Agriculture and Food Authority A) FUTURE OF COFFEE Strategies to - - PowerPoint PPT Presentation

Agriculture and Food Authority A) FUTURE OF COFFEE “Strategies to Promote Domestic Coffee Consumption in Africa Case Study: Kenya

Presentation during AFCA SPECIALTY PROGRAMME At Sea Cliff Resort & Spa, Zanzibar 28-31 October 2019 By BENSON APUOYO, MANAGER MARKET RESEARCH & PRODUCT DEVELOPMENT, COFFEE DIRECTORATE KENYA

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OUTLINE

• Background
• Trade in Africa
• Kenya’s Case Study
• The Kenya Government Big 4 Agenda
• The Manufacturing Pillar
• Key drivers of domestic coffee consumption in Kenya
• Number of coffee houses & stakeholders in value addition in

Kenya

• Marketing and promotion of domestic coffee consumption
• Areas of support and partnerships
• Conclusion

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BACKGROUND

• Africa consume very little coffee of what they produce with

most of it exported to the global market outside the continent.

• Countries in Africa which have registered increase in

domestic coffee consumption:

• 1. Ethiopia
• believed to be origin of coffee
• deeply rooted coffee drinking culture
• 2. South Africa
• multiracial facet
• increased middle level income
• entry of new coffee houses

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BACKGROUND

• 3. Nigeria

Young middle class

• Population size
• Effect of international exposure- young graduates coming back from

studies abroad

• Examples: Café Neo Coffee Shop in the lead have revolutionized coffee

drinking culture in Nigeria

• 4. Kenya
• Government deliberate effort to promote domestic coffee consumption (youth in

Kenyan universities & tertiary institutions-target)

• Increased disposable income of the middle class
• Love for coffee
• Increased investment in coffee outlets

Consumption: 70 g per person per year

• 5% of national production

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BACKGROUND

• 5. Cameroon
• Government deliberate effort to promote domestic

consumption of own coffee

• Festicoffee- a platform for the promotion and trade of

coffee from Cameroon

• coffee tasting day
• 6. Uganda
• With effort of UCDA – campaigns were launched for

domestic coffee consumption with some level of success

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TRADE IN AFRICA

 Africa is one of the most resilient, innovative and creative business

people in the world.

 Africa has more entrepreneurs with a strong private sector.  Coffee - A classic example of the primary commodity and mono-crop

dependency of many sub –Saharan African countries. This makes coffee producing countries susceptible to a number of exogenous factors like:

• unfair trade competition with the western world (Visa refusal is one

strong form on Non- Tariff Barrier),

• Global price fluctuations.

 Over 90 % of coffee is produced in developing countries (Southern

hemisphere), yet most of the consumption takes place in the developed countries (Northern hemisphere).

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TRADE IN AFRICA

According to World Trade Organization (WTO), intra – African trade accounts for less than 10% of total trade.

 Trade Barriers

Kinds of NTBs that are seldom mentioned in policy meetings or documented in any meaningful way and yet remain big barriers to trade for African exporters and entrepreneurs:

(i) Visa refusal by the granting authority- violation on freedom of movement (ii) Restriction on international movement of people through difficult entry visa

procedures.

(iii) Entrenched negative perception about the continent. (iv) “Trust deficit” (v) The cost of market entry (vi) “Knowledge deficit” that many exporters face when seeking market entry (vii) Attitude and perception-ripe in Africa: The effects of xenophobia. Negativity breeds

Xenophobia

(viii) The constant shifting of the technical goal post regarding- packaging, labelling,

certifications.

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TRADE IN AFRICA

 Undocumented Barriers  These are perseverance and adaptability barriers that undermine the efforts of many

African entrepreneurs to undertake international trade.



The build up to this market exposed Coffee Directorate to many challenges of a start- up export business and the realities of trading on other continents.

 Where as Trade between African countries stands at less than 10% of the region’s

total trade. In comparison, 40% of North America’s trade is with regional partner.

 The rate soars to 63% in Western Europe.  Intra-Comesa trade stands at 7%.  Africa is viewed as:  Economy of underutilization  Economy of scarcity of consumer goods  Economy of low wages. 2

COFFEE CONSUMPTION IN KENYA

CASE STUDY

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Part I: Facts About Kenya

Kenya’s geo-strategic location offers it preferential access to regional and international markets

The Nairobi Airport (JKIA) connects Africa to Europe, Asia and currently to the USA Kenya has secured Category 1 status, granting it direct flights to the US. The Port of Mombasa is gateway to East and Central Africa region Main transport hub to most of the African countries in the region with great developments in infrastructure; highways and SGR.

Area 582,646 km2 Population 48 million GDP at current US$ 77.9 billion GDP per capita US$ 1,700 FDI Flows 2015 US$ 1.4 billion in 2015-UNCTAD GDP Growth Rates 5.8% in 2016 and 5.2% projection in 2017 (WB) Credit rating Standard & Poor's; B+ (stable) Fitch: B+ (Stable) Moody’s: B2 (Stable) FDI Growth Rate 98.0% in 2013; 92.4% in 2014; 45.3% in 2015 Inflation Rate 7.1% - 2017

Kenya: Country profile…

4.6% 4.7% 5.3% 5.7% 5.8%

2012 2013 2014 2015 2016 % GDP Growth

Structure of Kenya’s Economy

Mining share of GDP in Kenya is very low:

• Mining is an infant

industry that is predominantly in the exploration stage

• Opportunity for early

adopters and first movers

Kenya’s international trade is remarkably skewed Leading destinations for exports are:

• Africa 42%
• Western Europe 23%
• Asia 22%

Leading sources of imports into Kenya are :

• Asia (mainly China) 62%
• Western Europe 17%

Immense opportunities exist for increased trade between Kenya and Other African countries (below 10%)

Aligned to SDG 9 – Industry, Innovation and Infrastructure

PROBLEM STATEMENT

a)

Over 95% of the Kenyan coffee production is exported to various international markets as green coffee

b)

Domestic market absorption currently is at 5%

c)

The country has a potential to consume between 20-30% of the national production

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OVER RELIANCE ON EXPORT OF GREEN COFFEE IN KENYA LOW DOMESTIC COFFEE CONSUMPTION IN THE COUNTRY

COFFEE EXPORT BY DESTINATION FOR 2017/2018

NO DESTINATION NUMBER OF BAGS(60KG) NET WEIGHT-KG 1GERMANY 113,637 6,818,217.40 2UNITED STATES 113,422 6,805,306.80 3BELGIUM 101,235 6,074,113.00 4KOREA, REPUBLIC OF 87,111 5,226,660.00 5SWEDEN 58,824 3,529,429.80 6AUSTRALIA 25,278 1,516,682.00 7FINLAND 23,076 1,384,560.00 8NORWAY 18,344 1,100,630.00 9UNITED KINGDOM 17,223 1,033,379.00 10OTHERS 163,344 9,800,637.31 TOTAL 721,494 43,289,615.31

DOMESTIC COFFEE CONSUMPTION TREND

YEAR LOCAL CONSUMPTION MT (GREEN BEAN)

• NO. BAGS

2009/10 509.90 8,498 2010/11 566.60 9,443 2011/12 629.50 10,492 2012/13 716.00 11,931 2013/14 744.00 12,405 2014/15 756.00 12,591 2015/16 771.00 12,842 2016/17 1,050.20 17,520 2017/18 1,576.70 26,278

KENYA’S COFFEE SHOPS ATTRIBUTES

In the Kenyan specialty coffee industry, it is imperative for specialty coffee entrepreneurs to understand the important attributes that motivate consumers to patronize specialty coffee shops so as to have a competitive advantage and sustain their businesses. Before, there was no existing published work

• n

domestic coffee consumption, particularly in the Kenyan context based on empirical evidence

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COFFEE SHOPS ATTRIBUTES Coffee Directorate (Coffee Board of Kenya) undertook a study in the year 2011/12 in this area to understand the factors that could help enhance domestic coffee consumption in Kenya. The study adopted both qualitative and quantitative approaches in an exploratory sequential mixed research design to explore and identify attributes used by Kenyan specialty coffee consumers when selecting specialty coffee shops.

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COFFEE SHOPS ATTRIBUTES

The findings from the qualitative approach were used to develop the survey questionnaire. Based on purposive sampling, responses from 450 respondents were analyzed using exploratory factor analysis.

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COFFEE SHOPS ATTRIBUTES All the survey statements were measured using a 5- point Likert type scale ranging from 1- Very unimportant, 2- Unimportant, 3-Neutral, 4-Important, 5-Very Important. Exploratory Factor Analysis (EFA) using SPSS version 20 was used. Factors with eigenvalues greater than 1 are considered sufficient. Factors loading in the range of ±0.30 to ±0.40 are sufficient to meet the minimum level of interpretation (Hair et al.,2006).

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COFFEE SHOPS ATTRIBUTES

i.

The Coffee Directorate study used a factor loading cut-off point of 0.40 for retaining items in the factor analysis

ii.

From the initial list of 61, a total of 9 items were factor again with the items loading onto nine factors

• iii. The nine factors were extracted using

principal component analysis with promox rotation

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COFFEE SHOPS ATTRIBUTES Nine factors were labelled:

i.

The youth leverage

ii.

Tangibles

• iii. Quality coffee
• iv. Service quality by staff

v.

Brand preference

• vi. Promotional activities
• vii. Social responsibility and recreation
• viii. Food & drinks selection
• ix. Other amenities26

The first factor. The value of youth leverage had 12 items: Factor loading: From 0.532 to 0.857

The Value of Youth

Fresh perspective Adaptable Enthusiastic Fast learners of new technologies More aware

• f new

tools Transfer of ICT Skills More Computer Literate Able to build partnerships At ease with changes Future Managers / Leaders Open and Frank

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The second factor: Tangibles: Had 11 items: FL ranging from 0.422 to 0.810

Tangibles

Friendly staff Helpful staff Reasonable price with quality service Reasonable price with quality coffee Reasonable price with portion size Clean restrooms Easy to read menus Adequate spacing between tables Courteous staff Quiet atmosphere

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The third factor. Coffee Quality had 10 items: FL from 0.508 to 0.886

Coffee quality

Coffee with quality beans Coffee with freshly roasted beans Coffee brewed using right skills Freshly brewed coffee all the time Coffee with preferred taste Coffee with preferred aroma Coffee with the right temperature Customized coffee Coffee with consistent quality

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The fourth factor. Service Quality Staff had 6 items: FL from 0.516 to 0.729

Service quality staff

Staff performs service right the first time Staff offers individual attention Staff knowledgeable about the product Staff gives prompt service Staff attentive to specific needs Staff attentive to order

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The fifth factor. Brand preference had 4 items: FL from 0.621 to 0.852

Brand preference

Frequently visit a particular coffeehouse familiar with Frequently visit a trusted a particular coffeehouse Frequently visit a particular coffee house for its ambience Frequently visit a particular coffeehouse for the quality of its products it serves

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The sixth factor. Promotional activities had 4 items FL from 0,503 to 0.737

Promotional Activities

Free testing of coffee and food items Availability of merchandised items Availability of private rooms Availability of wall screen Tvs for news & entertainment

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The seventh factor. Social responsibility and recreation had 4 items. FL from 0.422 to 0.726

Social responsibilities & recreation

Environmentally friendly coffee house Place to relax during leisure times Place to meet potential clients Place with warm lighting

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The Eighth factor. Food and drinks had 2 items. FL of 0.710

Food & Drinks

Variety of drinks (Other than coffee) Variety of food

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The Ninth factor. Other Amenities had I item: FL 0.834

Other amenities

Smoking area

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The exploratory factor analysis

Factors with eigenvalues greater than 1 are considered significant (Hair et al.,2006). The Eigenvalues for the nine variables were greater than 1. Youth leverage = 12.27 Tangibles = 3.08 Coffee quality = 2.69 Service quality by staff =1.82 Brand preference = 1.53 Promotional activities =1.34 Social responsibility & recreation =1.22 Food & drinks selection = 1.15 Other amenities = 1.08

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The nine factor solutions

Nine factors explained 59.1% of the total variance Youth leverage = 18.07% Tangibles = 13.10% Coffee quality =6.85% Service quality by staff =5.99% Brand preference = 4.05% Promotional activities =3.41% Social responsibility & recreation =2.98% Food & drinks selection = 2.71% Other amenities = 1.94

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COFFEE HOUSES OWNERSHIP

Java House 53 outlets Art Café 14 outlets Avant Group 8 outlets Big Square 7 outlets Others 149 outlets

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NUMBER OF COFFEE HOUSES

No County City/Town No of Coffee Houses % 1 Nairobi Nairobi 128 40% 2 Mombasa Mombasa 21 8% 3 Kilifi Kilif (12), Malindi(5), Watamu (1) 18 7% 4 Nakuru Nakuru (12), Naivasha (6) 18 7% 5 Kisumu Ksumu 16 6% 6 Kwale Ukunda/Diani 10 4% 7 Uasin Gishu Eldoret 9 4% 8 Narok Narok 7 3% 9 Kiambu Kiambu (2), Thika (4) 6 2% 10 Meru Meru 6 2% 11 Nyeri Nyeri (4), Karatina (1), Othaya (1) 6 2% 12 Embu Embu 5 2% 13 Liakipia Nanyuki 5 2% 14 Machakos Machakos (4), Mua Hills (1) 4 2% 15 Taita Taveta Taveta (3), Voi (1) 4 2% 16 Trans Nzoia Kitale 4 2% 17 Kisii Kisii 2 2% 18 Busia Busia 2 1% 19 Homa- Bay Homa- Bay 2 1% 20 Kakamega Kakamega 2 1% 21 Kirinyaga Kerugoya 1 0% Total 278 100%

COFFEE PRICES

City/T

• wn

Serving Cup Size in ml Price in Ksh

Diani/ Ukunda Café Latte 200 250 Cappuccino 220 220 Espresso 100 150 House coffee 120 180 Macchiato 220 200 Kisumu Café Latte 200 400 Cappuccino 220 220 Espresso 100 150 House coffee 120 180 Macchiato 220 200 Nairobi Café Latte 200 250 Cappuccino 220 200 Espresso 100 100 House coffee 120 200 Macchiato 220 250

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POPULAR COFFEE DRINKS

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No Type Percentage 1 Cappuccino 49% 2 House coffee 29% 3 Café Latte 10% 4 Black coffee 5% 5 Espresso 4% 6 Americano 2% 7 Medicinal coffee 0% 8 Mocha 0% Total 100%

DOMESTIC COFFEE CONSUMPTION TREND

YEAR LOCAL CONSUMPTION MT (GREEN BEAN)

• NO. BAGS

2009/10 509.90 8,498 2010/11 566.60 9,443 2011/12 629.50 10,492 2012/13 716.00 11,931 2013/14 744.00 12,405 2014/15 756.00 12,591 2015/16 771.00 12,842 2016/17 1,050.20 17,520 2017/18 1,576.70 26,278

COFFEE PRODUCTION, VALUE ADDITION AND CONSUMPTION IN KENYA

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Year 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/1 7 2017/18

National coffee production in MT 42,000 46,629 49,960 39,865 49,475 42,038 46,121 38,620 41,375 Domestic consumpti

• n of

coffee in MT 510 566 629 716 744 756 771 1,050 1,577 Percentage 1.21% 1.21% 1.26% 1.79% 1.50% 1.8% 1.67% 2.75% 3.81%

DOMESTIC CONSUMPTION TRENDS IN KENYA

44 509.9 566.6 629.5 716 744 756 771 1051.2 1576.7 200 400 600 800 1000 1200 1400 1600 1800

QUANTITY(GBE) MT

NUMBER OF COFFEE HOUSE IN KENYA IN 2017/18

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6 9 16 30 44 101 187 219 249 50 100 150 200 250 300

> 40 YRS 30 TO 40 YRS 20 TO 25 YRS 15 TO 20 YRS 10 TO 15 YRS 5 TO 10 YRS 3 TO 5 YRS 1 TO 2 YRS 0 TO 1 YRS

NO OF COFFEE HOUSES 1977-2017

25- SOME STAKEHOLDERS CURRENTLY IN VALUE ADDITION IN KENYA

 Dormans coffee  Sasini coffee  Cafe’ Dela Duka  SuperGibs  Africa Tea & Coffee  Goldrock International  Kenya Nut Company ltd  Bekas Systems Ltd  Muramuki FCS  Mutira FCS  Othaya FCS  Dedan Kimathi University  Kenya Co-operative Coffee

Dealers

 International Beverages Ltd  Java House  Najasha Coffee  Meru farmers union  M.A Pandit & Co. Ltd  African Coffee Roasters  Fair To Good  Rockbern Co. Ltd  Kensam Estate  Vava Coffee  Kenya Planters Co-operative

Union (KPCU)

 Gusii Farmers Union

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25- THE NUMBER OF STAKEHOLDERS CURRENTLY IN VALUE ADDITION

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S/No Category Number of players 1 Farmers’ based organizations 6 2 Coffee dealers 19 3 Coffee houses 249 4 Universities 4 Total 278

CONSUMPTION DRIVE THROUGH UNIVERSITIES

i. Tyranny

• f

numbers (Student population)- Market is about numbers ii. Younger affluent consumers

• iii. Hope, dream & image
• iv. View coffee consumption as an experience

v. Dating culture

• vi. The dons culture
• vii. Health benefits
• viii. Revenue generation

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Critical success factors with universities

PROMOTION OF KENYAN COFFEE IN UNIVERSITIES

University students sampling Kenyan coffee during one of the campaigns

KEY DRIVERS OF DOMESTIC CONSUMPTION IN KENYA

1) Youths in universities and institutions of higher learning (Versatile customers) 2) Growth of supermarket chains and retail outlets in major towns within Kenya for shelves space 3) Growth of coffee shops chains in urban centres in Kenya- “café culture” 4) Budgetary allocation for generic promotion and marketing value added coffee 5) Availability of different brands of coffee in the local market targeting different economic classes 6) Vibrant informal coffee vending outlets-hawkers 7) User friendly policies, rules and regulations governing the coffee industry in the country 8) International organizations (ICO, IACO, SCA, AFCA, etc) support

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UNIVERSITIES WITH FULLY FLEDGED COFFEE HOUSES

No Name of University Status County 1 Dedan Kimathi University of T echnology Public Nyeri 2 United States International University- Africa Private Nairobi 3 Strathmore University Private Nairobi

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COFFEE HOUSES AT UNIVERSITIES – AWAITING LUANCH

No Name of University Status County 1 Egerton University Public Nakuru 2 University of Eldoret Public Eldoret

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Coffee Directorate has purchased coffee brewing equipment for the following

CONCLUSION

1) Coffee for consumption in Africa, Kenya included, is growing and will be more than the production by African coffee producing countries in the year 2040. It needs to be harnessed. 2) Intra Africa trade is only 10% compared to the potential of 80%. The potential needs to be tapped. 3) There is need for sustainable support programme to derive the course of coffee consumption in Africa. 4) Domestic coffee consumption is less susceptible to non trade barriers now common in the competitive global coffee trade.

DRINK COFFEE KENYA

Thank you

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