What you need to know:
- Thanks to the depreciation of the local unit against major currencies including the dollar and Euro, export earnings for tea and horticulture have improved.
- Dip in coffee earnings comes at a time when the volume and prices of the beans sold at the Nairobi Coffee Exchange (NCE) have fallen sharply.
Every bad has its good. There is a silver lining in the depreciation of the Kenyan shilling; the country’s exports have been fetching more, with producers of flowers, fruits, vegetables, and tea winning big.
Not so with coffee, the stimulant with a smoky aroma, whose local production has been dipping while its consumption, locally and abroad, has been surging as a coffee-drinking culture takes hold in major metropolis.
Thanks to the depreciation of the local unit against major currencies including the dollar and Euro, export earnings for tea and horticulture have improved.
However, export earnings from coffee have shrunk with the country earning a total of Sh25.5 billion in the first six months of 2023 compared to Sh26.6 billion in the same period last year.
Mr James Muriithi, general manager at Sasini Plc, a major tea and coffee producer, said coffee export earnings have been affected by low global prices and poor quality of the beans due to drought which have wiped out any benefit that producers might have gained from a weak shilling.
“I would expect even if they (volumes exported) were more or less at the same level, the quality of coffee was lower than last year,” said Mr Muriithi.
“And the prices are almost a one-dollar difference per kilogramme at the Nairobi Coffee Exchange (NSE),” added Mr Muriithi, noting that this means a kilogramme of the beans is fetching Sh156 less this year compared to last year.
Such a loss, Mr Muriithi noted, cannot be compensated even with the weakening of the shilling, which tends to make the country’s exports cheaper and imports expensive.
The Kenya shilling has lost 19.3 per cent and 19.1 per cent against the dollar and euro respectively. The shilling has heavily depreciated against the dollar and exchanged for 148.1 against the greenback.
It is being exchanged at 156 against the Euro, having weakened from 131.66 at the start of the year.
And things will only get worse before they can get better. Mr Muriithi reckons that due to the severity of the drought, the quality of coffee has not improved. Moreover, global prices are yet to get better.
Moreover, the dip in coffee earnings comes at a time when the volume and prices of the beans sold at the Nairobi Coffee Exchange (NCE) have fallen sharply as traders and buyers kept off the market as a fight over issuance of trading permits by the State intensified.
The dismal performance at the NCE coincides with reforms under the stewardship of Deputy President Rigathi Gachagua, who oversaw the relaunch of the exchange in mid-August.
This comes after suspension trading licenses as part of reforming the value chain.
“This was not well advised, because if you suspend licences it means no one can buy coffee in Kenya. You need a license to buy coffee from Kenya,” said Dr Timothy Njagi, a research fellow at Tegemeo Institute, a think-tank affiliated with Jomo Kenyatta University and Technology.
NCE chairman Peter Gikonyo, however, in an earlier interview with Business Daily, maintained that no licences were suspended.
“I am not aware of the suspension of any licences as the licences were to expire at the end of June, which marked a transition from previous regulations. I would encourage brokers to comply and make applications for licences with their respective regulators,” he stated.
Coffee’s contribution to the country’s foreign exchange pot has dramatically dropped over the years with the crop’s plantations in parts of Central Kenya giving way to apartments and malls as the concrete jungle emerges from the fertile soils of one of the most arable lands in Kenya.
In 1959, for example, coffee contributed close to 32 per cent of the country’s total exports, data from the Kenya National Bureau of Statistics (KNBS) shows.
This has since dropped to 4.76 per cent in 2022, with commodities such as tea, flowers, fruits, and vegetables overtaking coffee.
Tea only constituted around 10.8 per cent of the value of total exports in 1959. But this has since risen to 25.6 per cent last year.
Globally, there were around 10.53 billion kilogrammes of coffee in the 2021/22 period, according to a report by the International Coffee Organisation, compared to tea consumption of 6.68 bags.
Subsequent Kenyan regimes have blamed the dwindling fortunes in the coffee sector on ‘cartels’ that have choked farmers by offering them lower prices for their produce even as they pocket massive margins by selling the beans in the global market.
In 2016, President Uhuru Kenyatta appointed a team to oversee reforms aimed at turning around the entire supply chain of coffee culminating into the far-reaching changes being spearheaded by Mr Gachagua.
But the reforms are turning out to be counterproductive. According to data from the NCE, auction volumes in August dropped by 95.62 per cent to 192 tonnes from 4,380 tonnes at the same time last year.
At present, the auction attracts an average of 25 buyers on each sale date, a low rate that affects competition in bids from where up to 80 per cent of Kenyan coffee is traded.
Of the 121 licensed coffee buyers by the Agriculture and Food Authority for the 2023/24 season, only 58 have registered at the NCE to buy from the auction.
Kenya exports most of its coffee, about 60 per cent, to Europe with countries such as Belgium, Germany, Switzerland, and Sweden being among the largest buyers, according to official data.
The other major buyer of Kenyan coffee is the United States, the home of such popular coffee shops as Starbucks. The US buys close to 15 per cent of Kenyan coffee.
On the other hand, export earnings from tea and horticulture (fruits, vegetables, and flowers) have gone up thanks to the depreciation of the shilling against major currencies such as the US dollar and Euro.
In the review period, export earnings from tea increased by 7.2 per cent to Sh99.9 billion, even as tea farmers prepared for a record Sh44.15 billion bonus payout for their supplies for the financial year ending June 30.
Earnings from horticulture have increased by 9.6 percent to Sh82 billion from Sh74.8 billion in the same period last year.