Dealers in horticulture, tea, and coffee expect earnings boom despite lower crop yield
Prospects for agricultural commodity exporters looked shattered by a prolonged drought that substantially cut output at the beginning of the year, but a weak shilling has now dramatically turned around their fortunes.
Exporters of tea, coffee and horticulture are looking at an earnings boom this year after a battered shilling turned into a blessing in disguise, boosting incomes despite lower crop production.
“This year, export earnings will be higher on favourable foreign currency rates,” Mr Peter Kimanga, a manager of tea business at Global Tea and Commodities Ltd said.
“We shall keep an eye on fuel costs even though the margin of the dollar is expected to offset the damage of more costly fuel.” Tea is the second largest source of foreign exchange earnings for the country. Exporters of the commodity have made a killing off the shilling’s free-fall against the dollar to an all- time low of 107 units to the dollar in October before bouncing back to trade at about 89.40/70 during yesterday’s trade. A weaker shilling means exporters earn more from their dollar-denominated sales abroad.
The Tea Board of Kenya (TBK) expects this year’s export earnings to increase by nine per cent to a record Sh106 billion despite a dip in output to 365 million kilos compared to 2010’s production of 399 million kilos.
“The increase in earnings is attributed to improved demand as well as a favourable exchange rate,” managing director Sicily Kariuki said in a forecast in September. Strong global demand has favoured tea traders, earning them premium rates. Between January and August Kenyan tea fetched an average price of $3.02 per kg compared with the previous $2.75 at the regional auction in Mombasa.
Coffee exporters too have tasted blessings of a weaker shilling that leveraged a record earning of Sh22 billion for the marketing season ended September.
The country expects its coffee export earnings to rise by seven per cent in the 2011/12 (October-September) season buoyed by high international prices, higher output, and favourable foreign currency rates. During the 2010/11 season, Kenyan coffee prices hit an all-time high of $1,022 per bag for grade AA despite interruptions in the marketing season.
Surge
The shortfall was partly blamed on an unusually early crop this season. Traditionally, coffee volumes at the Nairobi Coffee Exchange surge around March but they peaked earlier this year after the country witnessed unusually heavy rains in the first months of last year.
Coffee bushes flowered when they should not have and produced coffee berries at different stages. “We expected the current high prices to persist for some time and pull up overall earnings this season,” Agriculture ministry PS Romano Kiome said.
“We are looking at earnings of Sh28 billion for this year because we have conducted major reforms to boost production and this has been complemented by very good prices.”
Players in the horticulture sector are also optimistic of higher export earnings this year buoyed by stronger foreign currencies. However, they remain cautious of rising production costs owing to expensive fuel and freight services. “A weak shilling has two sides in that overall earnings may climb but the net returns may be eroded by expensive imports such as fuel. This also affects the cost of freight,” Kenya Flower Council CEO Jane Ngige said.
The sector earned the country Sh78 billion in foreign exchange in 2010 though export volumes were hurt by effects of the global financial downturn and flight disruptions over European airspace.
