Auction Upgrade

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NAIROBI, Kenya

The Nairobi Coffee Exchange (NCE) maintains a sophisticated auction floor that dates to 1963. The auction has evolved since 1934 to become the most important coffee marketplace in the country.

Kenya grows coffee largely for export. Currently, 90% of all coffee is traded on the exchange, generating in a typical year around $200 million (Sh20 billion). During the 2015/16 harvest Kenya shipped 6.1 million kilos to the US, much of it specialty grade. The country exported 43,789 metric tons of coffee in 2014/15. Germany and Belgium are the leading buyers, the US ranks third.

Prices paid by US buyers averaged $296 per 50-kilo bag, the highest of any destination country.

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Individual coffees stand out, several Kenyan single-origin coffees rank among the top best coffees on Coffeereview.com, but most of the harvest ends up in blends.

“The exchange model is tried and tested,” says Daniel Mbithi, the NCE’s c.e.o. Automation was achieved in 1997 to insure transparency in bidding, but just as important the exchange permits farmers to earn a guaranteed minimum floor price before they begin buying inputs and harvesting. Reserve prices are set by marketing agents in consultation with farmers and are not disclosed.

Professional cuppers assign grades from samples that are available to buyers for inspection for defects 12 days before the auction. Buyers receive 250 grams from each lot. Storage is in bonded warehouses where certified coffees, typically Fairtrade, UTZ, 4C and Rainforest Alliance lots are not co-mingled.

While automated, the current trading system limits participants to those on the trading floor, which inhibits price discovery. This is because bidders must be present to press a button at the buyer’s seat. Prices are shown on a digital screen. The price rises so long as there is more than one bidder pressing the button. The last to press buys the lot.

Currently, there are 70 licensed dealers and 10 marketing agents with an additional 19 warehouse operators permitted on the floor. Mbithi said that remote bidding via the internet would enable more participation.

Buyers can bypass the auction and purchase direct beginning in 2006 when the so-called “second window” was introduced.

- By Dan Bolton