THE WORLD COFFEE MARKET Daniel Mbithi Nairobi Coffee Exchange, - PowerPoint PPT Presentation

THE WORLD COFFEE MARKET Daniel Mbithi Nairobi Coffee Exchange, Kenya

Introduction What influences the world ’ s coffee market ? Supply and Demand Production (supply) changes will affect price … . Simply put, lower production equals higher price while higher production equals lower price! Demand … . Higher demand (rise in consumption) pushes prices up as well

Global Market Reports: Coffee consumption has been in the increase The growth drivers being:  Rise in disposable income,  Rapid urbanization  Westernization trend in India, China Effect … .  Deficit: 2015, 2016 & 2019 … improved prices  Surplus: 2017 & 2018 … . Lower prices esp. 2018/2019 Source: ICO

Consumption on the rise … . Source: USDA

Continental Production In million of 60kg bags 2015 - 2018 % change % Share COUNTRY 2015 2016 2017 2018 2017-18 for 2018 Africa 15,793 16,759 17,516 18,212 4.00% 10.73 Asia 49,603 45,894 49,339 47,754 -3.20% 28.13 Mexico & Soth America 17,103 20,320 21,711 21,710 0.00% 12.79 South America 71,443 76,923 72,123 82,105 13.80% 48.36 Notice the huge jump in South America that led to prices to plummet TOTAL: 153,942 159,896 160,689 169,781 5.70%

ICE Prices

2019/2020 Forecast Overview • Production: World coffee production forecast - 5.3 million bags (60 kilograms) lower than the previous year to 169.3 million , primarily due to Brazil ’ s Arabica trees entering the off-year of the biennial production cycle. • Exports: World exports are expected down 4.7 million bags to 115.4 million primarily due to lower shipments from Brazil and Honduras • Coffee prices: dropped to $0.93 per pound in May 2019, the lowest since September 2006, but rebounded 15 percent to $1.07 by November 2019 as supplies tighten.

Factors influencing markets … . Demand and supply - Prices increase when supply is threatened, or if demand goes up, and prices go down due to excess supply or lack of demand. Climatic conditions - Coffee is highly sensitive to weather conditions. Political conditions – elections in Brazil last year – currency affected Speculative trading on the financial markets. If investors buy large quantities of coffee commodities shares, they may artificially inflate the price of coffee.

Africa Coffee Producing countries share The continent accounts for about 13% of the world ’ s production. Ethiopia + Uganda dominate in production at 62% of sub-Saharan Africa ’ s coffee output. Others follow … .. Source: Mail & Guardian Africa

Africa Consumption Share … 2017/2018 Per capita coffee consumption is low … • Ethiopia (2.27 kg), • Madagascar (1kg) and • Cote d ’ Ivoire (0.9kg) Compare with other emerging markets, such as Brazil (6kg) and Algeria (3.2kg), By contrast, the EU consumes nearly 9kg per person. Source: Mail & Guardian Africa

How coffee is marketed in Kenya There are two methods: Auction Direct Sale Auction The Kenya Coffee Auctions - established in 1934 and the first auction inaugurated in September 1935. However, the first auction at the Nairobi Coffee Exchange (NCE) trading floor was held on 12th February 1963. The auction continued until 2006 when Direct Sales were introduced. Currently 90% sold through the Exchange.

Auction Performance

Auction Competitiveness Only valid licence holders from the Authority (AFA - Coffee Directorate) are allowed to participate at the trading floor. Currently … . Dealers – 80 Marketing Agents – 10 Warehousemen - 21

Auction Competitiveness Cont ’ d … .. Due to that competitiveness, we have witness prices going as high as $20/kg and above at the auction. 2006/2007 - Grade AB sold @ $954 per 50kg, i.e. $19.08/kg 2010/2011 – 3 grade AA lots selling > @$20.00 and other @$16.00 per kilo 2018/2019 – when the global prices plummeted to a record of 86cts/lb we still could get a high of $11.00 per kilo!

Price Trends: 2013/2014 – 2018/2019

Sample Room

The Auction Process … Before Receive Representative Sample (9kgs/lot) - 12 calendar days before the auction. Draw 2 sets of samples: Reference and Buying sample respectively. • The reference sample – for arbitration purposes in case of any disputes that may occur after the sale. • The buying sample – Given to the highest bidder (further analyses) Distribution to the coffee buyers at 250gm/Lot.

Sample Room Activities All the lots are displayed for the green sampling for defects Buying Samples

Sample Room: Labelling Lot ’ s details are well captured on the sample delivery package: Sale/Lot No Producer ’ s Name Outturn No. Certification ( if any ) eg Fairtrade, UTZ, 4C Grade

Traceability Traceabil ility ty: Coffee District Factory Week Code Code Delivered Serial No. Which Society Factory Dry Mill Code Name

Auction Process … Reserve Prices – S et by the Marketing Agents in consultation with the farmers and are r eceived a day before the auction. NOTE: Reserve prices are not disclosed to anyone Bidding - The Trading System is automated and therefore bidding is done through pressing of a button where the highest bidder takes the lot. This eliminate any form of collusion and prices manipulation

Auction in progress…. • Bids are per 50kg in USD • The highest bidder wins the lot

Auction Hall Each coffee buyer is assigned a seat and can only be allowed to bid if he has been cleared by the Marketing Agents (Brokers)

Upgraded Auction System  The first auction done on 2 nd May 2018  Officially launched on 31 st July 2018 by the CS

Upgraded Auction System benefits…. Regional screens Targeting all the coffee growing counties. Already installed in 6 counties: Kericho, Nyeri, Meru, Machakos, Kisii, Bumgoma Benefits: • Improved transparency • More confidence to the coffee owner. • Demystifies the coffee auction process. • Reports are now readily available:  Proforma invoices can be availed instantly during trading  Marketing agents – immediately receive their relevant reports faster • Speed has now been improved from 10hrs to about 5hrs

Future Plans Online Trading Remote bidding is made possible More participants without necessary being physically trading floor.

Thank you Ahsante Sana!