Kenyan coffee farmers should not expect a boom from recent high prices, thanks to long-term deals they signed.
The high prices have been occasioned by Colombia — the world second biggest producer of coffee — that failed to supply one million bags to roasters, buyers and exporters.
World coffee prices have soared 55 percent this year, mainly due to adverse weather in Brazil — world top producer — prompting Colombian farmers to default on sales agreed when prices were lower in order to re-sell the coffee at higher prices.
Nairobi Coffee Exchange Chief Executive Daniel Mbithi said despite high world prices, farmers have binding existing long-term contracts with dealers who sell on their behalf in the world market and who are buying the commodity on an agreed price, set when demand was low.
“Majority of farmers already have contracts with buyers, and dealers even risked to buy beans when prices were low, hence making the current situation tricky. The best way for farmers to benefit from this is to renegotiate their contracts with buyers following the global price hike,” said Mbithi.
“Going by the main crop season which ended in April, the farmers were good and celebrating since they had a very good return, but this particular crop season ending this October, we cannot tell, since majority of farmers had entered into contract with dealers when prices where low hence they should not expect a boom,” he added.
Mbithi was also quick to note that the current low coffee production in Kenya is as a result of low acreage under coffee after some farmers uprooted their trees for other crops, while some never replaced old trees.
“Due to the long-term low coffee prices, many farmers never replanted new trees after three years of harvesting and they ventured into other types of farming. As prices increase, we cannot expect any increase in bean production any time soon since the plants take time to mature,” said Mr Mbithi.
Kenya’s coffee production has dropped drastically for the second year running, pushing the country further behind some of Africa’s top producers like Ethiopia and Uganda.
The world coffee market is in a spin following a supply default by Colombian farmers as they seek higher prices, driving up prices to a seven-year high in the month of September. Demand has hiked the price of the commodity to $1.70 per pound in September from $1.60 in the previous month this year according to the New York Exchange, which is used as a benchmark for all world prices. This confirms a net recovery from the low levels experienced over the past three coffee years.
According to September 2021 International Coffee Organisation (ICO) Coffee Market Report, Brazil has been experiencing severe frosts in its coffee belt this year, leading to lower coffee production and subsequent increase in international prices. Exports of all forms of coffee by all exporting countries to all destinations totalled 10.1 million 60kgS bags in August 2021, the same level as in August 2020.