The coffee sector in Sub-Saharan Africa Dr Edward George Head of Soft Commodities Research, Ecobank 4 March 2014, London
Africa has a small share of world coffee production % share of world Arabica production, 2012/13 % share of world Robusta production, 2012/13 29% 17% 49% 10% 4% 3% 3% 3% 3% 60% 3% 1% 2% 1% Brazil Colombia Ethiopia Honduras Peru Guatemala Mexico Others Vietnam Brazil Indonesia India Uganda Côte d'ivoire Malaysia Others Brazil and Vietnam account for nearly 60% of world Arabica and Robusta output Africa accounts for 12.8% of world coffee output, led by Ethiopia & Uganda Sources: ICO; USDA, Ecobank Research. 2
Africa s coffee production Guinea Ethiopia Côte d'ivoire Cameroon Uganda Rwanda Kenya DRC Burundi Tanzania Coffee production, 2012/13 (each bar = 2 million 60-kg bags) Sources: Intracen, Ecobank Research. Madagascar Arabica Robusta 3
Ethiopia & Algeria dominate coffee consumption African coffee consumption, 000s 60-kg bags, 2012/13 % share of African total, 2012/13 3,500 3,000 2,500 2,000 5% 4% 9% 40% 1,500 9% 1,000 500 27% 0 Ethiopia Algeria Morocco South Africa Madagascar Côte d'ivoire DRC Ethiopia Algeria Morocco South Africa Madagascar Côte d'ivoire Other Ethiopia & Algeria account for ¾ of Africa s coffee consumption. Most producers view coffee exclusively as a cash crop for export. Sources: ICO; USDA, Ecobank Research. 4
East & West Africa dominate coffee exports Coffee exports, US$ 000s 2,500 2,000 1,500 1,000 500 0 2009 2010 2011 2012 Ethiopia Uganda Kenya Côte d'ivoire Tanzania Ghana Cameroon Rwanda Burundi Others Africa s coffee exports have doubled in value in 2009-12, to US$2.6bn. Ethiopia has increased its dominance, while Uganda s exports have fluctuated. Côte d Ivoire is re-emerging as West Africa s largest coffee exporter. Sources: Intracen; Ecobank Research. 5
The EU is the leading offtaker of African coffee Share of imports of African coffee, US$, 2012 7% 3% 5% 12% In 2012 the EU imported US$1.3bn of coffee from Africa, or 61% of the total. Europe s largest importers were France, Switzerland, the UK & Portugal. 12% EU Algeria Switzerland 61% USA & Canada Japan Others The USA & Canada accounted for US$263mn of imports. Algeria s imports of African coffee were primarily from Côte d Ivoire, while Japan s were mostly from Tanzania. Sources: ICO; Ecobank Research. 6
Kenya & Tanzania are focused on developed markets % share of Kenya s coffee exports, 2013 % share of Tanzania s coffee exports, 2013 17% 23% 23% 2 5% 10% 12% 9% 10% 11% 12% 11% 12% 19% Switzerland Germany USA Finland UK Sweden Belgium Others Japan USA Belgium Germany Italy Other 78% of Kenya s coffee & 51% of Tanzania s coffee are exported to Western Europe. The former colonial powers are the second largest importers of beans. Sources: ICO; Ecobank Research. 7
Other exporters are developing niche markets % share of coffee exports of Ethiopia, Uganda & Côte d Ivoire, US$, 2013 22% 5% 5% 7% 8% 14% 33% 20% 4% 5% 8% 15% 24% 18% 14% 4% 11% 65% Germany Belgium USA Italy Saudi Arabia Japan France Others Switzerland Germany Spain USA Sudan Italy Singapore Others Algeria Spain Italy France Others Although Western Europe remains the largest market, niche markets are being developed. 14% of Ethiopia s coffee goes to Saudi Arabia, 18% of Uganda s coffee goes to Sudan, & 2/3 of Côte d Ivoire s coffee goes to Algeria & 20% to Spain & Italy. Sources: ICO; Ecobank Research. 8
A handful of multinationals dominate purchases Coffee purchases by leading offtakers, m 60-kg bags, 2012 % market share of coffee traders Company HQ Total bags purchased % world exports Kraft Foods Inc USA 13.5 11.8 Nestlé SA Switzerland 12.8 11.2 Sara Lee USA/Netherlands 8.5 7.4 JM Smucker USA 5.5 4.8 Elite UK 3.5 3.1 Tchibo UK 2.8 2.4 Starbucks USA 2.7 2.4 Lavazza Italy 2.4 2.1 Melitta Germany 2.0 1.7 Segafredo Zanetti Italy 1.9 1.7 Aldi Germany 1.8 1.6 Source: 2012 Coffee Exporters Guide. 51% Neumann Olam Louis Dreyfus Mercon 12% 4% 2% 12% 7% Ecom/Armajaro ED&F Man/Volcafe Noble Others Kraft & Nestlé purchase around ¼ of the world s traded coffee. The world s top five coffee traders account for 40% of traded volumes. For the largest offtakers the key issue is securing a regular supply of beans.
Demand for certified & speciality beans is surging Demand for certified coffee, 000s tonnes, 2011 % share of world certified coffee market 140 120 100 24% Utz 80 60 49% Fairtrade 40 20 27% Rainforest Alliance 0 2007 2008 2009 2010 2011 Europe USA & Canada UK Asia Sources: 4 Coffee Alliance, Utz, Fairtrade, Rainforest Alliance, Ecobank Research. Numerous coffee certification schemes are in operation, led by Utz from the Netherlands. Demand for certified coffee trebled between 2007 and 2011, to 129,000 tonnes. Asia is set to become an increasingly important market for certified coffee. 10
Africa s certified & speciality coffee sector is growing World certified coffee production, tonnes, 2011 % share of Africa s certified coffee production 700,000 Africa ROW 600,000 500,000 27% 31% 400,000 300,000 200,000 100,000 42% Utz Fairtrade Rainforest Alliance 0 Utz Fairtrade Rainforest Alliance Africa is a marginal producer of certified coffee, producing 104,000 tonnes in 2011. Fairtrade is the leading certified producer in Africa, with a 42% market share. Ethiopia & Kenya enjoyed a 7% share of the global speciality coffee market in 2012. Sources: 4 Coffee Alliance, Utz, Fairtrade, Rainforest Alliance, Ecobank Research. 11
But there are problems with certification Mass balancing versus controlled blending in the cocoa chain Mass balancing, controlled blending and segregation have not been properly explained to consumers. Although mass balancing does not occur in the coffee value chain, its widespread use in cocoa could damage trust in certification brands. The system for paying premiums is problematic, focusing farmers on money rather than on improving farming practices. The erosion of premiums in recent years, plus uneven demand for certified beans, is further undermining support for certification. In the long run a premium must be paid by the offtaker and/or the consumer to justify the farmer s time and cost to certify his beans. Source: Rainforest Alliance. 12
Commodity exchanges could transform coffee marketing ECX geographical reach, 2012 Many initiatives are under way across SSA to create commodity exchanges (CEX) The Ethiopia Commodity Exchange (ECX) opened in 2008, trading five commodities The ECX currently trades around 60% of Ethiopian coffee production. But problems over the transparency and management of the Nairobi Coffee Exchange (NCE) persist, resulting in periodic boycotts by traders. Benefits for farmers: Guaranteed market, accurate prices, security of payment, new financing opportunities (warehouse receipts can be used as collateral) Benefits for buyers/traders: Fair & dynamic prices which reflect supply & demand, reduced transaction and transport costs Commodity exchanges are no panacea, but they can catalyze crop marketing. A high and diversified level of production is required to set up a successful exchange. 13
Spending on food is forecast to triple by 2022 Change in urban household spending, US$ millions, 2012 vs 2022 7,000 Accra Lagos Nairobi 6,000 5,000 4,000 3,000 2,000 1,000 0 Food & groceries (2012) Food & groceries (2022) CFTA (2012) CFTA (2022) Hardware (2012) Hardware (2022) Furniture & Furniture & appliances appliances (2012) (2022) Mobile phone (2012) Mobile phone (2022) Spending on food in Accra, Lagos and Nairobi will rise by 230% in 2012-22, to US$6.7bn. Coffee consumption will rise in line with purchasing power & changing dietary habits. Sources: BoAML. 14
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