East Africa still missing out despite coffee glut
Tuesday May 28 2019
A worker checks the signs marking sacks of green, unroasted coffee beans from a conveyor belt at Dormans coffee factory in Nairobi on April 6, 2016. PHOTO | CARL DE SOUZA | AFP
Coffee earnings in East Africa have dropped substantially due to declining prices at the international market.
In recent months, a glut has precipitated prices at the international market to plunge to a 12-year low, a trend that is projected to continue in the coming years as global supply outpaces demand.
In East Africa, earnings for farmers have been plummeting due to overdependence on exports and low domestic consumption.
Data by the Uganda Coffee Development Authority shows that coffee exports earnings for the period from May 2018 to April 2019 declined by 19.6 per cent to $418 million down from $512 million the previous year.
In terms of quantity, the country exported 4 million bags compared with 4.6 million bags in 2017.
In Kenya, the 2018 Economic Survey shows that earnings from coffee declined from $154 million in 2017 to $144.2 million in 2018 due to the declining international prices.
Earnings dipped despite higher quantities of marketed coffee from 33,700 tonnes to 36,800 tonnes.
In Tanzania, earnings dropped to $127.18 million from $154.2 million.
The coffee sub-sector particularly in Kenya, the situation is forecast to worsen.
The International Coffee Organisation projects the 2018/19 global production to be 168.55 million bags, exceeding world consumption that stands at 164.8 million bags.
The expected surplus will continue to put pressure on prices, with the ICO composite indicator showing that prices in April 2019 decreasing to 94.42 US cents/per pound down from 97.50 US cents/lb in March.
Due to oversupply, the indicator shows prices at the international market declined from a high of 143 US cents/lb to 94.42 US cents/lb in a span of two years.
“For most growers current prices are insufficient to cover their production costs. The consequences of this situation are stark and include rural impoverishment,” said Jose Sette, ICO executive director.
He added that in the longer term, low prices are expected to intensify the ongoing trend of geographical concentration in production, leaving the sector much more vulnerable to climatic and political shocks in major producing countries.
“Countries like Kenya must find ways to encourage domestic consumption which is a powerful price stabiliser,” observed Mr Sette.
Across East Africa, domestic coffee consumption remains extremely low at less than seven per cent of the total production.
The practice is attributed to the predominance of the tea drinking culture and non-affordability of coffee due to low purchasing power for a majority of the population.
However, over the past decade a coffee drinking culture has been taking root especially among middle-income groups.
Ethiopia, the region’s largest producer, is the only country that has managed to build a significant domestic consumption making it the second largest exporter after Uganda. The country’s production currently stands at about 7.5 million bags annually.