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Author(s):  Karanja, Andrew; Nyoro, James
Introduction

Coffee is undoubtedly one of the most important agricultural commodity in world trade. In early 1990s, earnings by the 52 coffee producing countries were some US $ 10-12 billion with retail sales value, mainly in industrialised countries, of about US$30 billion. This made coffee the second most traded commodity after petroleum. However, the coffee industry worldwide is currently in a crisis. Coffee prices in the world markets, which averaged around US cents 120/ lb (132 cents/kg) in the 1980s, are now around 50 cents /lb (55 cents/kg), the lowest in real terms for 100 years.

The drastic drop in prices in the last five years has severely affected countries that depend heavily on coffee export revenues as well as the livelihoods of 25 million small producers and over 125 million people who directly or indirectly depend on coffee. Although the consequences of the current situation vary across countries, there is little doubt that they are causing immense hardships and escalating poverty in many coffee producing countries thereby posing a very real and wide-ranging threat to sustainable development.

Historically, coffee has been an important commodity in Kenya because of its contribution to foreign exchange earnings, farm incomes and employment opportunities. Prior to 1988, coffee was Kenya’s leading foreign exchange earner and currently ranks fourth after tourism, tea and horticulture, accounting for 10% of the total export earnings in the year 2000 and 6% in 2001. Over 600,000 smallholders are engaged in coffee production and currently command a 48% share of the market.

The remaining 52% is produced on 2,500 estates. While the large farms have been able to maintain production at around 32,000 metric tonnes per annum, the smallholder farmers’ production has declined by 47% in the last decade although the area under coffee has almost remained constant. This decline has reduced smallholder farmer’s share of total production from 70 percent in the 1985 to 48 percent in 2001. This decline could have been accounted for by the depressed coffee prices that followed the collapse of the International Coffee Agreement (ICA) in July 1989. However, the macro-economic and agricultural sector policies as well as specific policies within the industry have played a major role in the downturn of the sub-sector.

Due to the large number of smallholder farmers directly engaged in coffee production, coffee serves an important equity role, one that could not be matched by capital-intensive service sectors like tourism. At the household level, income from coffee accounts for a major proportion of total farm income in the coffee growing areas. These incomes have important multiplier effects in the national economy and more so in rural areas.

The decline in coffee incomes has a direct bearing on poverty in most coffee growing areas. Furthermore as coffee incomes are normally used to finance major household incomes such as school fees, investments, health care which has direct and indirect impact on child poverty. It is with this realisation that Save the Children (UK) undertook a household study in Murang'a district, which is one of the main coffee growing districts in central Kenya. The study had the objective of evaluating economic factors and key social factors that have a direct effect on child poverty. The study also aimed at identifying appropriate strategies that could be used to alleviate child poverty in the district.

Murang’a is a high potential agricultural area on the eastern slopes of the Aberdare ranges with good soils and favourable rainfall. The district occupies an area of about 748 sq. km with a population of some 350,000 in 1999. Coffee is the main agricultural enterprise and the major source of income. In the last decade coffee production in the district had declined thereby eroding farm incomes and increasing poverty. The SC (UK) study identified liberalisation of agricultural markets as the main factor behind low output prices and high input prices.

Other underlying causes for the decline in coffee production identified in the study were decline in international coffee prices, corruption and mismanagement of the producer organisations (co-operatives), land sub-division and unfavourable weather patterns. The household study identified the need for a further study to evaluate factors beyond the target community, which have positively or adversely affected the livelihoods of farm households in Murang’a district.

This is the focus of the current study.  The main objective of this study is therefore to evaluate the impacts of various international, macro-economic, sectoral and coffee industry policies on smallholder  coffee production, household incomes and poverty. The outcomes of the current study are hoped to add value to the results of the pilot household study by linking the micro-economic results to the international and macro level.

Coffee Prices and Regulation and Their Impact on Livelihoods of Rural Community in Kenya

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