Required Report - public distribution

**Date:** 5/10/2004

**GAIN Report Number:** KE4006

KE4006

**Kenya**

**Coffee**

**Kenya Coffee Update Report**

**2004**

**Approved by:**

![](media/image1.wmf)Fred Kessel

U.S Embassy

**Prepared by:**

Mary Onsongo

**Report Highlights:**

During the year 2002/03 production year coffee production and exports
were estimated at 55,000 mt and 51,000 mt respectively. A modest
production increase is forecast to 60,000 mt for 2003/04. The increase
will be attributed to weather and production from non-traditional coffee
growing areas.

The on going low coffee prices coupled with uncertainty of the on going
reforms are still demoralizing the coffee farmers.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Nairobi \[KE1\]

\[KE\]

**PRODUCTION**

The Coffee Research Foundation (CRF) recorded coffee production at
55,000 tons for MY 2002/03 and a modest increase (8 %) is forecast for
2003/04. The increase is attributed to weather and production from
non-traditional coffee farming areas. Overall production decline is as a
result of both internal (demoralized farmers) and external factors
(declining world price).

  ------------------- ----------- ---------- ---------- ---------- ------------- ----------
  **PSD Table**                                                                  

  **Country**         **Kenya**                                                  

  **Commodity**       **Coffee,                                    (1000         
                      Green**                                      HA)(MILLION   
                                                                   TREES)(1000   
                                                                   60 KG BAGS)   

                      2002        Revised    2003       Estimate   2004          Forecast

                      USDA        Post       USDA       Post       USDA Official Post
                      Official    Estimate   Official   Estimate   \[Old\]       Estimate
                      \[Old\]     \[New\]    \[Old\]    \[New\]                  \[New\]

  **Market Year                   10/2001               10/2002                  10/2003
  Begin**                                                                        

  Area Planted        165         165        165        167        170           167

  Area Harvested      155         155        155        155        155           155

  Bearing Trees       205         205        215        215        220           220

  Non-Bearing Trees   12          12         12         12         0             0

  TOTAL Tree          217         217        227        227        220           220
  Population                                                                     

  Beginning Stocks    237         237        254        254        274           307

  Arabica Production  867         867        918        924        1050          1000

  Robusta Production  2           2          2          2          2             2

  Other Production    0           0          0          0          0             0

  TOTAL Production    869         869        920        926        1052          1002

  Bean Imports        0           0          0          0          0             0

  Roast & Ground      0           0          0          0          0             0
  Imports                                                                        

  Soluble Imports     3           3          3          3          3             3

  TOTAL Imports       3           3          3          3          3             3

  TOTAL SUPPLY        1109        1109       1177       1183       1329          1312

  Bean Exports        832         832        880        853        1000          1000

  Roast & Ground      0           0          0          0          0             0
  Exports                                                                        

  Soluble Exports     0           0          0          0          0             0

  TOTAL Exports       832         832        880        853        1000          1000

  Rst,Ground Dom.     20          20         20         20         20            20
  Consum                                                                         

  Soluble Dom.        3           3          3          3          3             3
  Consum.                                                                        

  TOTAL Dom.          23          23         23         23         23            23
  Consumption                                                                    

  Ending Stocks       254         254        274        307        306           289

  TOTAL DISTRIBUTION  1109        1109       1177       1183       1329          1312
  ------------------- ----------- ---------- ---------- ---------- ------------- ----------

## Coffee yield and hectarage

Area under production has not been updated; estimates by CRF give
127,271 and 40,127 hectares for co-operative and estates respectively.
The beginning of the decade saw reduced hectarage through uprooting to
create room for more competitive agricultural enterprises mainly
horticulture and dairy. This was more characterized in the mount Kenya
region.

When the NARC government took over in 2002 there was renewed coffee
interest especially in the Mount region but lasted a short stint. The
challenges of NARC are daunting, it being a coalition of political
parties with very divergent ideological orientations, not to mention
personality differences. Farmers are torn between two ministries namely
the ministry of Agriculture (coffee production) and the ministry of
Co-operative Development (marketing). The latter seems more in control
of coffee issues.

New interest has emerged amongst farmers in western Kenya who are
shifting away from maize farming (coffee has higher gross margins).
There is increased demand of planting material, mainly Ruiru 11 (high
yielding variety that is resistant to Coffee Leaf Rust and Coffee Berry
Disease) in this region. Due to the high costs of establishment the main
coffee growing areas have the traditional varieties that are expensive
to maintain. The western Kenya farmers have formed unique co-operatives
(they hand pulp their on coffee and deliver to the co-operative society
for on ward marketing) that are not entangled in the on going
controversies that have characterized the coffee industry and are blamed
for the existing coffee problems. The smallholder coffee co-operatives
are heavily indebted making coffee farming impractical. The coffee
industry is indebted to tune of more than kshs 10 billion.

## 

  ---------------------------- ------------- ---------- ------------- ---------- ------------- ----------
  **[Kenya Coffee Production,                                                                  
  yield and                                                                                    
  realization]{.underline}**                                                                   

                               **2000/01**              **2001/02**              **2002/03**   

  Sector                       Smallholder   Estates    Smallholder   Estates    Smallholder   Estates

  Production (Tons)            25,033        27,081     28,901        19,152     34,025        21,419

  Yield (tons/ha)              0.195         0.673      0.227         0.477      0.267         0.534

  Cost of production (kshs/ha) 69,300        121,200    69,500        123,100    68,900        120,300

  Gross realization (kshs/ha)  63,888        95,832     72,777        109,165    60,573        90,859

  Net realization (kshs/ha)    (5,412)       (25,368)   3,277         (13,935)   (8,327)       (29,441)

  National Av. Price           67.95                    77.18                    65.90         
  (kshs/60kg)                                                                                  

  *Source: Coffee Research                                                                     
  Foundation*                                                                                  
  ---------------------------- ------------- ---------- ------------- ---------- ------------- ----------

Estate coffee production has been on the decline and is likely to
continue unless existing policies are changed. Large farms have few
economies of scale since the farms use hand harvesting and not
mechanized harvesting. They pay cash wages to workers rather than having
access to non-cash family labor like the small-scale farmers. At current
price levels coffee farming is not profitable as evidenced by the above
table. Not surprisingly some estates farmers have opted to quit coffee
farming and adopt other more profitable enterprises.

Kenya has the best coffee facilities and institutions to stimulate
coffee development. These facilities range from a vibrant co-operative
movement, the Coffee Research Foundation (CRF), the Coffee Marketing
Board, an established auction in the form of the Nairobi Coffee
Exchange, a Coffee College, a vibrant private-sector investment from
farming and milling to marketing. Despite all these facilities the
country is experiencing reduced performance at a time when their
regional counterparts are recording increased production. The reduced
performance stems from a long history of problems related to
co-operative mismanagement, mismanagement of other coffee institutions
(Coffee Board of Kenya, Coffee Research Foundation), non-availability of
affordable credit, late payment to farmers and general wrangles related
to marketing.

# Trade

Figures obtained from the Coffee Board of Kenya give coffee exports at
51, 165 mt a modest increase from the previous year, which had 49,910
mt.

## Trade 

  ------------------- ---------------- ------------------- ----------------
  **Export Trade                                           
  Matrix**                                                 

  **Country**         Kenya                                

  **Commodity**       Coffee, Green                        

  Time Period         2002/03          Units:              Tons

  Exports for:        2002                                 **2003**

  U.S.                5,205            U.S.                4,565

  Others                               Others              

  Germany             14,932                               16,283

  Sweden              5,784                                4,448

  Belgium             4,537                                3,315

  Finland             2,347                                3,132

  U.K                 2,117                                2,988

  Netherlands         1,406                                3,074

  Eritrea             1,620                                3,286

  Canada              1,195                                1,041

  Saudi Arabia        1,486                                953

  Norway              1,321                                1,200

  Total for Others    36,745                               39,720

  Others not Listed   7,960                                6,880

  Grand Total         49,910                               51,165
  ------------------- ---------------- ------------------- ----------------

During the year 2002/03 coffee exports were valued at Kshs 5.93 billion
as compared to kshs 6.71 billion the previous year.

# Policy and Marketing

The interim marketers Kenya Planters Co-operative Union (KPCU), Thika
Coffee Mills and Socfinaf that also double up as millers are attempting
to acquire the long delayed marketing licenses. In the mean time a new
round of infighting could erupt in the coffee industry, as directions
from both the ministry of Agriculture and Ministry of Co-operative are
not clear. There are other requests for licensing from other marketing
agents.

Policies for coffee development and marketing need to be tailor made to
reflect the existing diversity in production and marketing. A return to
a more farm centered approach, supported by improved services to farmers
such as research; marketing and improved access to credit is worthwhile.
For instance coffee farming has increasingly relied on private sector to
support and drive development but has not addressed the many practical
difficulties facing private investors and farmers. New policies and
action are needed to facilitate access to credit, marketing and
information among other factors in order to make coffee farming
profitable.

The marketing policy has retained the central marketing system under the
Nairobi Coffee Exchange. Some analysts believe that it restricts farmers
to one trading system hence it is an unfair system. They call for the
government to liberalize the export market to run parallel with the
auction system. The estate farmers and the large co-operatives support
this school of thought more.

[Coffee quality trends]{.underline}

Kenya coffee has experienced a decline in both production and quality
performance in the past decade. The worrying trend is the premium
classes 1-3 in both the estates and the co-operative sector.

**[Co-operative Coffee quality trends (1993 -- 2003)]{.underline}**

![](media/image2.wmf)

**[Estate coffee quality trend (1993 -- 2003)]{.underline}**

![](media/image3.wmf)