Inspired by grandma: The exporter giving farmers a fair price

James Gatiti grew up on his grandmother’s coffee farm. But despite coffee being a cash crop, he watched her toil to make ends meet.

When he got older, James set out to find out why many coffee farmers with adequate plantations struggle to make a substantive profit.

The results of his research formed the foundation of his first company, Taste of Kenya, in 2013. When he decided to diversify beyond coffee into horticultural produce, he co-founded Exim Elite in 2017.

The two companies focus on giving farmers the best possible deal for their produce by cutting out the middleman, and connecting farmers directly to their buyers.

He tells Hustle how his system works and the value it’s adding to farmers across the country.

What do Taste of Kenya and Exim Elite do exactly?

These are import and export companies that handle coffee and horticulture fresh produce from farmers to international buyers.

In the early days, the focus was primarily coffee under Taste of Kenya, but we’ve since diversified and currently deal with horticulture fresh produce, such as avocados, French beans and snow peas, with plans to soon venture into macadamia nuts.

What’s the difference between how your companies handle exports and the traditional method?

Let me take you through the traditional method. A farmer harvests his crop and then sends it to his co-operative or collective business group.

The co-op puts together all the coffee from the different farms in the locality, and processes the coffee by removing the top skin. It then sends this to millers, who remove the second skin of coffee, making it ready for wholesale.

The millers send it to marketing agents, who grade the coffee by determining its type and quality.

It’s then sent to a warehouse where it sits until it is auctioned at the Nairobi Coffee Exchange. At the auction, licensed dealers bid for the coffee and then ship it to the buyer, who resells it at a profit.

What are the shortcomings of this method for the farmer?

First, the process is long and it can take up to six months for the farmer to be paid.

Second, because there are so many stages between the farmer and the buyer, the cost of processing and selling the coffee is high, which means the farmer gets less profit.

On top of that, the price the coffee is sold at once it gets to auction is predominantly determined by licensed dealers.

For instance, if Arabica coffee is in demand, which makes the purchase price high, dealers can fail to bid for it, which means it remains unsold and goes back to the warehouse.

When the coffee returns to the auction two to three weeks later, the price will inevitably be lower. It works for the dealers because they purchase it at a better price, but it doesn’t work for the farmer because his profit margin is eaten into.

So how are you doing things differently?

We take out the middleman completely, and instead use a database where we link the farmer directly to the buyer.

Let me use avocados. If a buyer wants a 16-foot container of avocados, we get the order details and a letter of intent from the buyer.

We then go the farmer and share the order with them. We determine if they have capacity. If they don’t, we tell them to find other farmers to pool with until they reach capacity. We then detail the costs, from harvest to shipping, and including the company’s mark-up.

All parties are clear from the onset on how much they will get from the transaction, and we agree on the terms and conditions.

The farmers handle the harvesting. Exim Elite handles everything from that point on.

This includes transportation, storage, packaging and getting a stamp of approval from Kephis (Kenya Plant Health Inspectorate Service) – which ultimately determines if fresh produce meets all legal standards, like identifying which farm the produce is from – and ascertaining quality control from agencies like the HCD (Horticulture Crops Directorate).

How complicated is the export process?

It’s not if you know what you’re doing, but you have to have your fingers on the dial. It took me two years to research the system so that I could navigate it from a point of knowledge.

What was your start-up capital?

The initial start-up can be high because you need the capacity to transport at least one container from farmer to buyer.

My cost was $50,000 (Sh5 million). I managed to put it together using my own savings and crowd funding from a silent investor and friends. I broke even after the second shipment.

What are the profits per shipment?

It depends on what you’re exporting. But for coffee, a 16-foot container can get you a profit of Sh2 million.

A middle-sized exporter would typically ship three containers a year, since coffee is seasonal, so the total annual profit would come to approximately Sh6 million.

For horticulture, shipments happen all year round. Avocados, for example, fetch a turnover of between Sh500,000 and Sh800,000 per week, which works out to about Sh26 million a year.

In light of your mission to use ethical practices to benefit the farmer, what are your rates in comparison to traditional rates?

A kilo of non-organic coffee costs about Sh1,500 in the global market. Under the traditional method, a farmer would get Sh80 per kilo from that amount.

Under our direct trade, if I sell a kilo at Sh1,500, the farmer would get about Sh500, after factoring in the costs of shipping and logistics. I also pay the farmers instantly.

In your opinion, how’s the coffee industry in Kenya doing?

Coffee has money. Think of it like this, one kilo of coffee costs between Sh1,500 and Sh2,500 wholesale. This one kilo of coffee makes about 225 cups. One cup of coffee costs about Sh250 at a coffee house.

That means from every kilo, an outlet can make Sh56,250. Remember, they only spent about Sh1,500.

This is an industry we have to protect and the only way to do that is to protect the farmer. Kenya has the second-best Arabica coffee in the world, after Colombia, with demand constantly outweighing supply.

This is why our main aim is to encourage farmers to continue to grow premium coffee by making sure there’s traceability, and to link them to roasters directly to ensure they receive better margins.

Happier farmers will give us better produce. Better produce will enable us to do more research and consistently improve our crop. We have the land, the climate and the expertise; let’s use it well.

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