Bumpy road for Coffee Union as it eyes comeback

With assets valued at more than Sh5 billion, KPCU still faces more debts and wrangles it must overcome in order to be back in business.

By Nicholas Waitathu

It remains a bumpy road for the Kenya Planters Cooperative Union (KPCU), currently under receivership and trying to return to business.

This is despite the fact that KCB, which placed it under receivership over debts amounting to Sh643 million in late 2009, agreed to an out-of-court debt settlement.

The giant Coffee Union is still haunted by numerous court cases, massive debts, assets sale, and interference by established coffee firms.  Other obstacles include stiff market competition and lack of goodwill from government.

Rationalise assets

Experts warn that growers already delivering coffee to other millers are unlikely to resume engagement with the Union, owing to credibility issues. Last week, during a special general meeting at Dandora Coffee Mills, farmers adopted a new business plan that allows the board to rationalise assets worth billions.

  Farmers also confirmed directors who have been operating on an interim basis since mid-last year. New Board Chairman William Gatei said they will restructure and implement a new business model that offers farmers better returns through a more prudent price discovery. Mwangi Mwaniki, a coffee farmer in Murang’a County, said salvaging the Union will save them from a skewed value chain.

“With the exit of KPCU in the coffee value chain in 2009, other players, mainly multi-national coffee dealers with local holdings, took full control of the industry,” Mwangi said in a phone interview. “This has subjected farmers to market distortion among other business malpractices.”

  The organisation, once the pride of Kenya’s coffee industry, has been grappling with debts of more than Sh5 billion. Debtors and creditors include farmers, business people, the Kenya Revenue Authority, Coffee Board of Kenya and Coffee Research Foundation, lawyers, commercial banks, and coffee organisations.

Loan recovery has also been slow. Politicians and prominent personalities have been using their influence  to borrow loans, which they later default on.

Industry experts say the board will have a hard time recovering defaulted loans as well as generating funds to settle debts owed to farmers amounting to more than Sh138 million. Over the years, debts owned to KCB accumulated to Sh1.3 billion. But Mr Gatei confirmed that KPCU will pay Sh680 million as the interest accrued has been waived by the bank. 

Repayment plan

“We negotiated for an out-of-court settlement with KCB after agreeing to pay the stated figure which is also within the law. We will pay the debts in five months with an initial deposit of Sh100 million in the next two weeks,” Gatei stated.

Before insolvency, KPCU had more than 100 court cases in local courts where it had sued debtors, creditors, and the State. In turn, the Union was also sued by creditors, the State and farmers. Another issue likely to delay implementation of the business plan is if directors  decide to sell  KPCU assets to offset some debts.

Former directors are opposed to disposing of property, claiming this might only benefit a few. Muchiri Nyaga and Kimanthi Mutuarendu, former directors, said sale of assets will not augur well when all options have not been exhausted.

“We suspect the current directors want to dispose of some properties to benefit themselves at the expense of coffee growers,” Mr Nyaga claimed.

 Last year, an inter-ministerial committee recommended the sale of KPCU assets.