The East African region looks set to post depressed coffee earnings this year, as the decreased demand in Europe pushes down prices and drought hurts production.

Coffee industry regulators in Kenya, Uganda and Tanzania are projecting a slow-down in the sector, reducing the income from one of its largest foreign currency earners. Only Rwanda, though cautiously optimistic, is expecting better output and earnings.

In Uganda, drought has wreaked havoc on the crop, resulting in poor yields. Tanzania — Africa’s fourth-largest coffee producer after Ethiopia, Uganda and Ivory Coast — projects that its earnings will drop by at least 10 per cent.

Tanzanian coffee farmers had projected earnings of $200 million this year from exports — up from $143 million in 2011 — but the revised projections show that they could pocket about $180 million with the drop in prices.

Kenya’s biggest concern is the falling prices in the international market caused by the depressed demand for coffee, especially in the Eurozone. Prices had fallen to an average of $140 per 50kg bag by the end of October, less than a half of January’s price of $320. The auction is largely reflective of happenings on the global front, where prices continued to drop.

Industry players are however optimistic that despite the drop in prices, increased production could see this year’s earnings increase by 13 per cent. Kenya’s Ministry of Agriculture permanent secretary Romano Kiome said coffee could earn the country between Ksh24 billion ($282.3 million) and Ksh26 billion ($305.8 million) this year. Data from the Kenya National Bureau of Statistics shows that last year the country earned Ksh22 billion ($258.8) from coffee. “The prices have been affected by international dynamics like the Eurozone crisis. Although production is higher this year, demand is not as much,” said Mr Kiome.

Economists and analysts said export demand for EAC goods, financial links including trade finance, foreign direct investment, and aid flows are already feeling the pinch of the Eurozone crisis, and could get worse.

The EU is the single largest market for EAC exports, absorbing 23.4 per cent of its exports in 2011 compared with 33.6 per cent by the rest of the world. EAC imported more than $4.8 billion worth of goods from the EU, and exported $3.18 billion worth to the EU, as per 2011 trade data.

Experts say the EAC should expand to other markets like China, Korea and Japan to reduce overreliance on Europe.

“China is developing into a major trading partner with Africa and has a growing middle and upper class that present a real demand for coffee,” said Samuel Kamau, chief executive officer of African Fine Coffees Association.

Coffee prices in Kenya could be depressed further by the deteriorating quality following a delay in the long rains. Whereas the rains usually come in March, this year they were experienced in May affecting the crop’s flowering time.

“The cost of doing business in Europe has gone up, due to the credit crunch, meaning companies do not have funds to hold stocks,” said Mr Kamau. “For now, demand among coffee drinkers is still strong but with the worsening Euro crisis I am not sure this will last.”
Uganda has registered a 13.4 per cent decline in coffee exports by volume this year, which has translated into a 12.5 per cent fall in earnings due to prolonged drought in many parts of the country.

Uganda Coffee Development Authority spokesperson Kizito Mayanja said coffee exports for the year to September 2012 closed in at 2.7 million bags valued at $ 392.7 million, down from 3.15 million bags valued at $ 488.91 million for a similar period last year.

“If the weather pattern improves next year, coffee exports will automatically rise again,” said Mr Mayanja.

Rwanda projects to earn $78 million from coffee exports this year, up from $75 million earned last year. Officials in Kigali said production is likely to increase from 16,000 tonnes last year to 24,000 tonnes.

The state-run Tanzania Coffee Board (TCB) said in the past three weeks, coffee prices dropped at the auctions in northern Tanzania’s town of Moshi, mostly due to the falling of the New York Coffee market to $1.6 from $1.8 per pound.

TCB’s data shows the overall average price at Moshi exchange was down by $1.11 per 50 kg of mild arabica from early October. TCB director general Adolph Kumburu said Brazil’s bumper coffee harvest of 50 million bags, up from 45 million bags last season, has flooded the world market pushing the prices further down.

“Owing to the increased output the market is therefore changing from bullish to bearish, where the price of stocks is shrinking,” Mr Kumburu said. “If the trend does not change, Tanzania’s overall income from the mainstream coffee exports could fall by 10 per cent.”

The TCB’s 10-year strategy aims at a 50 per cent increase in coffee production to 80,000 tonnes a year by 2016, peaking to 100,000 tonnes by 2021.

By Adam Ihucha, Scola Kamau, Isaac Khisa and Gaaki Kigambo