Why Is the Kenya Coffee Industry Under Pressure in 2024/25?

Kenya's coffee industry is contending with both lower production and policy turmoil. A USDA report projects 2024/25 output at 750,000 bags of 60 kg, down 6.3 percent year on year, after heavy rains and a shrinking planted area. Tax-increase protests, a 16 percent VAT, and suspended processing plants have added further strain on farmers and exporters.

The government aims to raise production to 102,000 metric tons by 2027, a 55 percent increase, and has approved cancellation of 6.7 billion shillings in cooperative debt plus 4 billion shillings for the Coffee Cherry Fund. Since beans trade in US dollars, the VAT lifts operating costs. The president withdrew the tax plan, but policy uncertainty still worries the Kenya coffee sector.

The Kenyan coffee industry is facing a dual test of declining production and policy changes. A USDA report shows that due to heavy rains and reduced planting area, Kenya's coffee production in 2024/25 is expected to drop to 750,000 bags, a year-on-year decrease of 6.3%. Although the government plans to increase production by 55% to 102,000 metric tons by 2027 and has introduced support measures such as debt cancellation and a cherry fund, recent tax-increase protests triggered by a finance bill have cast a shadow over the industry's prospects. Coffee beans are traded in US dollars, and the 16% VAT will push up farmers' operating costs; the new coffee regulations have led to the suspension of processing plants, causing cherries to rot and exports to be blocked. Front Street Coffee has noted that although the president has withdrawn the tax increase plan, the industry still expresses concern about policy uncertainty.

A recent Kenya coffee industry report released by the USDA shows that due to previous heavy rains and the continued shrinkage of coffee planting area, Kenya's coffee production in the 2024/25 marketing year is expected to drop to 750,000 bags (60 kg each), a decrease of 6.3% from the previous marketing year.

However, the Kenyan government is actively taking measures to revitalize the coffee industry, with the goal of increasing coffee production to 102,000 metric tons by 2027, an increase of 55% from the current level.

President William Ruto has announced approval to cancel 6.7 billion shillings in cooperative debt, while the government has allocated 4 billion shillings to the Coffee Cherry Fund. These measures will bring tangible benefits to farmers.

However, according to recent reports by local Kenyan media, protests against tax increases broke out in the capital Nairobi, where police clashed with demonstrators, causing multiple casualties. After that, the wave of demonstrations spread to other parts of Kenya, with clashes occurring in many places one after another, as people demanded the resignation of President William Ruto and opposed the tax increase policy.

According to Kenya's Ministry of Finance data, the country's current external debt is about 36.66 billion US dollars (about 4.7 trillion shillings). To this end, in early June Kenya reached a preliminary agreement with the International Monetary Fund and obtained 1.1 billion US dollars in funding. However, due to limited debt repayment capacity, the government decided to increase tariffs in order to obtain more funds.

The trigger for this conflict was the government's newly introduced finance bill, which explicitly stated that 346.7 billion Kenyan shillings (about 2.67 billion US dollars) would be raised through additional taxes to continue paying interest on high sovereign debt.

The new tax plan will impose a 16% value-added tax on bread, sugar transportation, mobile communications and financial services, and foreign currency transactions. However, the public has long endured living pressure, and coupled with the continued impact of the COVID-19 pandemic, geopolitical factors driving up prices, currency depreciation, and other economic shocks, resentment toward the government has continued to deepen, eventually turning into violent conflict.

For the local coffee industry, bread is one of the staple foods in Kenyan farmers' daily diet, while coffee beans are mainly settled in US dollars on the international market. If a 16% value-added tax is imposed, farmers' operating costs will rise significantly.

However, according to the latest Reuters news, Kenya's president has withdrawn the tax increase plan. Although the president has made concessions, he still plans to hold a rally later.

Coffee industry insiders pointed out that due to the government's earlier implementation of new coffee regulations, several coffee processing plants in Kenya have stopped operating (including the globally renowned NKG company). Farmers must now process coffee at designated and licensed factories, but some small factories have experienced cargo backlogs and logistics difficulties. In addition, some workers have participated in demonstrations, causing some coffee cherries to rot due to processing delays and insufficient manpower. As a result, export volumes have decreased and income has shrunk accordingly.

Industry insiders believe that at present, efforts should be focused on improving productivity and production efficiency, while actively expanding domestic and international markets and international influence to sell products, rather than raising taxes on the public. Although the tax increase plan has now been withdrawn, the government's future policy direction remains unclear, and the prospects for industries such as coffee are still full of uncertainty.

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