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The Kenyan Coffee Auctions

My good friend Grant Rattray from Mercanta our importers shared a piece of work with us a few weeks back, and I thought it so interesting I asked if he would mind me sharing it with you.

I hope you enjoy

Kenya’s coffee auction system dates back to 1934. The auctions still take place at the Nairobi Coffee Exchange and are widely considered to be most transparent distribution system for fine green coffees anywhere in the coffee world and inspired the model for the Cup of Excellence auctions.
 
Coffee growing was introduced in Kenya by the British around 1900. In the 1950, several extremely successful hybrids from Scott Laboratories were introduced and these have largely replaced the original French Bourbon stock which had been brought to Kenya from neighbouring Ethiopia. The most well-known are SL28 and SL34 and are Bourbon varieties and lend Kenya the distinctive big body and winy blackcurrant notes for which it is famed.
 
Following independence from the British in 1963, Kenya organised their coffee industry around a weekly government-run open auction system. This transparent system is establishing a pricing hierarchy based on quality with finer lots fetching higher prices. There is now increasing competition for the better-known estates and co-ops and particularly for the AA grade beans. The grades are simply a measure of bean size, not of defect tolerance. AA is screen 17/18; AB is screen 15/16 with a tolerance for 10% below screen 15.
 
Ahead of each auction, samples of each lot are distributed to the 50 or so licensed exporters – or ‘members’ – of the Nairobi Coffee Exchange where they are cupped and sent on also to their customers. In this way, Mercanta receives samples for cupping in our laboratory. We then instruct our exporter on our preferred lots. An agent then bids on behalf of the exporter at the auction to secure the necessary lots.
 
Since late 2006, some of the restrictions governing the compulsory auction platform have been relaxed. Farmers maintained that the auction system encourages the existence of a long chain of middlemen who eroded the farmers’ income. Supporters of the auction, however, claimed that the auction promoted a price discovery mechanism. The government has licensed 32 independent marketing agents who are now permitted to sell directly to foreign green coffee buyers and bypass the auction system and trade on the open market. Until then, all Kenyan coffee at the auction had been sold through three marketing agents who demanded a fee from the grower for their services. These new licensees were required to fulfill certain criteria before being awarded their license including storage standards, safety and a bank guarantee to ensure farmers are paid.
 
Today, in 2008, many of the small farmers have yet to find path to the international market though this situation is changing steadily. The auction system, however, continues to run in parallel and is open to all producers.
 
Finally, we should point out that when buying through the auction system, it can be difficult to gather detailed information on the precise provenance of the coffee. We have visited some of the estates that we know well, such as Gethumbwini, but it is not always possible to achieve complete traceability on all lots. Again, this situation is changing as the market in Kenya – both through the auction and the new licensed marketing agents – adapts to the needs and demands of the specialty coffee roaster and their customers.

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4 Comments

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  2. Interesting times eh! It would be interesting to know how many of the marketing agents are miller-exporters, I reckon a huge amount depends on the integrity of those guys. They have so much power in being able to buy up parchment coffee from thousands of co-ops, especially those that are badly organised and all too easy to take advantage of. On the positive, the growth in the demand for speciality gives an incentive for miller-exporter who is keen to work with coops to discover potential wow crops. Or how about loads more co-ops doing their own milling? Bring it on!

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