The coffee auction is set to go on recess in the month of May as the main crop season comes to an end following a decline of high-quality beans for trading.

Nairobi Coffee Exchange (NCE) has announced that the auction will hold its last auction on May 5 before breaking for one month.

The main crop season started in November last year with the crop sustaining the market up to this month when the ratio of high-quality beans started dwindling.

The auction will now be banking on the short-season crop from eastern and parts of western Kenya when it resumes in June, which will sustain the auction up to November when the main crop coffee is expected to hit the market again.

The auction normally goes on recess around June of every year but this year is breaking early because of a shortage of quality beans to trade.

The low-quality coffee has seen the price of the commodity oscillate between highs and lows during the sales.

Monthly coffee earnings nearly doubled to $90.4 million (Sh10.2 billion) in January as Kenya benefited from high global prices in the market occasioned by a shortage of the produce.

Nairobi Coffee Exchange (NCE) said the earnings jumped 90 percent from $47.5 million (Sh5.3 billion) in the corresponding month a year earlier, helped by a shortage of the produce in the market caused by frost in Brazil that affected production at the world’s leading producer.

The good earnings were also boosted by growth in volumes, which was 64 percent higher in the review period when compared with the previous season.

“The higher volumes offered coupled with the good prices witnessed saw the value of the coffees traded almost doubled,” said NCE chief executive officer Daniel Mbithi.

The number of 60 kilogramme bags traded continued to surge from 132,149 in January 2021 to 217,034 in the review period.

The average price of the commodity in the review period hit a high of $338 (Sh38,363) for a 50 kilo bag from an average of $291 (Sh33,028) in corresponding period last year.

Brazil, which is the top world supplier, produces up to 60 million kilos of the beverage every year but the harsh weather conditions saw the Latin American nation lose up to 20 percent of its entire crop in the last season.

This created a shortage in the world market as Ethiopia also, the world’s fifth largest producer, saw farming activities interrupted by the conflict between the government and the militia in the Tigray region. This resulted in lower supply to the global market.

International prices in New York, which is a benchmark for coffee prices globally have also remained high, coming as a major boost for local prices.

Favourable weather conditions in Kenya saw a marked increase on the volume of coffee offered through the auction which increased to 13.3 million kilos in January 2022 when compared with 8.1 million kilos in the same period the year before.

The Central Bank of Kenya had last year forecast a rise in the price of local coffee in the international market following cases of frost in Brazil.

Due to the corona crisis, Nairobi Coffee Exchange (NCE) was forced to close the physical auction room. As the auction could not fall back on a remote buying system, the sale of coffee became problematic. That is why their decision to apply KOSMOS, the real-time auction system in the cloud, was only accelerated. 

Last summer, they made the switch to an online auction. We spoke to Mr. Daniel Mbithi, Executive Officer at NCE, for a first evaluation. 

In the first place, he is relieved that the coffee sale can be continued smoothly. “Using KOSMOS, the Covid-19 guidelines are met without stopping the trading. Initially, buyers were a bit sceptical about the online system, but we note a tremendous increase in confidence once they are trained on how to use it. Buyers are also enthusiastic because they do not have to face the Nairobi traffic jams anymore to come to the auction.”

Mr. Mbithi explains that all parties concerned benefit from the implementation of KOSMOS. “After only a few weeks of using KOSMOS, we can already state that more participants are attracted, which increases the competitiveness. This results into higher prices for the product and a better income for the farmer! We expect the prices to improve even more once we start marketing KOSMOS outside of Kenya as well.”

Mr. Mbithi states that the online sale of coffee by means of a clock system is “a unique experience for Africa”. He concludes: “As it is also our intention to increase the international accessibility of the KOSMOS platform, we are confident that the coffee sale will grow exponentially over the years to come.”

Key advantages of KOSMOS according to Mr. Mbithi

  • Easy connection and use for the buyers

  • Fair competition and cost-savings for NCE

  • Better prices for the farmers

  • Transparency for all parties involved

NCE - koffieplantage

Functioning of KOSMOS

NCE imports the sales catalogue in KOSMOS, and the remote buyers log in on their standard PC to buy in real time on the clock. Stakeholders and growers can also follow the live sale in the cloud.   

Obviously, growers and buyers can still retrieve individual reports via the information portal. In KOSMOS, the possibilities regarding personal and general reports for the different user groups are even considerably extended in comparison with the previous system. Mr. Mbithi adds: “Thanks to the fact that buyers can print their own reports, high printing costs for NCE are saved.”

‘Falling / rising’ – price mechanism

As NCE is the first coffee auction in the world using KOSMOS, Aucxis was faced with an important software change necessary for rolling out the project. Previously, KOSMOS only supported the ‘falling price’ mechanism, which is used as standard for the sale of agricultural products such as flowers, fruit and vegetables.

Coffee auctions, however, apply the ‘falling/rising’ principle: the price on the clock counts down at a set speed until someone pushes the button. In contrast to the Dutch auction, no transaction is closed at that moment, but a time bar - visualised by 3 dots - starts running during a set time. This is the “last call” to make a higher bid. If one or several other buyers also push their buy button before the time bar runs out, the price will go up at a set time interval. Depending on the auction, the transaction is reached, or – in the case of NCE – there is a new last call for a higher bid, again via the time bar. This process will be repeated until one bidder remains.

Auction System Automation

In April 1998 the coffee bidding process was automated and it changed from the commonly known open-outcry to the push buttons, which has continued until now. This first phase of automating the auction process of the Nairobi Coffee Exchange has served for 20 years to-date! This is commendable system performance as an instrument for the price discovery of the country’s coffee sales.

The upgraded system

The upgraded auction system was successfully taken into service at the beginning of May 2018. The system has a state-of-the-art software and the latest LED technology. This whole development offers coffee growers and buyers the necessary guarantee for a transparent, accurate and reliable sales platform which can stimulate growth in the entire coffee sub-sector.

A trader evaluating the green beans at the trade sample room situated at the 2nd floor, Wakulima Hse