Markets & Finance

Local coffee prices drop 26pc as Brazil floods global market

coffee

An official at the Nairobi Coffee Exchange prepares samples. PHOTO | FILE

Prices at the Nairobi Coffee Exchange (NCE) have dropped by 26 per cent in the last month as a result of high supply at the international market that is hurting the local price.

In this week’s auction, a 50-kilogramme bag of coffee traded at an average of $206 (Sh18,746) against $279 (Sh25,389) early February.

Traders at the NCE peg their prices to the world’s largest auction in New York and low prices there affect the local crop given the fact that over 90 per cent of the beverage is exported.

At the New York Coffee Exchange, the price of a 50-kilogramme bag has dropped from $180 (Sh16,380) in December to $148 (Sh13,468) this week, representing a 17 per cent decline.

The head of coffee directorate Grenville Kiplimo said the low international prices have dealt a blow to local coffee as the price has been dipping gradually in every auction since February.

“The traders peg their buying price to the New York Exchange and the low prices at that auction affects the local crop,” said Mr Kiplimo.

NCE chief executive officer Daniel Mbithi said a good harvests from Brazil and Colombia had flooded the international market, driving down auction prices.

“We have witnessed an increase in volume of coffee in the world market and this has had a direct impact on our prices,” said Mr Mbithi.

Last year, Brazil had a bad crop because of bad weather, hence creating a shortage in the world market, and thereby pushing up the price. The International Coffee Organisation anticipates a good crop this year from Brazil.

READ: Kenyan coffee prices drop at auction

The country’s coffee is in high demand, mainly in the UK and America, with traders buying it for blending with other coffee from different parts of the world.

Despite coffee being a key foreign exchange earner in Kenya, output remains low. The government however plans to raise production in the coming years through introduction of high-yielding varieties.

The Ministry of Agriculture projects that coffee output will rise 22 per cent to about 60,000 tonnes in the next two crop years from about 49,000 tonnes in 2013/14, as a result of increase of area under cultivation, as well as the use of high-yielding varieties.

Coffee production has dropped from 130,000 tonnes in the 1980s to an average of 50,000 tonnes currently, in what has been attributed to change in land use.

The slump in prices comes at a time when the Agriculture ministry is betting on a Sh5 billion Commodity Fund to issue cheap credit to coffee farmers in the latest bid to revive the once-vibrant sector.