Africa Must Wake Up And Smell The Opportunities

By Greg Mills and James Kibera

ON THE road from Entebbe’s airport is a billboard that reads: “The Right Quality; The Right Quantity; The Right Price.”

There is perhaps no better guide to how the market works — forgetting the irony, since it is an oil company’s slogan. But since countries get rich by making things and selling them, and because the rise of China and India have for now made much more difficult the manufacture- and export-led growth path for Africa, what might the continent produce in the right amounts, quality and price to compete and prosper?

The boom in oil and other minerals would suggest this is an area of comparative advantage, but also one where African states will have to establish, over time, better schemes of beneficiation.

Services (especially tourism) and agriculture are two others. Soil fertility, water and the relative absence of commercial farming grant many African states an advantage in the latter. But Africa’s relative decline in the world coffee trade, an unregulated crop, suggest that some more thought is needed about how to compete.

Global coffee production should be close to 8-million tons this year. It is a buoyant market, with growth driven by new consumers in emerging economies and in the producers themselves. The world has a growing taste for coffee. There is also an increasing sensitivity in the west linking their affluent coffee tastes to poverty alleviation in producing areas.

Yet Africa has fared relatively poorly in terms of output growth. Its slice of world production has diminished from a peak of one-third in the 1970s to 12% , even though it possesses one-third of the area under coffee cultivation. Not only has the world increased production nearly twofold in the past three decades, but Africa now produces less than it did in the 1980s. This is due to a combination of factors: the end of the government controlled global quota system and introduction of the free market in 1989, low crop yields, a failure to invest in new trees and the planting of alternative crops, disease, and insecurity in key producing countries including Côte d’Ivoire, Angola and Zimbabwe. But things have got better in other ways for Africa, with the move to better beans for export — a shift to what are known as “specialty coffees”.

The world coffee industry is worth $12bn to the producers, $65bn to the wholesalers and $100bn to the retailers and coffee shops. There is thus a push to get African producers to add more value to their product, through roasting, for example, and developing their own international brands. But three things make this unlikely. First, it costs about four times as much to move roasted than green beans. Second, roasters and retailers abroad who control the delivery of branded end products and who mostly rely on blends, are unlikely to roll over and accept others stealing their market. Third, coffee has a shelf life of a week to six months depending on the packing.

While opening up export markets, better branding and easier certification of African products is a second imperative, a third is that Africa needs to develop its domestic markets. Brazilians consume 6kg of coffee a person; Africa’s largest producer, Ethiopia, 4kg. At current rates of growth, by 2010 Brazil will vie with the US as the largest coffee drinking market, with about 20-million consumers. If the 110-million person East African market could grow its domestic consumption to 2kg a person, it would consume three-quarters of its output. Realizing such growth requires developing a product — a soluble, cheaper instant coffee — catering for the domestic market.

Africa’s relative decline has paralleled the rise of Vietnam as a producer in the past 20 years. Other Asia producers, notably India and Indonesia, are also benefiting now from the investments they made in the sector in the 1990s.

It takes about three years for a coffee tree to mature, seven for peak production. A fourth imperative is to realize that the market and competitors are not standing still, and to plan ahead. This goes with opening up quality production areas in western Ethiopia, southern Tanzania, eastern Uganda and western Kenya that have great volume and quality potential.

A fifth imperative is to realize grand aid strategies have little use in this sector and that domestic policy and practices matter. Aid can usefully play a role in developing extension services for farmers, improving Africa’s low yields, recognizing though that the long-term viability ultimately depends on competitiveness. More important, there is a need for governments to realize that what is good for coffee, like any other business — whether this be policy from planning to implementation, governance, infrastructure and security — is good for their country. Governments need to wake up, smell the coffee and pursue strategies to realize Africa’s comparative advantage in agriculture.

Dr Mills heads the Brenthurst Foundation; Kibera is a Nairobi-based businessman in the coffee trade. Both attended the recent African Fine Coffee Conference in Kampala.

The article was first appeared in the Business Day of 3 March 2008