What Is The Nairobi Coffee Exchange? How Do Auctions Work?

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The Nairobi Coffee Exchange (NCE) purpose is to auction every batch of coffee beans produced inside Nairobi. It operates under the Nairobi Exchange Management Committee. The Kenyan Agriculture, Food, and Fisheries Authority are responsible for regulating this exchange. The NCE organizes the auction every Tuesday of every week. 

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How Big Is The NCE?

Well, 85%-95% of all Kenyan Coffee is traded via the NCE today. The NCE offers two ways for the coffee trade. First, coffee can be auctioned on the trading floor, where the buyers receive samples before the beginning of the auction. The second option involves direct trade, where the coffee farmers can directly sell their coffee to buyers. 

Breaking Down the Kenyan Coffee Value Chain 300

If you want to buy coffee from Kenya, you must go through this Coffee Exchange. In this article, you will learn how the Kenyan Coffee Exchange works and how coffee is auctioned. 

The Kenyan Coffee Exchange oversees both the trading floor and the sample room where all the coffee beans are stored. Before each Tuesday, the traders put aside 9kgs of coffee from the lot, further divided into parcels of 250 grams. These parcels are provided to the buyers participating in the auction hours before the auction begins. 

After the harvesting is done, coffee farmers bring their coffee cherries to factories, where they are washed and processed. After that, they will make their way into the dry mill, where they are assigned a tracking number each.  Right after this step, the coffee beans are handed over to a marketing agent who properly examines and categorizes them. His findings are noted down in a catalog. The traders will later use this catalog for auctioning the beans in the Exchange.

Just like any other auction, the highest bidder takes the coffee lot. Once the payment is cleared, a worker from the warehouse will issue a warrant. This piece of paper gives the buyer legal ownership of the batch he just bought. 

The money the buyer pays first goes to the marketing agent. It is then his responsibility to deduct his fees from the total amount and pay the farmers. The process might sound smooth, but there are many instances where the farmers weren’t paid for an entire year. When this happens, the farmers cannot pay the laborers working on their farm, thus delaying the following year’s harvest.

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Furthermore, there is another drawback of the Kenyan Coffee Exchange. If a particular batch fails to attract a prospective buyer, it makes its way back to the sample room. A sample batch of 9kgs will be taken out from it this coming Tuesday. This process will be repeated until the coffee is finally sold. This process incurs substantial losses for the farmer as the overall quantity of coffee he gets paid for decreases with each auction.

The Nairobi Coffee Exchange: Is It the Future of Kenyan Coffee? 

The Nairobi Coffee Exchange’s biggest drawback is it cannot predict the price at which a particular coffee batch will be sold beforehand. Thus the farmers have zero ideas about how much profit they will be making, how much they can put aside, and how much they can invest in next years’ products. 

The farmers are at the mercy of the traders. They have no room to negotiate a price for their harvest. They can only hope that their harvest gets paid a handsome sum that is above their breakeven point. 

Despite having a sampling process before the auction, the NCE cannot ensure higher pay for better quality coffee. If you ask Nairobi farmers, they will voice the same concerns. These concerns are why most farmers do not even try to produce better quality coffee, as there is no higher pay guarantee.  

The NCE took solid measures to eradicate any doubts about its effectiveness from the farmers’ minds by introducing Second Window. This option lets farmers trade with buyers directly. This method has given the farmers the option to build long-term relationships with the buyers. This way, the farmers know who will buy their harvest and what price they are willing to pay.

The Second Window feature was able to appease the farmers and ensure they can sell their coffee to the farmers directly. However, the NCE introduced this option 15 years ago; still, most farmers go for the auction. This action indicates that most farmers aren’t adequately aware of the benefits of the Direct Trade through the Second Window. 

There is one argument that justifies why farmers are still going for auctions. Even if through direct trade, the farmers and buyers can close a deal at a low price, they have to incur the high shipping price. For a small-scale farmer who is only selling two, or three containers of coffee, it is not economically viable to cover the shipping cost, which is a hundred times greater than the coffee lot’s actual price. 

The Verdict

So there you go. Now you know about the Nairobi Coffee Exchange and how it works. Despite having shortcomings, the coffee exchange is the most crucial body that oversees Nairobi’s coffee trade. In recent years, the NCE has been trying to ensure transparency of trade. It has laid down clear guidelines for both farmers and buyers. If you have anything to share about the NCE, do leave a comment below.