Kenya Coffee Production Quality Decline? Government Plans to Revitalize Coffee Growers Through Coffee Futures

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Climate Change and Governance Issues Impact Kenya's Coffee Industry

The effects of climate change and serious governance strategy issues in Kenya's coffee cooperatives are affecting the performance of Kenya's coffee industry, with COVID-19 further weakening the country's coffee export market performance.

According to data from the United States Department of Agriculture (USDA), due to intermittent rainfall during the main 2020 coffee harvesting season (September-December), flowering of approximately 178 million coffee trees across Kenya's 29 coffee-growing regions was less than ideal. The estimated yield of 650,000 bags (60kg per bag) per 60kg per tree is likely to lead to stagnant coffee production. Kenya's coffee production accounts for nearly 1% of global total production, and the USDA expects Kenya's total coffee exports for the 2020/21 sales year to drop to 620,000 bags (60kg each), below the 815,000 bags exported in the previous quarter.

Government Initiatives to Revitalize Kenya's Coffee Industry

Currently, to revitalize Kenya's domestic coffee cultivation and ensure high-quality production achieves high-quality commodities, the Kenyan government will take several initiatives, including securing funding for coffee growers and renovating coffee fruit processing facilities in some of the 29 coffee-growing regions. For example, Kenya is providing nearly $11.6 million in funding for a two-year coffee industry reform plan, part of a World Bank-initiated coffee revitalization program. Financing is expected to be secured by the end of 2020 to purchase modern equipment for these processing plants, provide funding, and install new coffee processing production lines to ensure high-quality coffee for export markets.

Kenyan Agriculture Minister Peter Munya said: "Once the World Bank provides funding, we will install fermentation tanks, drying beds, automated coffee fruit weight sorters, and modern coffee processing production lines, thereby improving the efficiency of Kenya's coffee processing plants." The program will be implemented by the Kenya National Agricultural and Rural Inclusive Growth Project and the Kenya Climate Smart Agriculture Project. According to a briefing from Kenya's Ministry of Agriculture, Livestock and Fisheries, the project will involve "increasing coffee production, improving cooperative efficiency, and supporting research, development, and technology dissemination."

Phased Implementation and Coffee Futures Program

In the first phase of the coffee revitalization plan, regions including Kiambu, Machakos, Murang'a, Nyeri, Kirinyaga, Embu, Tharaka Nithi, and Meru, which account for 70% of national production, will be first to implement the program. Growers here will improve productivity to obtain more returns, encouraging growers to do good cultivation work. Peter Munya also stated: "In the second phase, more coffee-growing regions will benefit from the project, which will focus on tangible outcomes for coffee farmers, thereby increasing grower income."

Currently, other coffee-producing regions in Kenya are implementing a coffee futures program through which a $26 million "Coffee Advance Revolving Fund" has been established to provide working capital to coffee farmers affiliated with the Kenya Growers Cooperative Union. After receiving working capital, coffee farmers need to provide high-quality coffee to cooperatives as collateral.

The fund will be financed through parliamentary appropriations, management fees from recovered funds, grants, and donations, enabling small-scale coffee farmers to access capital equivalent to 40% of the current average sales price at the Nairobi Coffee Exchange. The coffee futures program plan is an improvement over Kenya's 2017/2018 cash delivery pilot program, but that program failed due to low farm yields, large coffee price fluctuations, and lack of strict mechanisms to ensure full recovery of funds.

Quality Issues and Market Challenges

According to media reports, local coffee processing plants have been falsely claiming "the coffee quality delivered by local farmers is poor," leading to stagnant or declining coffee production, which has also reduced growers' income. Quality inspections of coffee fruits at processing plants by agricultural departments confirmed that most coffee fruits in the plants are mainly AA and AB grade (Note: Kenyan AA grade coffee beans are 7.2mm in size, about 18/64 inches per inch, and are often priced higher than other grades. Followed by AB grade at 6.8mm or 17/64 inches), and stated that education and penalties have been applied to processing plant owners.

Kenya National Bureau of Statistics released: "Kenya's average coffee revenue in 2019 decreased by 31.5%, from 14.8 billion kronor to 10.2 billion kronor, mainly due to global coffee production surplus, especially in Brazil, leading to lower average prices." Kenyan coffee is now sold by approximately 46 distributors through the Nairobi Coffee Exchange or direct sales channels, although reports on the coffee sector indicate that there is no competition between these two sales channels, mainly because prices are basically the same whether purchased through private parties or distributors.

Production Trends and Growth

Besides pricing, Kenya's small-scale coffee cultivation area slightly increased by 0.5%, from 115.6 million hectares in 2017/18 to 116.2 million hectares in 2019, due to the Agriculture and Food Authority (AFA) Coffee Directorate and county governments planting new coffee seedlings in various regions by purchasing and distributing free coffee seedlings.

Meanwhile, large-scale producers or estates decreased their production area from 26.1 million hectares in 2018/2019 to 25.4 million hectares in 2019, but coffee production surged more than 28% to reach 14.1 million tons. In 2019, coffee production in growing regions and cooperatives increased by 27.5% and 0.9% respectively, equivalent to 543.2kg and 347.4kg per hectare respectively.

In the first half of 2020, the Kenyan government released a report showing that Kenya's total coffee production increased from 41.4 million tons in 2017/18 to 45 million tons in 2018/19, a growth rate of 8.7%.

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