BY SEBASTIAN MRINDOKO, 30 OCTOBER 2012 for Tanzania Daily News
FARMERS’ earnings from coffee production are likely to decline due to the continued fall of prices in the world market, the trend that will impact negatively on the country’s poverty alleviation efforts.
Coffee farmers survive with difficulties and some are reportedly abandoning their farms and switch to alternative crops that demand short-term investment. This situation has led to dramatic deterioration of social conditions, rising unemployment and in some cases hunger and starvation.
Coffee has been one of the country’s largest export crops contributing approximately more than 120 million US dollars (about 188.4bn/-) to export earnings and provide employment to over 400,000 families. The resulting market imbalances coupled with low price elasticities of demand have led to the same downward pressure across a broad spectrum of commodities.
Demand promotion is also problematic because stakeholders may see their interests competing and the experience with coffee indicates that there is need to establish strategic aims to which all can subscribe. The worrisome situation has made the Tanzania Coffee Board (TCB) to take swift measures to arrest the deteriorating situation of both production and coffee prices in the world market.
The board plans to introduce a campaign to promote local consumption of the product. TCB Director General, Engineer Adolph Kumburu, told the ‘Daily News’ in Dar es Salaam recently that other plans include penetration to strategic markets. “These measures will mitigate market volatility positively, resulting in job creation”, he said.
He was speaking while commenting over the deteriorating coffee prices in the weekly auctions in Moshi. Coffee prices continued with a downward trend at last week’s auction held in Moshi largely due to the decline of the New York Coffee (NYC) market to 160 US cents from 180 US cents per pound in the same period under review.
For example, the overall average price at Moshi exchange were down by 1.11 US dollars (about 1,742.7/-) per 50 kilogrammes for Mild Arabica compared to the previous auction held a week before. Similarly, the average prices were below the terminal market by 7.01 US dollars (about 12,267.5/-) per 50 kilogrammes for Mild Arabica.
The next auction will be held on tomorrow (October 31) “The impact of the financial crisis in the Euro zone and in the US has caused roasters and buyers to go very slow in business,” remarked Engineer Kumburu. He said the bumper coffee harvest in Brazil was expected to produce about 50 million bags as compared to 45 million bags last season.
Likewise, Columbia is expected to have premium crop of high output, where Tanzania coffee belongs to the same group. “Due to the increased output, the market is therefore switching from bullish to bearish where the price of stocks is decreasing,” he said. If price deterioration persists, Engineer Kumburu said revenues from the mainstream coffees are expected to decline as well with the overall income falling to about 10 per cent.
However, he remarked that good quality coffees were still fetching higher prices. Coffee is not just a drink. It’s a global commodity. As one of the world’s most traded products coffee industry employs millions of people around the world through its growing, processing and trading stages.
But while the coffee trade is vital to the politics, survival and economies of many developing nations, the industry’s pricing and futures are decided in conference rooms and on stock exchange floors in some of the world’s wealthiest cities. As the single most important tropical commodity accounting for almost half of total net exports of tropical products, coffee has become emblematic of the problems faced by all developing countries’ agricultural commodity exports.
Further, coffee industry faces various challenges including low productivity, insufficient farm gate prices due to non optimal functioning of the internal marketing system business environment, under exploited quality potential as well as threats from climate change.
According to a recent survey, some Tanzanian coffee farmers may receive as low as 50 per cent of the auction price for the coffee that they produce. More generally, it is estimated that coffee farmers receive an average 65 per cent to 70 per cent of the FOB price.
The main on sequence of this low share of income for coffee farmers is that coffee farming is currently not an economically profitable activity. Tanzania, Africa’s fourth largest coffee producer after Ethiopia, Uganda and Ivory Coast, sells mainly Arabica and some robusta coffee. Prices of its Arabica normally track the New York market while those of robusta take their cue from London.