The UNTAPPED KENYA'S COFFEE INDUSTRY

 

Despite Coffee being the third most exported product in Kenya, revenue gains from the industry are still   unimaginably modest, but why? 

Agricultural sector still prevail as the backbone of Kenya’s economy. According to US Aid report 2023, agricultural sector accounts for 33% of Kenya's GDP. In the sector, coffee is one of the main agricultural products exported to foreign markets driving agricultural sector and Kenyan economy at large. In fact, it is the third most exported product by Kenya. Out of 28million Ha Kenya’s agricultural land, coffee farming takes approximately 119,000 Ha which is 0.5% coverage  of agricultural land. More than six million Kenyans are employed by coffee industry either directly or indirectly. While the industry is significantly important in economic growth of the country, coffee farming have recorded drastic decline since 1990s. Statistically, coffee farming has declined by over 30% in terms of land coverage from 170,000 in 1990 to 119,000 in 2024. In parallel, total population involved in coffee growing have similarly declined overtime. Kenya’s coffee variety Arabica is considered as the most quality of its kind in the international markets and highly demanded by oversee customers. Majority of coffee exporters in the global markets largely export the Robusta coffee. Kenya remain one of the largest exporter of Arabica coffee in the world. It ranks 24^th as the largest exporters of coffee in the world.

However, while coffee industry contribute significantly to Kenya’s economic growth, the revenues earned from the international markets remain minuscule to farmers, value chain participants and the government. According to national bureau of statistics, in 2023, Kenya generated $340M from the industry, this is unimaginably lower than what should be generated. Just to blow your mind, Africa has some of largest coffee exporter countries in the world, Ethiopia, Uganda and Kenya among many others, with best quality and speciality coffee but in aggregate, the income is just roughly $3B annually. While at the same time,  Germany, a country with no single coffee bush in its land generate not less than $3B annually. This defies the obvious understanding that the supposed high income earners should be coffee producing countries. But instead, they are still on shackle of poverty and high income industries such as coffee are yet to be tapped maximally. So the question is how does it occur that non-producing countries are reaping extreme profits, whereas producing countries in particular in the developing world are still wandering in bondage of poverty. Importantly, what can be done to get rid of  unfavourable status quo.

According to UK-based Oxfam, if Africa would increase its aggregate exports by just 1%, it would make at least $115B annually, which is three times total money spent on public aid in Africa. This can be a game-changer in Africa as it surely  bring relief in public debt burden, improve economic independence, foster economic development, housing, affordable  healthcare, and strengthen education systems.  However, Africa's exports are still limited let alone earning  meagre gains  from its main export, coffee, despite being one of the most exported industry in the continent.

Why is this happening?

Kenya's largest market for coffee is the United States, and growing market in Germany, Belgium and Singapore among many others. But even as we understand this, it is important to know how coffee market operate in the Kenya and Africa. The value chain comprise of growers/Farmers, millers, brokers, traders and consumers. In most cases in producing countries, the value chain does not always include value addition process as opposed in Europe and US where value addition is invested on. In western world coffee drinking has become a necessity and not a luxury thus the increasing demand of coffee. But who is supplying those supermarkets, store and those coffee consumers in Europe and Americas or even in Kenya. Most coffee produced in third world producing countries are exported to global market in raw form, the green coffee beans.  Big manufacturing companies in western world mainly US, Germany, Spain and Italy buy green coffee beans from farmers in Africa, Uganda, Ethiopia and Kenya. They then process coffee beans into manufactured form which is then supplied to EU market, United States, Australia and back to producing countries among other countries at expensive prices. A coffee drinker in Australia drinks coffee labelled German yet it’s from Uganda or Kenya. And even supplied back to the producing countries while in processed form. Coffee processing countries makes billions of dollar of coffee industries without farming them. Isn't it unfair that a farmer in Uganda  or Kenya buy  coffee he grown from a supermarket labelled German or British brand at  high prices?  

African coffee industry is plagued by various challenges underestimating its revenues. Among them are;

High costs of processing coffee.

Growing and harvesting coffee beans is one step in the value chain towards consumable coffee. Most prominent coffee firms and brands in Europe comes to farmers in Africa and buy green coffee beans to their home countries. They consider it cheap to export raw coffee beans to their industries based in Europe or in Americas.

There are several processing step that follows that require equipment, time and unlimited financial resources. European companies take advantage of these circumstance and buy unprocessed coffee from frustrated local farmers through middle operators. Processing coffee beans is quite an expensive process. Most companies in African don’t export roasted coffee to global market, they instead export green coffee beans. The consequence of this is,  coffee products are exported in less value form and hence does not generate optimum revenue to producing countries. The coffee you buy from supermarket are processed one and it is the European coffee manufacturing companies that supply your supermarket. They supply a product that have been done a value-addition hence  its expensiveness. 

Barrier to market entry by third world market countries.

There are strict rules in the European markets enacted to regulate the quality of coffee products and deter market access by non-European competitors. However, the rules for green coffee beans tend to be less stringent as opposed to roasted coffee. This is to encourage farmers to sell unprocessed coffee to be processed by Europeans firms while discouraging processed ones  as it will compete with European manufactured coffee. This is therefore aimed to restrict entry by foreign competitors that aspire to enjoy EU market. This in effect make entry difficult especially for developing countries that still does not have enough resources and equipment to make a competitive coffee in the global market.  Further, coffee consumption in Africa is significantly low creating small local markets to promote African coffee.  Therefore third world farmers remain with one option which is to export green coffee beans that has not underdone through value addition process.

Fluctuation of coffee prices in the global market

Prevailing circumstance in the globe usually lead to price instabilities in the global market. Whenever the globe is challenged with conflicts in certain regions or pandemics such as the covid-19 disasters prices of oil and agricultural products leap  up since the supply chains are consequently greatly affected. Further, since African currencies are often  known to be unstable against major consumer currencies in the global market, particularly the US dollar and the Euro, fluctuation of coffee prices in the markets greatly affect the earnings as it makes local currencies depreciate against the major currencies.

In sum, it is no doubt that big European and American manufacturing and retail firms are reaping off from the coffee industry whereas African countries are making scanty profits from it. This is because African countries does not have the advantage of adequate resources to manufacture coffee leaving the advantaged countries   dominate international market with high value coffee product.

Kenya Kwanza regime aims through its  Bottom-Up Economic Transformative agenda’s Coffee Development and Marketing  strategic aspiring  to build on; Coffee  production, processing and value addition, coffee marketing, local consumption, investment on research and extension, climate change, environment, and inclusivity,  financing and payment management, governance and institutional development. The strategy majorly aim to boost coffee foreign exchange earnings by Kshs. 35B from Kshs. 86B  in 2022/2023 to   Kshs. 100B by year 2028 maximizing foreign gains from agricultural exports. But the progress in attaining it has been sluggish. Importantly, for Kenya and Africa to be competitive in global coffee industry, there is need for a robust rapid investment in value addition programs. Pro-industry growth policies as such massive subsidization and tax reliefs to firms that process coffee locally should be prioritized with an aim of enabling them to efficiently and  optimally roast and process coffee before exporting.  This will consequently create a pool of positive impacts to farmers, beneficiaries in the value chain and the country at large. Impacts such as increased earning for farmers and direct employment by processing companies. But most importantly, Kenya’s coffee industry will compete aggressively in the international market increasing demand.