High coffee and tea prices to boost Kenya’s forex earnings

Commodity traders in coffee and tea had a good run this week with prices rising on the strengths of demand and quality, raising hopes for increased payouts to farmers and better foreign exchange earnings for Kenya.

Data from the Nairobi Coffee Exchange (NCE) showed that coffee prices for the various grades rose by an average 14 per cent for the 50-kilograme(kg) bag on increased demand following the opening of a new marketing season on Tuesday.

For instance, the benchmark AA coffee grade rose to Sh38,924 ($489) per 50-kg bag this week compared to Sh34,163 ($446) at the last sale on June 22, as the early crop from the new harvest came into the market.

Tea prices at the weekly auction also followed suit with the average price of increasing to Kenya’s to Sh282 ($3.55) per kg compared to Sh274 ($3.45) per kg last week’s auction.

The upturn in prices looks set to boost Kenya’s foreign exchange receipts and stability of the shilling against the major currencies such as the dollar and the euro.

Tea exports are Kenya’s second biggest foreign exchange earner after horticulture, raking in Sh63.8 billion last year, down from Sh68.7 billion the previous year.

Coffee earned the country Sh10.1 billion last year, down from Sh15.3 billion in 2008—a pointer that a rise in prices coupled with increased supply will reverse the lower foreign exchange earnings from the twin commodities last year.

The rally in tea and coffee prices will help offset the Sh7 billion drop in horticultural earnings in the first half on reduced demand from Europe.

Ahead of the resumption of the new coffee marketing on Tuesday, marketers and dealers had predicted a good run citing the cold spell currently being experienced in most key growing areas in Kenya that is expected to constrain supply volumes NCE in the short-term, raising the demand for the new crop entering the market for trading.

“Things are looking good because new and better quality crop will enter the market for trading tomorrow (Tuesday). The cold is expected to keep pressure on demand by limiting supplies,” a dealer told Business Daily on Monday ahead of the re-opening of the market on Tuesday, but declined to be named.

The early crop is harvested between May and July and makes up about 45 per cent of the coffee produced in a given season.

Agriculture permanent secretary Romano Kiome, last month, said the cold spell between June and August could cause major knocks on tea and coffee production.

During Tuesday’s session at the NCE some 29,748 bags were offered for sale, with 25,159 sold being taken up for Sh868.43 million ($10.91 million).

At the last sale on June 22, 9,449 bags were offered for sale, with 6,611 being sold for Sh144.87 million ($1.82 million).

Local prices of coffee are expected to stay firm in the short term partly supported by proceedings in international markets where indices have pointed towards favourable prices over July.