Article

Uganda To Lead Coffee Production Growth In East Africa Through To 2025/26

Fitch Solutions / Agribusiness / Ethiopia / Mon 15 Aug, 2022

fs disclaimer

Key View:

  • At Fitch Solutions, we forecast that coffee production in East Africa (Ethiopia, Kenya, Tanzania, and Uganda) will grow by 2.2% in 2022/23, led by Uganda, followed by Kenya and Ethiopia while we expect Tanzania’s output to decline.
  • Over our forecast period, between 2021/22 and 2025/26, we expect that East African coffee production will expand at a compound annual growth rate (CAGR) of 3.0%, with growth concentrated in Uganda and to a lesser extent Ethiopia.
  • On the demand side, we see East Africa’s regional coffee consumption rising at a CAGR of 2.4% (2021/22 to 2025/26), dominated by Ethiopia, which will account for more than nine-tenths of total demand over the five-year period.
  • With regard to trade, we see the East African coffee surplus rising from 12.7mn to 14.4mn bags over our forecast horizon with Uganda set to generate the largest individual net surplus increase.
  • As a result, we expect the region’s aggregate coffee exports to rise up to 2025/26 and we also anticipate the robusta coffee share in East Africa’s total coffee exports to rise, in turn resulting in a lower unit export value, on account of the robusta focus of Ugandan production.

At Fitch Solutions, we forecast that coffee production in East Africa (Ethiopia, Kenya, Tanzania, and Uganda) will grow by 2.2% in 2022/23, led by Uganda (4.8%), followed by Kenya (1.3%) and Ethiopia (1.2%) while we expect Tanzania’s output to fall by 4.2% - in total, we anticipate the coffee production of the region rising from 16.4mn in 2021/22 to 16.7mn bags in 2022/23. For both Uganda and Ethiopia, we believe that coffee output in 2022/23 will represent highs for both countries for at least two decades, with Ugandan output rising to 6.7mn bags and Ethiopia output rising to 8.3mn bags – for the Ugandan coffee industry, this will also mark the sixth year in the ten years up to and including 2022/23 in which the Ethiopia-Uganda production differential has narrowed, by 0.2mn bags in this instance. Between 2011/12 and 2015/16, Ethiopia’s coffee output exceeded Uganda’s by 83.9%, over the next five-year period this figure declined to 41.0% and we forecast that it will average 22.1% over our forecast period (2021/22 to 2025/26).

Fitch Solutions - East Africa Coffee Production Forecast

Regional Output To Rise By 2.0MN Bags Over Forecast Period

f = Fitch Solutions forecast. Source: USDA, Fitch Solutions

Ethiopia is set to remain the largest producer (as well as consumer) of coffee in East Africa: in 2022/23, we anticipate Ethiopian output to account for 49.4% of the total output of Ethiopia, Uganda, Tanzania, and Kenya combined – a figure that we expect to dip only slightly over our forecast period, seeing the Ethiopian share in 2025/26 at 47.3%. Although first cultivated in Yemen in the sixteenth century, (arabica) coffee is native to Ethiopia and was commercially harvested from wild plants and trees as early as the fifteenth century – in the twenty-first century, Ethiopian coffee production has risen at a compound annual growth rate (CAGR) of 5.2%, from 2.8mn bags in 2000/01 and 6.1mn bags in 2010/11 to 7.6mn bags in 2020/21: in 2021/22, output surpassed 8.0mn bags for the first time and we forecast that it will climb to 8.7mn bags in 2025/26. In the near term, coffee-to-khat (a shrub whose leaves are chewed as a stimulant and which is native to eastern and southern Africa as well as Yemen) crop switching poses a downside risk to our production forecast: the government of Ethiopia takes a neutral position on the cultivation of khat (although benefits from the crop’s export revenue) while some farmers favour its cultivation on economic grounds.

In Uganda, the arrival to maturity of a number of new (or, newly planted) plantations – typically, coffee trees require between four and seven years after planting to reach full maturity and, hence, full yield capacity – is set to drive robust production growth in 2022/23. We expect output to rise by 300,000 bags y-o-y, reaching 6.6mn bags, which will represent a new record output and a doubling of an annual output in just 12 years. In comparison to both Tanzania and Kenya (see below), Uganda is less exposed to elevated fertiliser prices due to the low fertiliser-use farming regimes prevalent amongst the country’s coffee producers. The Ugandan government, via the National Coffee Policy, has supported recent increases in coffee output – in the main, by expanding access to coffee seeds, agricultural inputs, and planting land – with the average annual production growth rate over the ten years up to and including 2021/22 standing at 8.2% (over the second-half of this period, the average rate stood at 5.7%). Of Uganda, Ethiopia, Tanzania, and Kenya, we at Fitch Solutions forecast that Uganda will achieve the highest production CAGR over our forecast period, of 5.0% (2021/22-2025/26), with the other three countries achieving CAGRs of 1.6%, 2.0%, and 1.3% respectively.

For Tanzania, we see coffee production falling by 50,000 bags (from 1.20mn to 1.15mn bags) on the back of an expected fall in crop yields caused by elevated fertiliser prices – in turn, exacerbated by the drier than usual conditions during the March-to-May rainy season. We do not regard this fall as a structural issue and anticipate a full recovery of the 2022/23 fall in output in 2023/24, with coffee production then climbing to 1.30mn bags in 2025/26, marginally below the record high of 1.35mn bags achieved in 2020/21. To date, efforts by the Tanzanian government to increase coffee output have concentrated on replacing aged coffee trees with new ones in order to increase unit yields – should a focus on harvested area be added to these efforts, it would represent an upside risk to our production forecasts although we highlight that the coffee development strategy announced by the government in June 2021 (to run from 2021 to 2025) targeted seed distribution efforts at existing coffee plantations in an effort to stimulate tree replacement.

Elevated Fertiliser Prices To Weigh On Production Growth In Tanzania In 2022/23

Uganda To Benefit From Low-Fertiliser Farming Regime

f = Fitch Solutions forecast. Source: USDA, Fitch Solutions

Meanwhile, coffee production in Kenya has stagnated for a number of years and is yet to exceed the record annual production set in 2002/03, of 926,000 bags: between 2017/18 and 2021/22, output averaged 744,000 bags per year and we expect production in 2022/23 to amount to 760,000 bags (a y-o-y increase of 10,000 bags). However, we highlight that – as for Tanzania – high fertiliser prices will weigh on crop yields and so pose a downside risk to our short-term production forecast for Kenya (whereas upside production risk is limited by a shortage of planting materials, most noticeably new coffee seeds). Between 2016 and 2020, according to UN FAO data, Kenya coffee yields averaged 3,600 hectograms (or 0.36 tonnes) per hectare, which represents a better performance than Tanzania (0.29 tonnes/ha) but some way below both Uganda (0.55 tonnes/ha) and Ethiopia (0.65 tonnes/ha). However, over the same period, Tanzanian coffee yields grew at CAGR of 6.0% (rising from 0.24 to 0.30 tonnes/ha) while Kenyan yields fell at a CAGR of 6.6% (from 0.40 to 0.31 tonnes/ha).

Weak Coffee Yields In Kenya Relative To Regional Peers

(tonnes per hectare)

Source: UN FAO, Fitch Solutions

Over our forecast period, between 2021/22 and 2025/26, we expect that East African coffee production will expand at a compound annual growth rate (CAGR) of 3.0%, rising to 18.4mn bags at the end of the five-year period, with growth concentrated in Uganda and to a lesser extent Ethiopia. By 2025/26, we expect annual coffee production in East Africa to have risen by 2.0mn bags (when compared to output in 2021/22), of which 1.4mn bags will be produced in Uganda, 0.6mn bags in Ethiopia, 0.1mn in Tanzania, and the remaining 40,000 in Kenya. At a global level, we anticipate coffee production to expand at a CAGR of 2.1% through to 2025/26, and thus see the East African share of global production rising over this period, from 9.8% in 2021/22 to 10.2% in 2025/26 – continuing a production share recovery that began in the 2010s, after East Africa’s contribution to global output fell to 7.3% on average during the first decade of the twenty-first century.

On the demand side, we see East Africa’s regional coffee consumption rising at a CAGR of 2.4% (2021/22 to 2025/26) – dominated by Ethiopia, which will account for more than nine-tenths of total demand over the five-year period – rising to 4.0mn bags in 2025/26. In 2022/23, we forecast that domestic coffee consumption in Kenya, Tanzania, and Uganda, where coffee remains an export crop for the most part, will amount to 282,000 bags – or just 3.3% of the combined coffee consumption of the three countries – whereas, we see Ethiopian demand rising by 3.2% y-o-y, climbing to 3.4mn bags or 41.7% of domestic output. We highlight that the impact of Covid-19 and related social restrictions has had an impact on coffee consumption patterns in East Africa, prompting an increase in consumption at home and/or in offices, that may threaten the business model of coffee-based retail outlets, such as coffee shops and restaurants, particularly if behavioural changes prove to be longer-lasting than public health policies.

Fitch Solutions - East Africa Coffee Consumption Forecast

Demand Dominated By Ethiopia

f = Fitch Solutions forecast. Source: USDA, Fitch Solutions

With regard to trade, we see the East African coffee surplus rising from 12.7mn to 14.4mn bags over our forecast horizon with Uganda set to generate the largest individual net surplus increase (of 1.3mn bags): as a result, we expect the region’s aggregate coffee exports to rise up to 2025/26 and we also anticipate the robusta coffee share in East Africa’s total coffee exports to rise, in turn resulting in a lower unit export value, on account of the robusta focus of Ugandan production. Between 2017 and 2021, the value of coffee exports (HS Code: 0901) from Ethiopia, Kenya, Tanzania, and Uganda amounted to USD 8.9bn (equivalent to 5.6% of the value of global coffee exports), with foreign sales led by Ethiopia (50.6% of the East Africa total) and Uganda (28.4%) – Ugandan coffee exports, despite exceeding those from Ethiopia in terms of volume, receive a lower unit price: in 2021, the unit export value of the former was USD 1,987/tonne and the latter was USD 3,090/tonne. For the four countries as a group, exports of coffee represented the second largest source of export revenue (as assessed at the four-digit HS code level) after gold, accounting for 10.5% of all export revenue over the five-year period.

Growing Surpluses To Drive Exports

Coffee Production Balance

f = Fitch Solutions forecast. Source: USDA, Fitch Solutions

Fitch Solutions - East Africa: Coffee Production And Consumption Forecasts

Geography Indicator 2017 2018 2019 2020 2021 2022f 2023f 2024f 2025f 2026f
Ethiopia Coffee production, '000 60kg bags 6,943.0 7,055.0 7,350.0 7,475.0 7,600.0 8,150.0 8,250.0 8,400.0 8,550.0 8,700.0
Ethiopia Coffee production, % y-o-y 6.7 1.6 4.2 1.7 1.7 7.2 1.2 1.8 1.8 1.8
Ethiopia Coffee consumption, '000 60kg bags 3,100.0 3,150.0 3,193.0 3,140.0 3,297.0 3,330.0 3,436.5 3,508.7 3,575.4 3,636.1
Ethiopia Coffee consumption, % y-o-y -0.3 1.6 1.4 -1.7 5.0 1.0 3.2 2.1 1.9 1.7
Ethiopia Coffee consumption, kg per capita 1.7 1.7 1.7 1.6 1.7 1.7 1.7 1.7 1.7 1.6
Ethiopia Coffee production balance, '000 60kg bags 3,843.0 3,905.0 4,157.0 4,335.0 4,303.0 4,820.0 4,813.5 4,891.3 4,974.6 5,063.9
Ethiopia Coffee self sufficiency, % 224.0 224.0 230.2 238.1 230.5 244.7 240.1 239.4 239.1 239.3
Kenya Coffee production, '000 60kg bags 850.0 720.0 850.0 750.0 650.0 750.0 760.0 770.0 780.0 790.0
Kenya Coffee production, % y-o-y 13.3 -15.3 18.1 -11.8 -13.3 15.4 1.3 1.3 1.3 1.3
Kenya Coffee consumption, '000 60kg bags 46.0 44.0 55.0 36.0 81.0 73.0 78.1 87.5 97.1 106.8
Kenya Coffee consumption, % y-o-y 24.3 -4.3 25.0 -34.5 125.0 -9.9 7.0 12.0 11.0 10.0
Kenya Coffee consumption, kg per capita 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.1 0.1 0.1
Kenya Coffee production balance, '000 60kg bags 804.0 676.0 795.0 714.0 569.0 677.0 681.9 682.5 682.9 683.2
Kenya Coffee self sufficiency, % 1,847.8 1,636.4 1,545.5 2,083.3 802.5 1,027.4 973.0 880.2 803.2 739.6
Tanzania Coffee production, '000 60kg bags 1,050.0 1,150.0 1,300.0 1,250.0 1,350.0 1,200.0 1,150.0 1,200.0 1,250.0 1,300.0
Tanzania Coffee production, % y-o-y -4.5 9.5 13.0 -3.8 8.0 -11.1 -4.2 4.3 4.2 4.0
Tanzania Coffee consumption, '000 60kg bags 50.0 50.0 50.0 50.0 75.0 75.0 75.0 75.0 75.8 77.3
Tanzania Coffee consumption, % y-o-y -3.8 0.0 0.0 0.0 50.0 0.0 0.0 0.0 1.0 2.0
Tanzania Coffee consumption, kg per capita 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Tanzania Coffee production balance, '000 60kg bags 1,000.0 1,100.0 1,250.0 1,200.0 1,275.0 1,125.0 1,075.0 1,125.0 1,174.3 1,222.7
Tanzania Coffee self sufficiency, % 2,100.0 2,300.0 2,600.0 2,500.0 1,800.0 1,600.0 1,533.3 1,600.0 1,650.2 1,682.5
Uganda Coffee production, '000 60kg bags 4,875.0 4,600.0 4,650.0 5,475.0 6,630.0 6,250.0 6,550.0 6,900.0 7,250.0 7,600.0
Uganda Coffee production, % y-o-y 37.3 -5.6 1.1 17.7 21.1 -5.7 4.8 5.3 5.1 4.8
Uganda Coffee consumption, '000 60kg bags 250.0 250.0 250.0 100.0 100.0 125.0 128.8 132.6 136.6 140.7
Uganda Coffee consumption, % y-o-y 0.0 0.0 0.0 -60.0 0.0 25.0 3.0 3.0 3.0 3.0
Uganda Coffee consumption, kg per capita 0.4 0.4 0.3 0.1 0.1 0.2 0.2 0.2 0.2 0.2
Uganda Coffee production balance, '000 60kg bags 4,625.0 4,350.0 4,400.0 5,375.0 6,530.0 6,125.0 6,421.3 6,767.4 7,113.4 7,459.3
Uganda Coffee self sufficiency, % 1,950.0 1,840.0 1,860.0 5,475.0 6,630.0 5,000.0 5,087.4 5,203.1 5,307.8 5,402.0
f = Fitch Solutions forecast. Source: USDA, Fitch Solutions

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

Download Indicator Summary
 

Thank you. Your download link will be emailed to you shortly.

Please complete to access all articles on fitchsolutions.com.

 

Thank you for registering. To read the article please click on the link we have sent to your email address.

Download Now
 

Thank you. Your download link will be emailed to you shortly.