Coffee’s Premium Prices Fail to Filter Down to Farmers

Twice a year, farmers on the slopes of Mt. Kenya send some of the world’s best coffee to market. Americans pay $12.99 a pound for Kenyan coffee, but the farmer takes home only a penny.

Despite the popularity of coffee, and consistently strong profits for U.S. corporations like Starbucks, growers around the world are going broke, nowhere more so than in Kenya.

The reasons range from local corruption that has robbed farmers of precious pennies to ill-advised World Bank projects that have glutted the world market, driving down prices.

The story is told in the journey of the java bean from the Kenyan highlands to specialty coffee shops in the West, its price marked up step by step until that tall cappuccino costs $3--more than most farmers here make from coffee in a month.

Industry Shrinking

Kenya is one of the oldest coffee producers, tracing the first plants back to 1893, yet represents only 2% of the world market. Coffee was Kenya’s leading export crop before 1989, but except for some boom years in the mid-1990s, the industry has been sinking--despite its reputation and the fact that its coffee garners among the highest prices on the international market.

Because of its “bright acidity”--the industry term for tangy taste--”Kenyan coffee has always been the model of consistently high-quality coffee,” said Dan Cox, president of Coffee Enterprises, an independent testing firm in the United States.

“It’s the difference between buying a Chevy and buying a BMW.”

Although coffee is the world’s most-traded commodity after petroleum, farmers in Kenya’s coffee-growing region of Nyeri, 65 miles north of Nairobi, have been losing money on coffee for the last three years.

They can no longer afford to give their plants the care required for top quality beans, instead choosing to plant red beans and corn between the 8-foot-high coffee bushes. Many have abandoned coffee entirely.

“Coffee is very hard work, pruning the bushes, spraying them, and you have to hire people to help you harvest,” said Joseph Wahome, 27, who is planting beans and potatoes among his 120 coffee bushes. “It is not worth it at these prices.”

The third-generation coffee farmer used to take pride in growing 1,500 pounds of top quality beans a year, but the corruption he sees around him has dampened his spirits.

Wahome is part of a cooperative of thousands of members and a dozen processing plants, which supplies farmers with fertilizers and anti-fungal sprays. Wahome takes his coffee berries to a nearby factory, where the fruit is stripped away and the seeds, or beans, fermented. After being dried in the sun, the raw beans are shipped to millers for final processing.

The cooperative takes the pale green beans to an auction run by the Coffee Board of Kenya. A sample of each lot is graded, roasted and tasted by board officials and the exporters who bid every Tuesday in downtown Nairobi.

When a lot number appears on the computerized board above the auctioneer, more than 80 exporters push buttons to make their bids. The product of six months of a farmer’s life is sold in less than 45 seconds. In recent weeks, Kenyan AA coffee has fetched an average $1.50 a pound at auction. Not long ago, exporters paid up to $10.

But after the board and the cooperative deduct taxes and fees, farmers get a penny a pound. The growers say the cooperative officials, who did not want to be interviewed, remain wealthy.

“Every year they have a new car, and we go two years without being paid,” said Wahome.

Nyeri farmers say that last year some of them went to a meeting of their Riko Cooperative to demand better accounting and were met by hired thugs backed up by police. They say the thugs beat up the organizers, set their homes on fire or uprooted their coffee plants. No arrests were reported and the farmers haven’t tried to organize since.

Phone calls to Riko’s offices, as well as a visit there, failed to produce any official willing to be interviewed. But the spokesman for the Coffee Board of Kenya, charged with running Kenyan coffee’s central auction system, was less reticent.

“Corruption is the biggest problem,” John Checkar Irungu said. The board deducts 20% of the auction price for taxes and milling charges, and the farmer ends up with 10%, he said.

“The problem is not with the farmer, not with the Coffee Board, but with the bad management at the cooperative,” Irungu said in an interview.

The Coffee Board, although having no direct control over the cooperatives, is looking for ways to pay farmers more directly to avoid “diversions” of payments, he said. But the proposed changes have met with stiff political resistance, he added.

U.S. policy is in part to blame for the crisis in coffee-producing nations like Kenya, said John Talbot, a sociology professor and coffee expert at Colby College in Portland, Maine.

Trade liberalization efforts by the Ronald Reagan administration forced the collapse in 1989 of the International Coffee Agreement, a pact between coffee-producing and -consuming nations that for decades kept prices relatively high or at least stable.

At the same time, the World Bank provided Vietnam with loans to plant huge amounts of low-quality coffee. The Southeast Asian nation went from a marginal player to surpass Colombia this past year as the world’s second-largest producer, behind Brazil.

Those two nations have flooded the market with robusta beans, used in inexpensive blends and instant coffees. When the price of low-quality beans fell, so did that of arabica beans, used in higher-quality blends.

The managing director of C. Dorman Ltd., the largest exporter of Kenyan AA coffee to the United States, said fierce competition among exporters and low prices have hurt. The exporter collects a 2% markup from auction price.

“Of the major firms, 10 out of 20 have gone bankrupt or got out of the coffee business,” said Jeremy Block, who sells his coffee through a New Jersey agent.

After the exporter buys the beans, they are loaded onto ships in the Kenyan port of Mombasa for a monthlong journey to U.S. ports.

Roasters pay $1.65 a pound, which includes agent fees and transportation and warehouse costs. Though his clients include Starbucks and Nestles, Block’s agent said he made only 2 to 3 cents a pound.

The roasters spend a dollar a pound to roast the beans, which lose 20% of their weight in the process. Adding in warehousing, packaging and insurance costs, the roaster sells the coffee to retailers for $4 to $6 a pound. Thanks to the specialty coffee craze, retailers double or triple that price.

No Shares of Starbucks

“The farmers have not generally seen an increase in income from the gourmet coffee boom,” said Deborah James of Global Exchange, a San Francisco-based advocacy group. It campaigns to get more money for farmers in poor nations, though not in Kenya.

Seattle-based Starbucks, which reported a 38% increase in second-quarter profits, says real estate, advertising and labor costs add to coffee costs. It offers coffee certified by Global Exchange as meeting fair-trading standards and gives $200,000 a year to help farmers in Africa and other poor regions.

Jerry Baldwin, former chairman of Peet’s Coffee and Tea, based in Emeryville, Calif., says Kenyan farmers are underpaid because of a flawed system. Writing a bigger check for green beans at the auction would only help if that money made its way to the farmers, he said. “All I know is that we’re paying good money for good coffee and the farmers are abandoning their farms. It makes no sense.”

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AP correspondent Robin McDowell from New York contributed to this report.