Fall in global coffee prices dims forex inflows outlook

Coffee prices at the Nairobi Coffee Exchange have dropped by 30 per cent in the past three months in tandem with declining global costs.

Average prices of all coffee grades have dropped from about Sh27,500 ($328.5) per the 50 kilogramme bag to $214 a bag. The prices of the top grade coffee beans, grade AA and AB have also fallen by more than $100 dollars to retail at $300 and $250 a bag respectively.

The prices of Arabica coffee declined eight per cent on the world market to hit the lowest price since October 2010 to $3.6 a kilogramme to $3.3 a kilogramme.

“The prices (on the global market) have been falling in the past three weeks,” said the Nairobi Coffee Exchange in a report last week.
Coffee is one of Kenya’s top foreign exchange earner.

The cash crop earned the country Sh23 billion in the year 2010/2011, up from Sh16 billion the previous year.

On the New York futures market, which reflects the situation of Arabicas, the average coffee prices fell by 11 per cent from $4.24 a kilogramme to $3.7 a kilogramme.

Total global production by all coffee exporting countries in 2011/12 is expected to drop to 131 million bags compared with 134.2 million bags in 2010/11.

The International Coffee Organisation (ICO) linked the decline to a market correction, arguing coffee prices had climbed too high.

Arabica coffee, which is largely grown in Kenya, saw its prices shed eight per cent in the last quarter while Robusta prices rose 1.8 per cent.

Brokers say the quality of coffee has dropped compared to last year’s crop.

“Farmers have increased production but the quality has dropped,” said Dirk Simuller, the managing director of Taylor Winch Coffee Brokers.

Mr Sickmuller said the average prices could hold high enough to earn good returns.

The government has in the past five years stepped up product promotion and training of coffee farmers to boost production, banking on high global prices witnessed especially last year.

In the past five years, Deloitte, through the Matching Grant Management Team, has facilitated the small and medium-sized coffee farmers to increase their production by over 40 per cent through use of good agricultural practices.

So far, a total of 20 pilot projects concentrated in the coffee growing zones have been supported through the Matching Grant Programme.

The farmers have also been supported to acquire international coffee certification such as Fairtrade to boost sales in foreign markets.