06 Aug

While data shows that earnings from coffee, horticulture and tea may have withstood some of the initial shocks occasioned by the coronavirus pandemic, different forecasts now indicate that the worst is yet to come, with demand and prices of the commodities set to substantially decline.

This is as markets for Kenya products stare at recessions, in turn, reducing spending on luxuries such as flowers, tea and coffee.

Local producers are also set to spend more to get the commodities to markets as they adhere to new protocols aimed at stemming the spread of the deadly virus.

The World Bank in a recent report noted that global coffee prices have been going up, driven by a decline in production among major producers, who have to contend with fewer workers on the fields.

“Pandemic-related labour restrictions in Brazil—the world’s largest coffee supplier and dominant Arabica producer—have put upward pressure on prices. Although Arabica prices declined in May, they remain higher compared to last year’s average. They are expected to rise further in 2020 before stabilising in 2021,” said the World Bank.

At the Nairobi Coffee Exchange, while prices of coffee have tanked from Sh438 per kilo in January to Sh276 per kilo in May, they are still higher when compared to last year's data. In May 2019, a kilo went for Sh200.

The International Coffee Organisation expects a much worse outcome this year, noting that the spike in prices has now cooled off as major coffee-buying markets stare at recessions.

“These (containment) measures are likely to have a severe impact on countries’ economies and their coffee sectors… Covid-19 pandemic has affected labour supply as well as disruption of internal logistics networks and the functioning of the export infrastructure… resulting in delays of shipment as well as increased trade and transaction costs,” said ICO in a recent report.

“There was an initial spike followed by a persistent decrease in price that may foreshadow the likely cooling of coffee demand as a result of the recession that is now affecting many coffee-importing countries. Covid-19 pandemic constitutes an enormous additional challenge to the global coffee sector that has experienced a prolonged period of low prices.”

All analysis pointing to a gloomy year for coffee farmers, who have to spend more to get the product to market even in the face of uncertainty whether they will get a decent if any return.

Chairman Kenya Coffee Producers Association (KCPA) Peter Gikonyo said farmers have been hit hard this year as they have to incur additional costs in picking and processing coffee owing to the coronavirus the pandemic.

Between March and June, farmers had to contend with workers giving few hours owing to the curfew restrictions. They also have to incur a cost due to social distancing measures while picking and transporting coffee.

“Farmers have also incurred higher costs of picking and processing the coffee. The measures by the government to curb the spread of the virus such as dawn to dusk curfews led to increased costs of labour because payment is done per day and not for the hours worked,” said Gikonyo.

“From the marketing side, there is withdrawal of participants from the market. We are not yet fully digitised. The market is mostly manual and if a buyer was supposed to present themselves to the market, this might not happen. Even where they have the technology and it is not available on the other side, it means that fewer transactions are happening.”

A similar script is unfolding in the tea sector, where the World Bank noted that Kenyan tea is experiencing its worst prices in six years, a trend that might persist for the rest of the year.

Kenya was in April and May unable to sell all the tea that was coming to the market, resulting in a backlog, which is now among the causes of the major drop in prices.

“Prices at the Mombasa Auction remain subdued. Kolkata and Mombasa auctions reached 13 and six-year lows, respectively, in response to ample supplies in Kenya, disruptions of tea shipments to various importing countries, and disappointing demand (in part due to the lockdown in India). Tea prices (auction average) are expected to drop 10 per cent in 2020, mostly due to weak demand, before experiencing a relatively softer recovery in 2021,” said the World Bank.

Data by the East African Tea Trade Association (EATTA) shows that tea prices at the Mombasa Auction hoovered at around $1.78 (Sh189.27) a kilo.

Prices have been on a decline since the start of the year when a kilo sold at a $2.23 (Sh237.83).

This is lower compared to the average $2.05 (Sh218.63) a kilo went for in a similar sale last year in June.

In a recent Reuters report, Kenyan farmer Inder Nain, whose company Xflora group used to export 350,000 roses a day, said exports plunged to 50,000 a day in March. This has now rebounded to about 250,000, and the company’s 2,000 employees are back at work.

“We are seeing good and steady recovery,” Nain told Reuters.

“We are still throwing some flowers away, but it’s quite different from when we were throwing every stem. We hope by February the disease will be controlled and things will return to normal.”

Limited capacity

But exporters also say they cannot fully meet demand, which will be seasonally high in September in Europe, because of limited cargo capacity and high freight costs.

“We are not sure freight capacity and costs will be moving in tandem with demand,” said Clement Tulezi, chief executive Kenya Flower Council, also speaking to Reuters. He also noted that the demand had surged in recent weeks to about 85 per cent of pre-Covid-19 levels.

The horticulture industry had hoped2020 would be a year of recovery following a 12 per cent dip in earnings last year. The sector earnings declined to Sh122.9 billion in 2019 from Sh124 billion in 2018.

It has, however, had to endure a tough start to the year as demand for Kenyan flowers went down as key markets encouraged their citizens to stay indoors. It also had to grapple with the cancellation of flights, with many carriers opting out of the routes that Kenyan produce is sold in high volumes.

At some point, the industry estimated that about 80 per cent of workers employed in different flower farms had been sent home, further warning that the sector might sent everyone home.

Source: Standard Media