New coffee regulations likely to give government monopoly in marketing

Uproar has greeted the publication of new coffee rules that critics argue create a bureaucracy that increases operational costs and eat into earnings.

Some farmers, millers and marketers, have resisted the Coffee Regulations 2018, arguing it was an attempt by the national government to monopolise marketing of the once lucrative crop that is the mainstay of a large section of Mt Kenya region.

Among radical proposals contained in the regulations, currently being subjected to public participation, is strengthening of Nairobi Coffee Exchange (NCE) and the establishment of Directs Settlement System (DSS).

Direct settlement system is a clearing and settlement system for payment of coffee proceeds by appointed commercial banks to farmers and will be managed by NCE.

Banks and other financial institutions approved by the Capital Markets Authority (CMA), the rules says, will be appointed by the NCE to establish and operate a direct system for settlement and payment of coffee proceeds to growers.

Already, an association of commercial coffee millers and marketing agents have raised their objections, saying the rules as framed would not solve the problems bedeviling the sector.

"The proposed rules tackles the process of sale of coffeeand subsequent settlement of the sale proceeds. The proposals introduce loopholes which will be exploited to the detriment of the sector," the association says in a protest note.

They are questioning the strengthening of NCE, saying the move is likely to cause more confusion in the sector.

"The proposed rules have placed numerous roles on NCE most of which are ill-suited. Placing all these functions under one body will create a mega bureaucracy as witnessed before," they said.

Documents seen by The Standard, gives NCE the mandate to coordinate the sale and exchange coffeecontracts on a centralised basis.

Among other functions, NCE will be tasked with taking, or acquiring, holding, charging and disposing of both movable and immovable purchasing properties.

“It will be capable of borrowing and lending, entering into contracts, doing or performing all such other things or acts necessary for the proper performance of its functions,” the rule further explains.

It will be licensed by the Capital Markets Authority and shall be managed by a board of directors comprising of chairman appointed by the members of the Board.

The regulations, the committee notes, will come into operation upon publication in the gazette.

But Speaking in Nyeri during regulations validation forum yesterday, committee chair Prof Joseph Kieyah defended the proposal, saying there was no need to fear the regulations since the committee was interested in ensuring that farmers reap from their sweat.

He said NCE was only being restructured and modernised to have a legal status and align it with the coffee rules 2013 constitution.

“It will eventually be upgraded to a fully-fledged commodity exchange (CE) under CMA to allow farmers to sell coffeeat lower cost,” Mathew Mkisu of Capital Markets Authority.

Kieyah denied claims marketers were being edged out of the value chain at NCE.

“Restructuring is aimed at streamlining it to make it more effective and respond to the needs of farmers,” Kieyah said.

He said proposals were being subjected to public participation as ordered by the High Court after the Council of Governors (COG) went to court to challenge the CoffeeRegulation, 2016, citing lack of consultations.

He said regulations were aimed at benefiting farmers and will be gazetted before being taken to Parliament for approval.

“We met all millers and marketers on May 5, and explained to them about the issues, millers and marketers are one and the same,” he observed.

It is, however, the proposal to create the Direct Settlement System among others that has raised concern among key stakeholders.

The DSS will need a secretariat to be able to function properly and the costs of this has not been properly explained in the new rules, millers and other agents say.

Once in place, farmers will receive their pay from DSS through their respective banks account one month after cherry delivery.

The issue of interest has not been properly explained on the proposed rules or who will finance the operations of the society, society overheads, inputs and the existing loans currently with banks, marketing agents, Saccos, suppliers and others.

Societies participating in the programme will be required to open and maintain accounts with DSS where proceeds for coffee sales will be deposited to recover advance payment at source.

Jackson Ngari from Gikanda Coffee Society questioned the criteria that will be used to elect member to DSS and whether they will it will be answerable to growers or (co-operatives).

” In what currency shall DSS pay to farmers, currently marketers deposit the money in form of USD dollars. We fear of losing money in the process of exchange,” Ngari added.

Wachira Njogu also, sought an assurance from the committee that banks acting as DSS will not exploit farmers in terms of interest charges.

“All these bodies are not farmers’ counter parties. Instead they add costs to the growers, bring too much bureaucracy, and increased players in the supply chain,” Njogu stated.

Commercial Coffee Millers and Marketing Agents Associations (CCMMAA) have also raised concern with system, saying they risk being phased out once the two entity come in place.

Through their chairman James Mureithi, CCMMAA noted its role of “marketing agent” had been scrapped but the functions remain.

He said the proposal and NCE rules as framed mainly tackles the process of sale and subsequent settlement only.

“In doing so, they create loopholes which will certainly be exploited to the detriment of the sector,” the association further stated.

Other contentious issues include the definition of a “grower”, with regulations defining a farmer as a person who grows coffee, a move stakeholders argue was aimed at eliminating co-operative societies.

As per existing regulations a co-operative is defined as a grower.

“If co-operatives are edged out who will offer services like loans, advance and farm inputs at subsided cost,” Mathenge Gichohi posed.

The law requiring a grower to inform the county government before uproot coffee trees is also generating heat.

Farmers are of the view that coffee is like any other business and in case it doesn’t meet one’s expectations he should be free to uproot it and engage in any other profitable venture.

According to the regulations a farmer who uproots his coffee plantation without permission is liable to Sh 500,000 fine or a one-year jail term.

But Kieyah maintains the new regulations are aimed at streamlining production, processing, transportation and marketing of the crop.

But farmers are arguing if fully implemented blindly, they will bring about total collapse of the coffee industry.

They also urge co-operative societies have been excluded from being out-growers, meaning they have to be registered by the county governments.

"They define a grower strictly as someone who cultivates coffee, thereby excluding coffee societies. The regulations now require that every farmer be registered by the county government," said Francis Kimondo, chairman of Central Agri-business Solutions and Technologies.

Other regulations restrict them to mill their berries in the nearest miller, but argue this will leave them exposed to the wave of break-ins and theft of coffee in the factories especially during harvesting seasons.

Publication of new regulations by the committee was aimed at countering the decision by the High court last year to suspend implementation of similar regulations.

In June 2016, former Agriculture CS Willy Bett published gazette notice that enacted the Coffee (general) Regulations Act, 2016.

A week after the regulations were tabled in parliament for approval, a section of farmers, COG and other stakeholders, however went to court to challenge their implementation.

On August 2, 2017, the High Court in Nairobi issued the orders stopping the implementation of the regulations.

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