What is the coffee business? What is the football business? What is the athletics business? What is the flowers business?
For us in Africa, the answers to those questions are very simple indeed. The coffee business is BEANS. The football business is PLAYERS. The athletics business is RUNNERS. The flowers business is GREENHOUSES.
In all of those lines of business, we are part of a global supply chain. In all of them, we remain stuck at the primary production end. We provide the raw material, at a low price (and remain under pressure to make it ever lower). Other people do the sophisticated stuff: they handle the logistics; they build wholesale and retail operations; they manage the final consumer; they nurture brands. And they make all the money.
Let’s look at coffee in more detail. Have you met a rich coffee farmer lately? No, I didn’t think so. That’s because a coffee farmer violates the first law of market power: what is scarce, commands power in the market. Think back to your first economics lesson in school: the entire world economy runs on the fact of scarcity. And those who know how to build scarcity and benefit from it reap the rewards. The rest sit in the heaving crowd waiting for international rescue schemes.
Back to coffee. Why are coffee farmers poor? Is coffee not a valuable product? Actually, it is one of the five most heavily traded commodities in the world. Most producers are in tropical and sub-tropical regions; most consumers, however, live in Europe, America and the Far East. Each cup of coffee therefore represents a global chain of activities, linking connoisseurs, cafe owners, dock workers, clearing agents, warehousers and peasants. We are the peasants in that chain.
There are more than 50 coffee producing countries in the world. Most of those countries contribute a tiny proportion of world output; yet that output might be a large part of their own exports. And there are 25 million coffee farmers around the world, all sending plenty of beans into the system, and mostly living on the edge of poverty. The more they produce, the more the price they receive falls. What they sell is not scarce; it is widespread and easily produced.
Is life just as rough further down the value chain? Not quite. We start to observe some scarcity emerging. Four large coffee processors – Kraft, Nestle, Proctor & Gamble and Sara Lee – control this part of the industry. They buy close to half of the world’s coffee beans every year. They each have coffee brands worth US$ 1 billion or more in sales. They have profit margins of up to 25 per cent – very high compared to other food products.
Business is generally quite good in this part of the line – if you can get in. And as you get further down the chain, scarcity becomes a feature. Once upon a time there were many little coffee shops serving millions of customers. Then some of them got wise and learnt about scarcity: companies like Starbucks built global retail operations and a powerful brand; in other words, Starbucks built scarcity, and now owns more than 13,000 cafes in forty countries. For Starbucks, the sun rarely sets: it charges four or five dollars or more per cup sold. The actual cost of the beans in that cup is actually a few pennies.
In Africa, however, we are content to be in the coffee beans business. And we make a habit of complaining about the exploitation we suffer at the hands of these demons. Let’s stop whining. The savvy guys in coffee have understood scarcity; we have not. The smart operators have understood that you can build different skills, design unique business models and develop powerful brands that allow you to become distinctive and get away from the crowd. We ARE the crowd, and it keeps growing.
Shall we talk football, the world’s most popular sport, supported by maniacs who will pay any price to watch it (this author included)? It is a humungous money-making machine for those who control the scarcity: the top clubs, agents, merchandisers and television companies. Africa’s role in this money-fest is to provide many of the players. The individual players might make small fortunes; our economies get next to nothing for the talent they produce.
You get the picture. We can either complain about the exploitation, or we can realise there are bigger arenas to play in. But those arenas require sophisticated skills, more than just picking up a jembe or kicking a ball around. Until we learn the skill-sets that underpin advanced business models, we will be playing in the poor man’s stadium.
Those are the logistical skills of designing complex supply chains; and the psychological skills of building brands that that command high prices. The skills are known, and they are available to all those who care to open up their minds a little. You can make other people queue up to play in your playground, by your rules. Just think about it.
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{ 7 comments… read them below or add one }
Sunny,Thanks for your great piece.
I really have to touch on youth affairs for economic dictatorship perpetrated by previous Moi and current Kibaki leaderships are the worst forms of social capitalism involving Kenyans. This has given room to suppression of our economy including that of the majority youth in the country. The poor and desperate unemployed youth with scarce resources are being used to finance a larger part of the 93% national budget. Unfortunately the same youth desperately rely on the same self-impoverishing and taxing economy. Certainly, poor Kenyans are being crucified with over-taxation that only benefits the few rich. The current absurd employment strategy through youth entrepreneurship where government is not keen in streamlining the civil service and other corporate institutions, only make potential taxpayers be kicked out from the national development process. The minority who are above 55 years take with them the tax base even as they refuse to create space for the youth to work.
Certainly the more employment there is for the youth the smaller the tax, spending and inequality crises for the whole nation. To get more local job opportunities government would have come up with a regulation to control and balance retirement of those above 55 years and employment of the youth. Also every Ministry, government department, corporate institution and in leadership and politics would have been given representative posts in relation to the number of youth in the country. The approximately 60% national youth population ought to have been reflected in as far as government based employment is concerned. Giving the youth Ksh. 1 billion was the most desperate, demoralizing and debilitating investment that a generation may realize a dream with.
Were I the Minister for Youth Affairs long ago I would have resigned for this political and generational deceit. Why so?
The Ksh.1 billion youth fund does not have a chance to create a wider tax base and hence limited local revenue collection. With this negative tax growth, majority of the youth would only experience a more punishing taxation from government. Everything goes back to government. Male job crisis, instability and immobility among youth have contributed to economic insecurity in as far as sustaining relations in marriages and families are concerned. Youthful men’s economic wherewithal and stability is being tested and questioned by young women. The latter believe that young men are not serious and committed to be in a relationship. Men are thus forced to engage themselves in ‘economic survival tactics’ even as they face unemployment and relationships.
On the other hand, the ‘grabbing hand’ model of managing employment facilities by government bureaucrats for few pockets has been a painful culprit. The ‘invisible hand’ has only succeeded in manipulating the potentially economic youth politically. The recently witnessed ‘red flag’ among the youth at Uhuru Park should alarm government.
Certainly, the youth ought to realize that the price for change especially in an election needs their utmost vigilance.
The marginalization culture against the youth by government should be tackled at a breakneck speed by making themselves not to vote as a measure for ‘Big Brother’ leadership. Youths need rapid revolution as a measure of change for the sake of their generations to come as they prepare to run hard come December. Th youth have to talk before they ‘undress at the ballot’ that to get caught up in the electoral heat of the moment and passion for campaigns and elections.
A psychiatrist once said that, ‘Alienation is the syndrome of our age’.
Regards,
Mundia Mundia Jnr.
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I agree. Hopefully we in africa will soon comprehend this and act accordingly.
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It’s true that as long as we remain in the crowd we will never reap the gains others understand and take advantage of.
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Africa is not a single village inhabited by a small tribe, although some writers still seem to perpetuate such an image (including numerous African waxing about “African culture” etc). When it comes to business and business-mindedness, large differences exist.
In Kenya – differently from many other sub-Saharean countries – there is a palpable attitude shared by many black and white Kenyans alike “No business, we are Kenyan!”
It is hard to pinpoint where this attitude comes from. Part of it is tribalist defensiveness: many of us do not like to do business with people to whom we do not already relate somehow, whom we do not know. A proper entrepreneurial spirit however is the exact opposite of this pernicious frogpondian attitude.
Good products Kenya has; industrious and skillful her workers are; but what largely lacks, is the willingness to put both to good use.
Just one single but suitable example: we see an Export Promotion Council with an extremely active and spirited CEO (Matanda Wabuyele); but his tireless efforts are frustrated by his senior officers (like Jacibnta Kinyili) who sleep under their desks and propagate a “Who are you? Why do you want to do business with us? Go away!” attitude.
Alexander
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Its called value addition right? its actually a skill one now needs in every job out in the West.
There is also ownership. Hopefully everybody has read what the Ethiopians did with Starbucks. We grow this coffee, we demand a higher premium and recognition for this.
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Alexander:
I like “pernicious frogpondian”!
I also know Matanda – I worked with him at PwC Consulting some time ago.
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Vis a vis coffee…the value really is not in scarcity or creation of scarcity but rather in branded value addition…
otherwise agree with the rest of the article.
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