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July 06, 2008

In Kenya, coffee competes with real estate for land

The coffee industry in Kenya is under siege even as stakeholders fire on all cylinders to revive from a decade of neglect.

While in traditional coffee growing zones farmers have left the farms to grow into bushes and threatened to uproot them, a new attack is emerging menacingly. This time, it is the growing appetite for real estate.

Thousands of acres of prime land under coffee are slowly disappearing as demand for high-end housing in peri-urban areas increases. Areas most affected by the development are those surrounding major towns such as Nairobi, Kiambu, Thika and Nyeri, which are known for their lush coffee estates.

In Nairobi, estates where large scale coffee farms once stood are gradually giving way to real estate. The new development has now caught the attention of the country’s coffee authorities, who see it as a cause for concern.

“This is happening around major towns due to scarcity of land as the towns expand,” said Mr Bernard Gichovi the Coffee Board of Kenya production manager.

Coffee estates account for almost 40 per cent of the total production. Estimates for 2007/08 published by the Coffee Research Foundation show that the estate sub sector is projected to produce 16,696 metric tonnes of the total 41,861 tonnes. This was a marked drop in the projections for 2006/07, which placed the estate sub sector at 17,369 metric tonnes. The reduction is attributed to the changing use of land in former coffee estates.

Most coffee plantations were located near the major towns by white settler farmers due to the availability of good roads and other facilities. After Independence, most of these farms were taken over by influential Africans who continued with coffee farming and even expanded the acreage. At the time, coffee was the number one cash crop in the country.

With time, coffee production dropped, leaving many farmers to look for other more viable land use options. The insatiable demand for real estate near urban towns has provided farmers with the real estate option.

“It is about competition between the two enterprises, which boils down to their profitability,” said Mr Gichovi.

The Kenya Coffee Traders Association executive secretary, Mr Isaac Muchomba, said that this competition has made the coffee estate sub-sector vulnerable. “The returns you can get from a hectare of coffee as compared to real estate are smaller. Coffee also takes a lot of time for one to realise returns,” said Muchomba.

He adds that the survival of the coffee estates now depends a lot on the kind of incentives that the coffee sector receives to improve its competitiveness against other sectors.

Joy Gatende, a former coffee farmer near Nyeri town, has converted her 48 acres of land into real estate. “The town was expanding and since coffee had gone down, we decided it would be good if we could subdivide the land for real estate development,” Ms Gatende said.

On the land where thousands of coffee trees once grew now stands a housing estate named after her late husband.

In Thika district where the trend has taken root, 1,380 acres of coffee estates owned by the giant Makindi, Mahoti and Jumapili Farmers’ Co-operative Society have been sold to private developers. The highest bid placed for the land was Sh710,000 ($11,000) per acre after the group advertised it in newspapers early this year.

The sale of part of the land enabled the debt-riddled society to clear outstanding debts amounting to Sh89 million ($13.6 million) while the rest of their earnings was declared as dividends.

The turn of events points to the danger facing the coffee estates sub sector.

Observers and former farmers are unanimous that the trend to abandon farming started in the 1970s when there was a loss-making spree in the sector.

According to Mr Gichovi, younger people who are inheriting coffee estates from their parents have been the first to sell, unlike the older generation who continue to hold on to coffee. “The younger generation does not have patience since they want quick money. When they see that real estate is more profitable then they cut down the coffee,” he said.

What makes land in coffee estates attractive for upscale housing development is their exclusive nature. Most estates have posh farm houses, which were built in secluded areas by white settlers or wealthy African farmers. The areas are also well endowed with trees and vegetation, which makes them attractive for high end real estate.

“We have very good upscale estates coming up in former coffee estates due to their exclusive neighbourhoods,” said John Kirori, a real estate. “It is about class and these individuals buying the land are building very good houses worth an average Sh2 million,” said Mr Kirori.

With dozens of products to finance housing projects from banks, it has become very easy for the middle class to buy land and build, explained Mr Kirori.

Increased demand for land in former coffee estates has seen land prices shoot up almost three times in one year alone. “Today a quarter of an acre in the coffee estates in Nyeri town costs about Sh700,000 while the same land was going for Sh120,000 one year ago,” said the real estate dealer. In another year or so, the same land will be going for about Sh1 million for a quarter of an acre, he added.

However, according to Mr Gichovi, the new development does not pose a major risk to the country’s overall output.

“The effect in production can only be felt in the specific areas where this is happening,” he said.

From a national outlook, production has remained on an upward trend as new areas, mostly in Western Kenya, increase their acreage of coffee.

Business Daily Africa

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