The cup is half full for Kenyans, says trader

By: John Kamau

Dirk Sickmueller from the international coffee trading company, Taylor Winch (Coffee) Limited spoke about the state of the local industry.

You have been in this industry for several years, why is Kenya coffee important to the world market and to you?

Sickmueller: Kenya occupies an important place in the specialty coffee market, and some 30 percent of our production is considered of very high quality with unique flavour and acidity profiles. It is my privilege and joy, as a third generation coffee trader active in Kenya for two decades, to be part of an industry which produces a livelihood for hundreds of thousands of coffee farmers in Kenya, and which provides moments of pleasure to millions of consumers worldwide.

Has the quality been compromised by low production this year?

Low production has unfortunately resulted in less top quality coffee available. Drought earlier this year and disease have also negatively affected the quality of the crop. However, this is a temporary issue and the current healthy rains will see both production and quality bounce back.

Has low production pushed up prices for other growers?

Prices for Kenyan coffee have always been at a premium and well above what Arabica coffee from Colombia, Central America and our East African neighbours go for. Lower Kenya production tends to result in even higher prices as demand for good coffee remains strong.

Some years back there were complaints that the Kenya farmer does not get justice from the auction system and that the farmer would be better with direct sales. What is your take on this?

The auction has served the Kenyan coffee farmer well for the last 70 years, and continues to offer a world reknowned and enviable price discovery and settlement mechanism assuring highest levels of traceability, competition, transparency and security. The benefits include fast payment to growers and guaranteed delivery to buyers since a large number of buyers actually receive samples and compete by bidding on the small lots of coffee. The auction still markets 85 percent of the national harvest.

Direct Sales can also be beneficial as they can create relationships and provide for remunerative price levels and risk management and financing strategies – but not necessarily better prices.

Kenyan coffee farmers are privileged for the opportunity to enjoy both systems.

Some of the companies, through subsidiaries, still hold multiple licences – as dealers, marketing agents, and as millers. Don’t you think that this can lead to price fixing at the Nairobi Coffee Exchange (NCE)?

Relationships and partnerships are present in every business environment. Licensing is undertaken by the regulator (Coffee Directorate). The conditions for price fixing simply don’t exist at the NCE which, as explained already, presents samples to a huge number of buyers who have very low barriers to entry. The highest bidder wins the day – great for the farmers.

Ever encountered cases of price-fixing at NCE?

Never.

Is there a situation, in the current framework, where would-be buyers can manipulate prices at the auction by organising themselves into a cartel to reduce competition and depress prices?

No, competition among buyers is fierce on both the buying and the selling sides. The NCE operates the most transparent and competitive internal marketing mechanism possible in the world – and the Kenya auction is the envy of most other producing countries worldwide thanks to the high prices it obtains for the country’s coffee.

Is there a chance Kenyan coffee will be sold on the futures market?

Kenyan coffee enjoys much higher prices than the futures market – why would the farmer want to sell to the futures market? Most people do not understand what a futures market is – hence this question. A futures market supports a standard quality contract of a specific quantity and minimum quality. Kenyan coffee is unique and special and hence it fetches much higher prices than the futures market.

Ethiopia has been able to brand its own coffee, would you advise Kenyans to follow the same path?

Kenyan coffee has been branded for decades – marketing and promotion efforts by the private sector and the board (now directorate) have existed since exports began a century ago. Not only does the export packaging contain the origin label, most exporters also have their individual brands and many individual wet mills are similarly branded all the way to the cup! The current practice should be celebrated.

What is the future of the coffee industry in Kenya and what should be done to revive it?

The coffee industry in Kenya is for the most part vibrant and energetic.

Kenya does not have a marketing or processing challenge, rather a production constraint. The country could easily process and sell double its current production.

A ‘green revolution’ is needed in which farmers actively adopt best practices and plant new resistant varieties which produce more and cost less to maintain and protect against diseases. A stable business and regulatory framework is a pre-requisite for private (and public) sector investment into the industry. Growing local consumption will also provide opportunity for Kenyans to appreciate the delicious fruits of their labours!

SOURCE: DAILY NATION