Farmers lose as foreigners tighten grip on coffee trade

Six giant European companies control the multi-billion shilling coffee business in Kenya, raising concerns about possible price manipulation.

With coffee prices at the auction only a fraction of the market prices - which hurts farmers - the Government has recommended the formation of a coffee pricing committee.

However, the proposal is being fought by what the Government has termed forces that have long benefited from the over-regulated market.

Through various subsidiaries, the six companies have seized control of the value chain of the prized bean from the farm to the consumer’s table.

The firms collectively bought around 70 per cent of the beans, worth Sh16 billion, sold through the Nairobi Coffee Exchange for the financial year ended September 30.

Analysis of past trading data confirms the dominance was worse in earlier years, dating back to colonial times.

Fears are rife that too much regulation in the sector has erected unnecessary barriers to entry to create a perfect environment for price manipulation.

Consequently, coffee farmers are getting the shortest end of the stick as their produce reaches the consumer at multiple the price paid at the coffee auction in Nairobi.

Industry statistics paint a picture of how the global companies have enjoyed a near free hand along the supply chain - despite not owning a single coffee bush.

Two out of three coffee beans produced and exported from Kenya last year were bought by the club led by Germany’s Neumann Kaffee Gruppe (NKG), and ED&F and C Dorman, both from the United Kingdom.

Others are Kenyacof owned by Sucafina of Geneva, Switzerland, Engelhart Commodities of London and Luxembourg’s Louis Dreyfus.

Combined, the six firms are among the biggest dealers in cereals and other dry foodstuff globally, with annual turnovers in excess of Sh5 trillion, roughly the size of the Kenyan economy.

As it stands, the scramble for Kenyan agricultural produce, including coffee by Europeans, is still alive and that independence means little for the ordinary farmer.

“I think there is collusion among the traders, which is intended to deliberately exploit our farmers,” said Agriculture Principal Secretary Richard Lesiyampe, who is responsible for crop development.

He becomes the senior-most Government official to weigh in on a matter that directly affects an estimated 700,000 coffee farmers, mostly smallholders, around the country.

The cash crop’s importance has plunged over the decades and is often a source of misery for many of the farmers.

Mr Lesiyampe’s stand could also be informed by the fact that he co-chaired a task force that has made sweeping recommendations that could turn the sector upside down.

The PS added that some of the major traders, who he did not name, could be behind the objections to new proposals that seek to liberalise the sector following the conclusion of a study by the task force led by Joseph Keiyah.

“We are already implementing those proposals that are not subject to an ongoing court battle,” said the PS.

Individual farmers feel the implementation of the amendments would yield better prices for their produce. Ngari Gikandi is a small-scale farmer in Nyeri County who inherited 61 coffee bushes from his father.

He has lost trust in the prevailing scenario where he has to wait a whole year to receive payment “long after everyone else has eaten from his sweat”.

Mr Gikandi was referring to managers of the coffee society, the miller, marketing agent, trader and Government (through taxes). Tales of thieving society managers are commonplace and possibly easier to point out than the price manipulation higher up the value chain.

But Dick Sickmueller, a trader at the Nairobi Coffee Exchange working for Taylor Winch, denied there was any chance of price manipulation.

“How?” Mr Sickmueller posed. “Samples are available to over 40 licensed buyers. You and Prof Keiyah should learn something about coffee and attend auctions,” he told The Standard.

He added that the trading on coffee at the exchange was competitive.

“You can see the battling list,“ Sickmueller said, alluding to the big number of buyers involved in bidding.

His comments however do not take into account that most of the traders are small-scale, such as the Nairobi Java House, an upmarket restaurant.

Ibero (K) Ltd is a sister company of Tropical Management Services (TMS), which serves hundreds of coffee factories and societies.

New Kirimi Farmers Coffee Society in Embu County is one of them. Society chairperson Dionisia Ireri told The Standard she too was opposed to liberalisation of the coffee sector, arguing the proposals to establish a pricing committee could only dampen prices.

“We should let the prices be determined by quality, demand and supply,” Ms Ireri said.

Twenty-five coffee societies drawn from Embu, including New Kirimi, had only days before raised their objections to the proposals in a paid advertisement.

Coffee proceeds

One of the grounds for their objection was the establishment of a Central Depository Unit where proceeds of coffee sales would be paid before distribution to farmers. The leaders would effectively be locked out of interacting with farmers’ money, partly explaining their position. Several of the coffee societies are also managed by subsidiaries of the multinationals – the biggest causalities in a liberalised market.

High Court George Odunga suspended the implementation of the task force report citing lack of public participation following an application by some aggrieved parties.

President Uhuru Kenyatta had appointed members of the task force to implement the recommendations before the court injunction.

The formation of a coffee pricing committee that would determine the value of beans is at the centre of the disagreement.

Currently, price discovery happens through bidding among traders based on their assessment after tasting the coffee samples provided.

Nairobi Coffee Exchange Chief Executive Daniel Mbithi described the proposals as impractical and only intended to introduce chaos to the otherwise smooth operations between marketers and exporters.

Mr Mbithi is supported by chairpersons of 24 co-operative societies who expressed their objection to the amendments through the advertisement.

Other farmers’ groups had earlier welcomed the recommendations and enactment of the report, believing they would help to improve prices.

Zablon Baabu, Meru Coffee Millers chairman, is among the proponents of the proposals to liberalise the sector.

His union was among the first indigenous small-scale farmer-owned coffee marketers at the Nairobi Coffee Auction.

He said in an interview that farmers’ earnings had nearly doubled to Sh200 per kilo on average – depending on the grade produced.

“We have slashed the costs that were previously going to the intermediaries, now that we are in control from the farm to the market,” Mr Baabu said.

His said the journey to being licensed as a miller-marketer was rough and tough, citing deliberate efforts to frustrate it.

Among the recommendation made by Keiyah’s committee include liberalising the sector for all, including allowing farmers to sell cherries at the farm gate.

Farmers would also receive 40 per cent of the selling price in proposals that have met stiff resistance, with major players in favour of the status quo that has however been abused by marketers.

In many instances, farmers are paid months or even years after delivery amid reports that ‘nil’ payments are common outcomes.

Smallholder farmers are specifically exposed because they have limited capacity to process and market their harvest, a situation complicated by an archaic law that bars them from adding any value to their produce.

Farmers who own less than 1,500 bushes are required by law to access the market indirectly through a co-operative society, a miller and a marketing agent.

In the last crop season that ended last September, Gikandi’s farm produced only 800kg of green beans over the 12 months.

When payment eventually arrived, the voucher read Sh80,000, which translates to about Sh100 a kilo.

But because he had taken farm inputs on credit from the local society, he received just about Sh50,000, which he spent on school fees for his children.

“You cannot survive on coffee because the earnings are too meagre,” he said, adding that he often had to do additional work at events, including weddings, to take care of his family.

Nil receipts

Many of his neighbours were unwilling to share their embarrassing stories of nil receipts against delivery of coffee cherries.

Ironically, multinationals earn handsomely from coffee. Monmouth Coffee Company is currently quoting a kilo of beans produced in Kirinyaga County at Sh5,200 at the London Borough Market. That is more than 10-fold the price of coffee at the Nairobi exchange, but still only a small fraction reaches the farmers.

The rest goes into running the coffee society and the multinational’s charge for managing the farms, milling, marketing and trading.

Tropical Management Services is easily the largest marketer going by the number of bags it brings to the NCE.

Last week, it brought 167 tonnes from the hundreds of coffee societies it manages, most of them in Nyeri, Kirinyaga and Embu.

Its sister company, Ibero Kenya Ltd, is the biggest trader, taking up nearly a fifth of the supplied beans.

Switzerland’s Ecom Agroindustrial Corporation, one of the biggest commodity traders in the world with annual revenues of more than Sh500 billion, is among the biggest players in the space of small-scale farmers.