Why diversification is key in the coffee value chain sustainability
Opinion
By
Irungu Maina
| Dec 11, 2023
The global coffee production in 2022 was about 168 million 60 kg bags. Kenya's production was 52,000 tonnes which is hardly 0.5 per cent of the total global production.
This means that the market can easily do without the Kenyan coffee as it is just a small fraction. The beauty with our coffee is the unique organoleptic characteristics that make it appealing to most market segments that make the coffee to earn premiums. The low production compared to other regions like Asia and Latin America makes the country a price taker.
The price of coffee at the auction doesn't relate to the cost of producing the coffee. We have seen the prices take high levels and in other times nosedive to some very mean low levels.
The fact that the Kenyan is a poor consumer of her own coffee further makes him a beggar on the pricing platform. Coffee price largely depends on the quality.
In turn, quality depends on a combination of topographical conditions, botanical variety, conditions of weather and the care taken at the time of growing, harvesting, storage and preparation for export.
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Farmers have no control on these factors apart from the care that they take for their coffee. This makes them not fully in charge of the prices of their coffee.
The unpredictability of the coffee prices brings the necessity of cushioning the farmer when the prices are low.
There are several ways of doing this including forward contacts where the producer and the buyer agree on a price in advance. The farmer may also opt to have other revenue streams besides coffee. This should happen at the household level where the farmer engages in other non-coffee businesses whether agricultural or non-agricultural.
At the factory or cooperative society level, the farmers can also engage in other businesses. Who said that a coffee cooperative society should only act as an aggregation centre of coffee? Why not aggregate macadamia, avocado, pumpkins, kales where traders can be invited on allocated trading days and participate in a commodities auction?
This would give the farmers alternative revenue which would make the cooperative and households continue running even when the prices of coffee are low. Remember, if we had cooperatives for macadamia exclusively, they would have had to close and send everyone home due to prices taking a dive from Sh200 to below Sh20 shillings this year.
Opting for alternative non-coffee revenue streams is known as diversification. This is where a coffee cooperative develops from its core business to other businesses. As explained, this could be within agriculture or other sectors of the economy.
Coffee cooperatives that have diversified into milk collection and cooling, retail businesses and other non-coffee businesses give their members/suppliers better rates even when the global coffee prices are not favourable.
For a cooperative to measure its level of diversification, it may have to determine the speciality rate. This is determined by dividing the revenue from coffee by the total revenue of the cooperative society.
If the cooperative has high revenue from the non-coffee businesses the rate will definitely be lower. A rate above 0.95 implies that the cooperative relies mainly on coffee and is essentially a single-product cooperative society that is not diversified. A rate between 0.7 and 0.95 implies a cooperative that is of medium diversification while a rate of below 0.7 signifies a cooperative with high diversification.
The best form of diversification in agricultural cooperatives is towards non-agricultural business that would not be affected by weather like the current El Nino and also by the unpredictable input prices. Where this may not be possible, diversification to other non-coffee agriculture businesses would still be better than none.