increase the area under the crop but also achieved higher yields per a hectare in 2016 compared to the previous year as the piecemeal coffee sector reforms gained appreciation among farmers.

Yields per a hectare among the farmers with less than five-acre farms rose to 350.8kgs/ha, up from 318.9kgs/ha according to Mwangi. This was less than the 383.8kgs/ha achieved in 2014, but much higher than the 257kgs/ha recorded in 2013.

“The increase in production may be a result of the government’s intervention in providing subsidized fertilizers and partly due to the bi-annually cyclic production, where a good year of harvest is followed by reduced harvest in the following year,” said Mwangi.

Maintaining Growth

Sustainability of the little gains achieved in the revival of Kenya’s coffee sector will depend on the willingness by the coffee farmers and government to implement several proposals by experts and government task force teams some which have been gathering dust at the shelves of the Ministry of Agriculture headquarters.

For example, on 16 May 2016, President Uhuru was presented with ambitious recommendations by the National Task Force on Coffee Sub-Sector Reforms, which he promised to implement as part of his government’s contribution towards making Kenya’s coffee great again in the international market.

“The government should honour its commitment to clear the outstanding debts to Cooperative Societies, Savings and Credit Societies and Farmers’ Unions amounting to USD $784 million” said part of the task force’s report to the President.

The task force team also urged the government to “clear the outstanding debt of USD $16.7 million under the Stabex revolving fund facility.” The outstanding Stabex funds have accrued an interest of $6.7 million as of March 2016 and could be much more by end of 2017. The task force team proposed that after debt payment, the funds available under the Stabex revolving fund should be channelled as credit facility to finance the development of the coffee sub-sector.

Apart from the debt burden, Kenya coffee growers are battling other challenges, which if successfully addressed, could help improve the quantity and quality exported to the international market and sold locally. For example, the high cost of farm inputs such as fertilizers continues to hamper efforts to scale up production with the national average per a coffee tree estimated at 2.5kgs per a year.

In addition, land parcels across coffee-growing counties in Kenya are diminishing as human population increases and there is demand for real estate development to accommodate them. Furthermore, the Ministry of Agriculture identifies climate change effects, Kenya’s ageing coffee-growing community, and unstable international and local coffee prices as challenges that face ongoing efforts to reform the coffee industry.

Shem Oirere has worked for the last 22 years as a newspaper correspondent, business reporter and sub-editor for national publications in Kenya before turning into full-time freelancing. His work has appeared both in print and online in more than a dozen international trade magazines covering various African economy sectors including agriculture, energy, transport and logistics, chemicals, water, construction, and religion. He is currently based in Nairobi, Kenya.

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