Kenya, Quality and the 70/30 Split - Part 1
Similar to some other East African countries, there are two primary ways in which coffee makes its way to a washing station in Kenya. Small holder farmers, who have very few trees, are able to deliver their cherry (coffee still in its fruit form) to washing stations (known as factories in Kenya) which are run by Farmer Cooperative Societies (often abbreviated FCS). The majority of the big names in Kenyan coffee come through this system. For example, Chorongi and Kaiguri both belong to the Mutheka Farmers Cooperative Society.
If, however, farmers have enough land and resources they may choose to take on processing their coffee themselves. This requires the building of a washing station, drying facilities, storage facilities, investment in chemical inputs, pesticides, etc., etc. Not to mention investment in education, employing pickers and numerous other costs associated with running a farm.
When you take all of this into consideration it may seem foolish to process your own coffee. But, when you consider that the price paid per kilogram of cherry at Chorongi (one of the more famous and thus higher paying factories in Nyeri) was 70 Kenyan Shillings (roughly 69¢) when I was there in November, it becomes clear that the profit motive is strong.
Looking at the most recent auction results (from Tuesday, March 8th, 2016), the average price paid per kilogram of coffee was $4.49. To be clear, this is for green coffee, which is fully processed and ready for export. If, however, we divide that $4.49 by six (to obtain the fresh cherry weight equivalent), we get 75¢ per kg. Keep in mind, this is the average price paid for coffee at the Nairobi Coffee Exchange on this particular auction day. As such, that average includes all of the triage (broken and otherwise damaged coffee) and C grade coffee, which fetch much lower prices than the top quality lots. So, the average price paid was 75¢ (equivalent per kg of cherry) whereas Chorongi, which is a fairly-to-very high paying factory was paying 69¢ per kg of cherry. Then when you consider that many factories pay lower prices per kg of cherry than Chorongi and add to that the fact that the highest price paid at the most recent auction was $1.55 (equivalent per kg of cherry) it becomes quite clear that owning a farm can be a wise business decision.
A quick note: the prices quoted in relation to the auction do not include statutory fees associated with bringing the coffee to auction. That said, I believe my point remains relevant if and when you do factor in these costs as these fees usually equate to literal pennies per pound.
Back in November I spent a couple of days traveling through Kenya’s coffee country. This was not a cupping/buying trip, but rather time spent with exporting and producing partners. Over the course of the five or so days spent upcountry, I began to notice a common mantra amongst the agronomists with which I was traveling. They would constantly point out how healthy the coffee plants looked on estates, and how gangly, barren and generally unhealthy the plants looked on small holder properties.
Hearing this mantra repeated again and again began to cause some cognitive dissonance within me as, most coffee buyers will tell you, it is generally accepted that the best Kenyan coffees tend to come from Coop-run factories, not private estates. If the plants are so much healthier on estates, why are the coffees from coops, where small holders are harvesting from unhealthy plants, better? Sitting down with Martin Ngare, the general manager of Coffee Management Services (aka CMS), which is a leading agri-business service provider, offering farm management services to the coffee industry in Kenya and the wider East African region, I was given a chance to pick his brain a bit on the topic.
In my next blog post I will dig into what Martin had to say, what the “70/30 Split” is and why my cognitive dissonance was not so easily resolved.