KENYA — Origin Report 2017

Kenya is thought of by many specialty roasters as the ultimate origin. No producing country can match the intensity of flavour exhibited by the very best Kenyan coffees. Many factors are responsible for their unique character in the cup: from the Scottish Laboratory (SL) varieties, to the deep red volcanic soil, to innovative processing methods; the acidic structure and clarity good Kenyan coffees have is truly sensational.

However, weather conditions in East Africa are becoming increasingly unpredictable as the impact of global warming becomes apparent. In the 2016/17 harvest, Kenya was impacted by a reduced second rainy season in November. The November rains provide water to the plants and allow the cherry to plump up and ripen. In 2016 these rains were 40% less than the average, causing a widespread lack of ripening. As a result, 30–40% of the cherry on the tree didn’t ripen and shrivelled from green to black before dropping to the ground. In 2017, as the coffees have become available, the country’s total production is down by between 30–40%. Unsurprisingly, due to the resulting shortage in coffee, the corresponding prices are up 30% on the 2015/16 crop and average quality also seems to be lower than previous years, making the top specialty lots scarce. That is not to say that there are not exceptional Kenyan coffees coming to the UK; only that there will be less volume this year, and prices will be high. Kenyan coffee has only been this expensive once previously — in 2011 when the New York C market jumped to $3.00/lb, pushing up prices globally.

Sourcing in Kenya is difficult for several reasons:

1. When it’s time to cup, the coffee is still extremely fresh. Fresh coffee is often described as tasting “tight” or “green”. When the coffees are tight it can be difficult to distinguish the flavours that make great coffees stand out. Everything is subdued and there is a general lack of clarity in the cup. It becomes important to cup for “structure” and know that the coffees with the best structure will also have the best flavour once they have had time to rest.

2. Cupping at origin is also a minefield of defects. The reason few of our customers see defects is because we work very hard to weed them out. Identifying and understanding defects is important in origin cupping sessions because missing one could be a very costly mistake.

3. The sheer volume of cupping is extremely tiring and demanding. Palate fatigue and mental fatigue become very real on your 4th table of 60 coffees in a day.

4. You’ll also be cupping tables with several other buyers from roasteries and importers, so avoiding bidding wars over the best coffees is critical. Some strategic selection and looking for undervalued coffees can be a big part of success as a buyer.

One of the most interesting elements of Kenyan coffees is the way in which they are sold. The system is complex but it provides extremely good transparency and traceability for farmers and buyers alike. Below is an overview of how the system works.

In Kenya there are three categories of farmers:

1. Smallholders (0–5 acres)

2. Small estates (5–100 acres)

3. Large Estates (100< acres)

It is not my place to explore the rational or political motivations for these divisions (of which there are many) only to point out that they exist.

After the farmers, there exist four important entities:

1. Cooperatives & Factories

2. Marketing Agents

3. The Auction

4. Exporters

Cooperatives (sometimes called associations or societies) are an assembly of growers that all have small parcels of land. Each cooperative will have one or more factory or ‘washing station’. Some co-ops have upwards of 8 factories in a given geographical area. Generally, a smallholder will be a member of a co-op and deliver to the nearest factory. However, if one factory is outperforming another, the co-op may see more coffee delivered to the factory achieving the highest prices.

Factories bulk coffee together to produce larger lots of 150–200 bags of parchment. If the coffee is coming from a small geographical region and the co-op is providing effective support to its members, the quality of the cherry delivered should be comparable. The marketability of larger lots provides route to international markets for small growers and ultimately higher prices. For example: imagine a small farmer with 100 trees producers just 50kg of parchment per year. If that coffee is not bulked with other producers’ coffee, their quantity is too small to be milled and processed alone, so the only option would be to sell it in the local market for pennies on the dollar. Therefore, the cooperatives play an important role in aggregating the production of smallholders. If the smallholders are lucky enough to be near a well-run cooperative, they can make good money on their coffee crop. The downside is that the co-ops can take up to 20% of the final sale price as a fee for managing infrastructure and support to the producers. This sounds like a lot but the very best co-ops and factories will achieve sales prices more than 20% over a poorly run co-op.

Marketing agents work with each of the three categories of farmers. In the smallholder’s case, they work with the cooperative that each smallholder is a member of. The Marketing agent’s job is to provide expertise, equipment and support to the producers or co-ops. Usually the marketing agent will sign a one year contract with a co-op with a series of stipulations as to how the marketer will support each association, from providing fertilisers to agronomy training. Each grower or association will evaluate the marketing agent on one key metric: Kenya Schillings per kg of cherry paid to the farmer. Ultimately, this is the same metric the smallholders will use to decide which cooperative society and factory they deliver to. The marketing agents manage all the logistics, sampling and milling services on behalf of the growers. In short the Marketing agents represent the farmers in the international market.

The Kenyan Coffee Auction is a transparent auction system that sets benchmark rates for all coffee sold in Kenya. Coffee enters the auction through the marketing agents. Each agent can present a ‘catalogue’ to the auction each week. The coffee in the catalogues comes from the producer groups that each marketing agent has contractual agreements with. Each marketing agent can sell the coffees they represent directly to buyers or through the auction.

As an example of how this system works: the famous Thunguri Factory — where Falcon Specialty have bought coffee in the past — is part of the Ushrika Co-op. It is located on the border of Nyeri, in Kirinyaga. Thunguri is one of 8 factories that Ushrika owns and runs. Ushrika has an agreement with Coffee Management Services (CMS), who are the marketing agent for Dormans Coffee. Dormans are the exporter that Falcon Specialty uses the most in Kenya. Falcon and a number of other importers may want to buy Thunguri coffee. If so, Dormans can sell this coffee directly to the importers, provided the Ushrika board are happy with the price. This is where the auction system is an asset to the producer groups because they can look at what similar quality coffee has sold for in the auction in previous weeks. If they are not happy with the price offered by the buyer, they can demand CMS put their coffee through the auction. It also happens that CMS and Dormans may not have enough buyers for all the coffee Thunguri produces. In this instance, anything CMS and Dormans can’t sell directly will go through the auction. At the auction, any of the Kenyan exporters are able to bid on the coffee, making it possible to buy almost any coffee from any of the exporters, regardless of their marketing arrangements. This is a true market economy which protects producers and improves transparency.

Kenyan Auction prices are public information, allowing farmers to know the true market value of their product at any time in the season. It also allows the buyers to follow the money backwards through the system, meaning an importer has a good estimate of the prices paid to producers. While corruption is common in Kenya, there is a level of transparency from many of the marketing agents and exporters that is necessary for ethically conscious organisations like Falcon to continue to buy from them.

Exporters must be a separate legal entity from the Marketing agents. However, all the large exporters have their own marketing agencies that often operate in the same building as the exporter. It’s a quirk of the Kenyan system that makes little logical sense and ultimately detracts from the producer’s total income, as the marketing agent takes a clip of the ticket on the way through. The increased administrative cost of maintaining a separate entity ensures the agents must charge a fee; the standard is 2%. The exporters are the ones selling the coffee to international buyers like Falcon. Their role is to manage export packaging and logistical support to get the coffee on the boat.

By law, smallholders must be a member of a cooperative. They are not permitted to sell their coffee directly to marketing agents or exporters. The advantage of this system is that a well-managed co-op can employ experts in processing, drying and storing, which allows the farmers to focus on farming. Centralised processing from smallholder farmers is generally agreed to improve the overall quality of their coffee.

Small Estates have only recently been allowed to manage their own processing. Previously they were also required to be members of the cooperative societies. Those small estates that are ambitious are beginning to set up their own processing facilities in the hope that they can reclaim the 20% the co-ops charge for their services. In theory, these small estates should be able to produce the very best quality possible. A well-educated and motivated small estate owner can control every step of the process. Small estates provide exciting opportunities for the specialty industry. The advantages of dealing with a single motivated producer are self-evident and in the coming years we expect to see more small estates becoming well known among the best specialty importers and roasters.

Large estates are in decline in Kenya. Heading North out of Nairobi on the Thika road you can see the odd reminder of the once vast estates that extended 20km to the East and West of the road. Old farm gates or skin towers lay abandoned on what is mostly fallow ground. Land prospectors have slowly been buying up the estates, pulling up the trees only to sit on the land waiting for the prices to rise. What was once prime coffee land is now mostly scrub. If this trend continues, we can expect Kenyan coffee prices to rise significantly in the coming decades, as supply dwindles and competition for the very best coffees increases. Very few large estates still exist in Kenya and fewer still produce the quality specialty roasters expect.

The Kenyan system is not perfect: administrative burdens that do not exist in other countries can put smallholders at a disadvantage. Farmers that are still producing are currently benefiting greatly from the reduced volume produced by larger estates closer to the city. With its reputation as one of the most sought after origins in the world, whilst the product remains unique and highly desirable, Kenyan coffee farmers look set to continue benefitting. However, if Kenyan coffee was to fall out of favour with international markets it would have a very immediate effect on coffee availability in the most prized growing regions around Nairobi.

Falcon Specialty is well known for our ability to source the very best Kenyan Coffees, and in this regard, 2017 will be no different. Buyers should expect the usual high standards, but be prepared that prices will be higher than usual too, especially given the weakness of the British Pound against the US Dollar.

Richard Williams, February 2017