Value Addition in Coffee Industry in Kenya: Lessons from Cut Flower Sector

"This paper analyzes the activities and distribution of value added in coffee and cut flower sectors value chains. The performance of the coffee sector has been declining since late 1980s, a complete contrast to the fast growth of cut flower industry, which is one of the leading foreign exchange earners in the country. By comparing the structures of value adding activities in the value chains of coffee and cut flower sectors, this paper highlights the constraints that hamper value addition in the coffee industry. There exist large differences in the role various actors play in coffee and cut flower value chains. Whereas farmers participate in almost all stages of the cut flower sector value chain, the processing and marketing processes in coffee industry are dominated by institutions that thrive on information asymmetry in the sector to maximize profits. There is excessive regulation in the coffee sector which curtails farmers’ participation in coffee processing, making the distribution of value added to be highly skewed against the farmers. To improve value addition in coffee sub-sector the study recommends (i) better governance structures in cooperatives, millers and Coffee Board of Kenya, (ii) institutional reforms to increase farmers’ participation in all stages of value chain (iii) incentives to encourage networks and alliances formation among coffee farmers, and (iv) adaptation of coffee branding particularly through single-origin identification i.e. the Geographical Indication (GI) of coffee which offers opportunities for contract farming and joint venture-ship."