Those of you with an interest in international affairs will know that US President Joe Biden and key members of his administration recently failed to persuade Saudi Arabia to increase the global oil supply. Instead, Saudi Arabia did the opposite and reduced the supply.
Saudi Arabia did not do this alone – it led this process that involved members of the petroleum exporting nations’ cartel, known as OPEC+.
With less oil available on the world markets, the global price for oil could only go up, which was very much to the advantage of the oil exporting nations.
So here is the question: Why did the US president have to plead with Saudi Arabia to increase production so as to lower prices? Why would such a powerful country not just take steps within its own control to bring about this desired end?
Well, it is because global commodity prices are primarily influenced by the market forces of supply and demand.
These forces sometimes favour consumers and sometimes favour producers. And there are times when events shape up to create a situation in which not even the titans of a particular commodity market – like Saudi Arabia with oil – can exert even the slightest influence.
For example, currently the price hovers at about $90 per barrel. But during the global economic slowdown of 2019 brought about by the Covid-19 pandemic, global oil prices collapsed and fell to a low of $30 per barrel – and sometimes went even lower.
Under these circumstances (and leaving aside a rich country like Saudi Arabia) imagine what the governments of oil-dependent developing countries went through when their primary export, oil, was selling at below 30 per cent of its previous price. And bear in mind that this happened at the very time when the Covid-19 pandemic required major new investment in public health infrastructure.
But such is the way things work on global commodity markets.
The reason this should be instructive to Kenyans is that some of our most valuable cash crops – and specifically tea and coffee – are also commodities trading on world markets, and as such, are subject to the forces of supply and demand.
And I have noticed over the years that each time we have a new Cabinet Secretary for Agriculture, the first thing they do is to promise the country reforms of key sub-sectors. In particular they tend to make such promises over the producer prices of tea, coffee, maize, rice and sugarcane.
Now on those last three, the government actually does have some influence, as they are not export commodities. If anything, Kenya is a net importer of each of these. And although no CS for Agriculture would shout this from the mountaintops, we could actually import most of what we need – and especially sugar – at lower prices than what we pay for the locally produced product.
But when it comes to coffee and tea, a different logic applies.
For coffee, we must note that Kenya is not even in the top 10 global coffee exporters. Both Uganda and Ethiopia, for example, export far more coffee than we do. So, we are not a big player – not one of the movers and shakers of coffee production and sales.
For tea we are one of the 'Big Four' alongside China, India and Sri Lanka. But even here there is a limitation. Unlike oil, the production of which is usually controlled by national governments, tea cannot just be kept off the market indefinitely if prices fall. For our small-scale tea farmers to earn a living, tea has to be routinely plucked, processed, sorted and auctioned.
In such a situation, the best that any CS can do is to try and limit the number of official middlemen in the tea or coffee trade. Or supply subsidised fertiliser. Or improve the efficiency of the supply chains.
But none of that qualifies as fundamental reform – and indeed such fundamental reform may not be possible.
For the tea and coffee sub-sectors, the income that farmers earn – no matter how hard they may work – depends largely on factors outside the government’s control.
