This article takes a look at how the coffee industry of Kenya is being affected by regulation within the country and how the industry seems to compare to deregulated Uganda. Coffee was once Kenya's biggest foreign-exchange earner, but that is not the case today. The country's record crop which was in 1988 totaled to 127,000 tonnes. Last season the crop totaled to less than 45,000 tonnes which was only 0.5% of the total coffee production worldwide.
One reason this is happening is that Kenya has a growing middle class. Although this is good the land that is being developed for their housing is often times coffee plantations which clearly would drive down output. Also, 60% of the country's production is due to smallholders which are consistently leaving the industry to grow other crops due to low prices.
However, if we look at neighboring Uganda we see that their coffee production has doubled since 1990. According to the article Uganda is also fetching a much higher price for their production. In Uganda much of the beans are bought directly from the farmers while in Kenya all the beans are taken to a regulated exchange to be sold. The fear surrounding the Kenya exchange is that groups are colluding in form of a cartel in order to drive down the prices of the beans. According to the article it seems that the industry has flourished since being liberalized in 1992 while Kenya's has floundered since regulation has been introduced. No matter what the true cause is, it is troubling to see that Kenya's once powerful industry is performing so poorly today.
http://www.economist.com/news/finance-and-economics/21695564-cautionary-tale-about-overregulated-industry-bitter-harvest
It is very interesting to see how government regulation affects output and foreign exchange rate. If Kenya's method is more effective, why wouldn't Uganda also use that method? Also, wouldn't a Kenyan cartel want to drive up the price so they receive higher profits?
ReplyDeleteAccording to the article, it seems the old unchanging agriculture system is the major affect of Kenya's decreasing. As we can see in the article, only 10% of the beans are bought directly from famers, which decrease the direct income of famers, pushing them changing to other field. At the same time, because of the increasing coffee beans produced in Uganda, more supplying decreases the price more. It's time for Kenya to streamline the circulation of coffee bean market.
ReplyDelete7) To answer Charlie’s question, I am pretty sure that Uganda has a cartel because there is no regulation. Therefore, obviously cartels cannot exist in the presence of regulation. In addition, I agree with Dianyi in that if Kenya wants to achieve more growth in this industry they need to find a process that puts the money directly into farmer’s hands. However, doing that is no easy task. This is even harder considering that Kenya is not a developed country by any standards and this sort of thing generally takes far longer in these situations
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