Smallholder coffee supply response in Kenya

Abstract

Coffee is an important commodity in terms of its value in the world market and is a major source of foreign exchange earnings for the producer countries. Since the late 1980s the worldwide coffee industry has been plagued with the problem of low producer prices which strongly mitigates against the production and marketing of good quality coffee. In Kenya, c~rmers face the additional problem of high production costs. A combination of these factors presses heavily on the farmers' profit margins. This study analyses the responsiveness of coffee farmers in Kenya to changes in coffee prices. A combination of the Fisher Lag Scheme and the Inverted- V Distributed lag model is used to derive price elasticities of supply for coffee in terms of productivity and quality of coffee for five districts in Kenya. The major determinant of productivity and quality of coffee is found to be the farmers' price expectations. There are other non economic variables which affect farmers' decisions as far as productivity and quality of coffee are concerned. These are: amount of rainfall, annual number of wet/dry days, diseases and time trend. Productivity response estimates are found to be generally higher than quality response estimates. The short run elasticities of productivity response range from 0.299 to 2.14544, while the long run elasticities of productivity response range from 0.53828 to 3.56179. On the other hand elasticities of quality response range from 0.04 to 0.75. The study recommends that the relevant authorities should highly restrict further expansion of area under coffee while at the same time concentrating on ways and means of improving the quality of Kenyan coffee to enable the country to earn a premium price. Kenya should lobby for a larger quota allocation given the recent trends in coffee production. The Coffee Board of Kenya should also come up with a procedure of classifying each farmer's coffee and then _issufiigpayment based on the quality of coffee instead of the present system of paying "average" 'prices to smallholder cooperative societies.