Sub-Saharan Africa’s specialty coffee deals take off

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DEMAND for speciality African coffee beans is surging, reflecting the rising popularity of single-origin, high quality beans. Specialty coffee now makes up a third of sub-Saharan Africa’s total coffee output, up from less than 15 percent three years ago, and traders are looking beyond Africa’s historical producers of high-quality coffee, Ethiopia and Kenya, to smaller producers.

Major deals in 2015 included Starbucks buying washed Arabica coffee from Uganda’s Kawacom (the subsidiary of Swiss trading house, Ecom), and Nestlé’s production of washed Robusta beans from South Sudan. However, the region’s specialty coffee sector is facing serious constraints. International trading houses and roasters dominate output of specialty coffee beans, and local co-operatives (which lack the expertise and financing) are struggling to increase output, making them less attractive to buyers who want to minimise supply risk and benefit from economies of scale.

Starbucks terminated its supply agreement with the Cameroonian coffee cooperative, Union centrale des sociétés coopératives agricoles de l’Ouest (Uccao), after it could supply only small volumes of green coffee and struggled to meet quality standards. In addition, Africa’s largest coffee producers, Ethiopia and Kenya, privilege the sale of bulk coffee beans on commodity exchanges, to the prejudice of speciality traders.

Major deals in 2015 included Starbucks buying washed Arabica coffee from Uganda’s Kawacom
Major deals in 2015 included Starbucks buying washed Arabica coffee from Uganda’s Kawacom

In Ethiopia, speciality roasters can only buy single-origin beans from unions or plantations, which have a tiny market share, whilst in Kenya, farmers are not allowed to sell their beans directly to buyers, but must use the exchange which is geared towards bulk selling, blocking the growth of speciality origins (which must be traceable). As a result, the growth of African speciality origins is likely to be restricted to smaller African markets.

Coffee prices fell sharply in January, with the ICO Composite Index ending the month 6.2 percent lower at 110.1 US cents/lb. Arabica ended the month 6.6 percent lower, at 134.4 US cents/lb, and Robusta slipped by 8.2 percent to 72.7 US cents/lb.
Price weakness has been driven by record exports from Brazil and the weakness of the Real against the US dollar. Analysts project a recovery in prices in response to El Niño’s impact on the robusta crop in Vietnam and Indonesia, and the depletion of Brazilian arabica stocks, driving a second consecutive global deficit of 2-3 million tonnes in 2015/16. But any price increase will be limited by the strengthening of the dollar.

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