Co-op Bank bags deal to handle coffee exchange billions

Co-op Bank will handle billions passing through the Nairobi Coffee Exchange. [Elvis Ogina, Standard]

Co-operative Bank of Kenya (Co-op Bank) has won the race to handle billions of shillings which pass through the now regulated coffee exchange market annually, boosting the tier one lender’s non-funded income streams.

This came as President William Ruto, speaking in Kirinyaga County during his ongoing tour of the Mt Kenya region, vowed to crack down on coffee cartels that have been fleecing farmers and sustain the ongoing coffee reforms.

The Kenya Kwanza administration is embarking on a coffee sector reform journey, hoping that it can take on the challenges crippling the once vibrant industry.

Under the new reforms, 11 coffee Co-operative unions have been licensed to sell coffee directly at the Nairobi Coffee Exchange (NCE) and overseas thereby eliminating the need for middleman between the farmer and the buyer.

Under the new changes, the Capital Markets Authority (CMA) has also been entrenched as the regulator of the Nairobi Coffee Exchange where the William Ruto administration expects that the regulator will oversee a transparent and efficient price discovery process that benefits farmers.

Successive regimes, including the current one, have blamed cartels for running down the sector, which was once a leading foreign exchange earner.   

The result has been low earnings that have seen thousands of farmers abandon the crop.

The entry of farmer-owned coffee brokerage companies on the NCE trading floor has been billed as a game changer by the Ruto government.

Coop Bank will under the new deal provide the Direct Settlement System (DSS) technology platform on which the clearing and settlement of coffee trades will henceforth be conducted as provided for in the new coffee trading regime supervised by CMA.

Co-op bank was selected as the DSS service provider following a competitive bidding process undertaken by NCE and approved by CMA that saw 9 financial institutions submit their bids.

“The Nairobi Coffee Exchange has appointed, and Capital Markets approved the Direct Settlement System which will lead to speedy and transparent clearing and settlement of the coffee sale proceeds to the coffee farmers," said Co-operatives Principal Secretary Patrick Kiburi Kilemi.

"This will help improve the accountability and governance of our Co-operative Societies."

He spoke during a forum to train the coffee market users including Coffee Brokers, Traders, warehousemen, Coffee Farmers and other service providers on the workings was held in Nairobi on Wednesday.

The training is intended to be in preparation for, and a countdown towards the launch of coffee trading at NCE by the newly-licensed coffee trading firms wholly-owned by coffee societies on Tuesday next week.

Beans from small Kenyan farms end up in speciality coffees from Berlin to San Francisco.

But low prices, rising temperatures, and erratic rainfall are pushing farmers to the brink of collapse.

"Five other unions will be licensed before end of August leading to a total of 16 Unions representing coffee farmers across the coffee growing zones," said Mr Kilemi.

He added the government has ensured there is order and "fair play" in the coffee value chain by eliminating conflict of interest among players as County Governments, Capital Markets Authority and Agriculture and Food Authority will license milling, brokers and buyers respectively.

"By having three distinct licensing authorities, there will be checks and balances along the value chain for the best interest of the Kenyan Coffee Farmer," he said.

"We are in the final stages of working on a modality jointly with County Governments and Capital Markets Authority on registration of Small, Medium and Large Estates into Co-operatives or Associations to enable these categories of farmers also access brokerage licenses from The Capital Markets Authority immediately."

More than 700,000 farmers and another five million Kenyans are employed by the industry and continue to suffer low incomes due to a dysfunctional system that appears to favour middlemen and other other “cartel” members.

President William Ruto moved the coffee reforms docket to the Deputy President's office.

It was previously under the Executive Office of the President.

“The President has instructed me to lead reforms in the tea, coffee, and milk subsectors. This is aimed at putting more money in the pockets of farmers by linking them directly to consumers. The cartels are ruthless, but we will stop at nothing,” said DP Rigathi Gachagua following the announcement.

Coffee was at some point a leading foreign exchange earner, accounting for 40 per cent of forex earnings, but production has dropped over the years.

The crop raked in Sh27 billion in 2022, a notable increase from Sh10 billion in 2020, but a negligible contribution to Kenya’s total exports of Sh873 billion last year.

Coffee production stood at 52,000 tonnes in 2022, according to data by the Kenya National Bureau of Statistics (KNBS).

Former President Uhuru Kenyatta in March 2021 issued an executive order on coffee sector reforms, which envisioned reforms across different areas, including access to credit for farmers and the tabling of the Coffee Bill in Parliament.

Among the new approaches to revive the industry was the reintroduction of the Coffee Board of Kenya.