Coffee shrugs off global crisis as auction year ends

Kenya’s coffee sector is set to close the 2008/2009 year on a high note following a price surge in the last four auctions caused by increased demand.

With only four more auctions remaining to the close of the year at the end of June, prices of most grades have shot up, pointing to a good end of a year that has been characterised by depressed prices due to the ongoing global economic crisis that has dampened consumer spending.

The average price of a 50kg bag of grade AA increased from $196.07 in the May 5 auction to $219 in last week, representing a seven per cent increase.

A 50kg bag of grade AB has climbed by 10 per cent to stand at $201.85 in last week’s auction up from $184.02 in the May 5 auction. The price increase has been occasioned improved in the international market.

“The last two auctions have had a price surge mainly because of the problems in Colombia, which is seen as our equivalent,” said Ms Loise Njeru, the Coffee Board of Kenya manager.

Colombian coffee is currently facing depressed production due to bad weather caused by an extremely cold winter and regeneration of the crop which involves uprooting vast acres of coffee in order to replant.

Production in the world’s second largest producer after Brazil fell 33 per cent in the first four months of the year, with exports dropping by 21 per cent.

The high quality Kenyan coffee is seen as the best option for Colombian coffee, said Ms Njeru. The price surge has also been attributed to reduced supply following an end to the main crop whose harvesting started in November last year.

“Demand is high as most dealers are short because the year is closing,” said Mr Daniel Mbithi, the Kenya Coffee Producers and Traders Association chief executive.

Marked improvement
Coffee currently coming in to the auction is part of the early crop which flowered after the short rains last year. The early crop represents 25 per cent of the total output and comes from Machakos and Meru areas.

Most of these coffees are in the category of miscellaneous grades and very few quantities in the main high quality grades such as AA and AB.

According to Mr Mbithi, the prices have defied the drop in overall quality of coffees in the auction.

But despite the price surge, the annual average for this year is expected to be lower than last year’s due to effects of the economic crunch.
Last year’s average price stood $177 for a 50kg bag.

“This year’s average has at times gone down to as low as $154. As the year ends we expect it to come up, but it cannot reach last year’s $177,” said Ms Njeru. This year the Coffee Board of Kenya hopes that the crop will surpass the 50,000 metric tonnes projection that had been set.

“It is very likely that production may reach 55,000 metric tonnes by the time the year closes. We are almost at 40,000 metric tonnes and we still have about four more auctions to go,” she said.

This is a marked improvement from last year’s total production which stood at 41,800 metric tonnes. The depressed production last year was caused by bad weather patterns which affected flowering.  

Experts say that this year’s production was not affected by the extended drought that hit the country earlier in the year.

“The dry conditions came in November and December when coffee was already mature and expanding,” said Mr James Minae, head of research liaison at the Coffee Research Foundation.

The drought also provided good conditions for flowering for the next crop which may lead to increased production in the 2009/2010 year, said Mr Minae.