Kenyan entrepreneurs see online coffee auction as way to get a better prices, fast payments

NAIROBI, Kenya (AP) _ It didn't seem right. While Americans were paying $4 a pop at Starbucks for a latte made of Kenya's finest AA arabica coffee, farmers in Kenya were uprooting trees because

Wednesday, June 12th 2002, 12:00 am

By: News On 6

NAIROBI, Kenya (AP) _ It didn't seem right. While Americans were paying $4 a pop at Starbucks for a latte made of Kenya's finest AA arabica coffee, farmers in Kenya were uprooting trees because there was no money in the crop.

``We realized there has to be something in between,'' said Titus Gitau, a 34-year-old Kenyan entrepreneur.

So Gitau and Stephen Njukia, 38, went to work on a way to get a better price and prompt payment for farmers in eastern Africa who grow the specialty coffees prized by trendy coffee shops in America, Europe and Japan.

After the world's first Internet coffee auction was held in Brazil in 1999, they were confident African coffee producers could offer their product in the same way.

``The essence of our plan is to create the premier Internet commodity exchange to support trade in African soft-commodities such as tea, coffee, cocoa and macadamia,'' Gitau said.

Working with the Specialty Coffee Association of America, the two helped set up the East African Fine Coffee Association and held their first auction in April on africanlion.com.

Ueshima Coffee Co. of Japan paid $453 each for two 110 pound-bags _ $106 more than the same coffee earned on the traditional trading floor at Nairobi's weekly auction.

Only 3 million of the 114 million bags of Kenyan coffee sold last year were classified as specialty _ a quality determined by the soil, altitude, rainfall and temperature where the coffee is grown as well as by the care it receives.

But Gitau and Njukia believe specialty coffee is where the money lies for farmers in Kenya, Uganda, Tanzania, Rwanda, Burundi and Ethiopia _ the home of arabica, which accounts for two-thirds of global commercial coffee production.

Although Kenya, the largest producer of quality arabica in the region, accounts for less than 1 percent of all coffee sold on the world market, 95 percent of its output is arabica. And coffee is Kenya's fourth-largest earner of foreign exchange.

Njukia acknowledged that African countries can't compete in volume with coffee producers elsewhere, but said they can and should compete in quality, which can fetch the highest prices.

``Burundi has really top quality specialty coffee, but who knows about Burundi?'' Gitau said. ``The Internet works to let small but discriminating roasters know what's out there.''

Both Gitau and Njukia are from coffee-farming families in central Kenya, home to some of the world's best specialty coffees. Proceeds from coffee grown during Kenya's heydays in the 1960s and '70s paid for their educations at the University of Southern California and Texas Tech.

But Kenya's coffee production, 65 percent of which comes from farms of half an acre or smaller, has declined by half over the past decade. Critics say this has been largely due to mismanagement and corruption in the coffee cooperatives and on the government coffee board.

Farmers, most of whom have had no way of knowing what their coffee sells for at auction, wait for months to get paid by the cooperatives. They also say the cooperatives cut earnings even further by charging them for fertilizer, pesticide and fungicide they often never receive.

Gitau and Njukia are convinced they can get payments to farmers in 24 hours.

They are looking for $1.25 million in venture capital to set up a proper exchange, a laboratory to verify coffee quality and an information network to let farmers know about prices in Nairobi and around the world.

``What the market is looking for is consistency, and this depends on the farmer being paid regularly and promptly,'' Njukia said.

Not everyone is so enthusiastic. Dirk Sickmuller, managing director of Taylor Winch, one of the two main exporters of quality coffee in the region, said the high prices at the online auction were due mainly to its novelty.

``If you give something into a big market, and you give it in extremely small quantity, then prices will be fantastic,'' he said.

Sickmuller also claimed the supply of specialty coffee was growing faster than the demand, which will ultimately make prices fall.

Michael Otieno of the Coffee Board of Kenya doubted that the online auction would bring much benefit to farmers, since the quantities for sale were so small.

``As much as the system is good idea, we don't want to send a wrong signal that will make farmers think it's magic,'' he said.