Why is Kenya's coffee production under pressure?

Kenya's coffee production is expected to fall to 750,000 bags of 60 kilograms in the 2024/25 marketing year, down 6.3 percent year on year, according to a U.S. Department of Agriculture report. Exports are projected to drop 4 percent to 720,000 bags, with harvested area holding at 105,000 hectares.

Shrinking planted area is driven by coffee farms being converted into real estate, and heavy rain added damage. The Coffee Research Institute, the only supplier of certified planting material, faces funding limits, so new farms stall. Rules from 2019 and 2020 also bar firms from holding multiple licenses along the value chain, and Nairobi Coffee Exchange payments must now move through a set channel.

The Kenyan coffee industry is facing unprecedented challenges. The latest report from the U.S. Department of Agriculture shows that, affected by reduced planted area and heavy rain, Kenya's coffee production is expected to fall to 750,000 bags in the 2024/25 marketing year, down 6.3% year-on-year. At the same time, the new policies and regulations implemented by the government are also profoundly affecting the entire industry chain, from production and processing to export trade. This series of changes has not only affected Kenya's coffee export volume and prices, but also brought far-reaching effects on farmers' livelihoods and industry development. Front Street will provide you with an in-depth analysis of the current situation and future of Kenya's coffee industry.

Recently, the U.S. Department of Agriculture released its latest report on Kenya's coffee industry. The report points out that due to the dual impact of the continued shrinkage of coffee planted area and early heavy rain disasters, Kenya's coffee production in the 2024/25 marketing year is expected to fall to 750,000 bags (60 kg per bag), a decrease of 6.3% from the previous marketing year. At the same time, coffee exports for the year are also expected to decline by 4%, to 720,000 bags.

At present, Kenya's coffee harvested area remains at 105,000 hectares, but the main reason for the decline in coffee planted area is the continuous conversion of coffee farms into real estate. To make matters worse, the Coffee Research Institute, as the only supplier of certified planting materials, faces funding constraints, leading to a long-term shortage of certified planting materials and seriously hindering the establishment of new coffee farms. Farmers have limited access to investment and extension opportunities, ultimately leading to a continued decline in production.

Last July, the Kenyan government formally implemented the Coffee Regulations 2019 and the Capital Markets (Coffee Exchange) Regulations 2020. These new rules prohibit enterprises from holding multiple licenses across the entire value chain. The marketing reforms effectively ended the input, extension and certification support programs previously provided by marketing agents whose licenses were revoked.

As part of the government's reforms, all payments for coffee sold through the Nairobi Coffee Exchange (NCE) must now be processed through the newly established Direct Settlement System (DSS) platform, which is managed by the Co-operative Bank of Kenya.

With the full operation of the DSS system, serious payment delays have occurred. At the same time, due to the new licensing requirements, several Kenyan coffee processing factories, including the globally renowned NKG, have ceased operations.

Farmers must now process their coffee at the New Kenya Planters Co-operative Union (NKPCU) or various processing factories owned and operated by cooperatives, which has led to cargo pile-ups and logistical challenges at some small factories, with some coffee cherries rotting due to delayed processing.

The new policies are also affecting Kenya's coffee exports and prices. Since the reforms began in July 2023, coffee sales and prices at the Nairobi Coffee Exchange (NCE) have fallen sharply, hitting a record low in August 2023, with only 3,038 bags of coffee sold (50 kg/bag), and only recovering by March 2023. Only the recent rise in international coffee prices has led to a recovery in export volumes and export prices, so Kenya's coffee exports in the 2024/25 marketing year are expected to reach 720,000 bags.

At present, the United States is the main export destination for Kenyan coffee, followed by Belgium, Germany, South Korea, Sweden and others. Since, apart from the United States, Kenya's export destinations are mostly European countries, coffee exports to the EU must comply with the new EU Deforestation Regulation (EUDR), which will prompt the Kenyan government to provide funding for the necessary land mapping.

The above content is compiled by CoffeeHunters, a coffee news website.