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 2015 - 2018

COUNTRY 2015 2016 2017 2018 % change 2017-18 % Share 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 TOTAL: 153,942 159,896 160,689 169,781 5.70%

In million of 60kg bags

Notice the huge jump in South America that led to prices to plummet

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.

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…..

Africa

Source: Mail & Guardian Africa

Africa Consumption Share…2017/2018

Source: Mail & Guardian Africa 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.

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

• n 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

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.

The Auction Process …Before

Sample Room Activities

All the lots are displayed for the green sampling for defects Buying Samples

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

Sample Room: Labelling

Traceability

Traceabil ility ty:

Week Delivered Which Dry Mill Serial No. Factory Name Coffee District Code Society Code Factory Code

Auction Process…

Reserve Prices – Set by the Marketing Agents in consultation with the farmers and are received 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 2nd May 2018

• Officially launched
• n 31st July 2018 by

the CS

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

Upgraded Auction System benefits….

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

Thank you Ahsante Sana!