Business Daily (Nairobi)
Solomon Mburu
3 August 2007
Coffee farmers are set for better pricing of their produce following the signing of a new deal that will see China- the world's fastest growing market -buy roasted coffee from the local market.
The deal between the Kenya Planters Co-operative Union (KPCU) and All China Federation of Supply and Marketing Co-operatives is expected to push demand above supply and ultimately pile pressure on overall coffee prices.
Initially, the Chinese buyers are expected to place an order of not less than Sh700 million worth of coffee and follow it up with subsequent purchases.
If China buys the largest chunk of Kenyan coffee, it will mean other countries will have a deficit and they will be forced to pay higher prices to get their share," said Mr Kokoth Sylvester, the value addition manager at KPCU.
Germany buys 37 per cent of Kenyan coffee, while the US gets 10 per cent, Nordic countries eight per cent, Asia Pacific three per cent and the rest is taken up by other smaller buyers.
Soon it will be possible for China to take up more than 70 per cent of the total production in Kenya, said Mr Kokoth.
European buyers, who may be affected most by the China deal, highly value Kenyan coffee which they use to blend some of the premier coffee brands in the world.
These include Nestle who make internationally popular brands like Tasters Choice and Hills Brothers. These two brands are made using the Kenyan blend. Other major buyers who use Kenyan coffee to blend their brands include Philip Morris, Sara Lee and Tchibo.
Kenyan coffee has for years featured prominently in these major brands yet very little efforts have been done to sell 100 per cent Kenyan branded coffee. Currently, no Kenyan marketing agent sells coffee directly to China.
Only big buyers such as Starbucks, which has 400 coffee stores in China, buy speciality coffee from Kenya for the Chinese market. KPCU will be the first marketing agent in Kenya to sell directly to China, which is seen as the fastest growing coffee market in terms of per capita consumption in the world.
According to Mr Kokoth, 100 per cent roasted Kenyan coffee has been exhibited in China and negotiations on the prices are still going on.
"The prices we sell to China must be higher than the auction prices. We cannot take lower prices than the auction since it would be counter productive to go through all that effort," he said.
Kenyan coffee will be sold in China in two main categories. One is the speciality category, which comprises single origin coffee from Mt Kenya, Central Kenya, Eastern and Western. These are the top Class 1 to 3 grades which will fetch the highest prices.
The deal with Chinese buyers provides for payment through a letter of credit, which will be guaranteed against documents such as quantity records.
There is also a provision for pre-shipment credit so that farmers can be paid even before the coffee leaves the port of departure.
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