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Proposal to abolish auctions alarms tea, coffee farmers

FINANCIAL STANDARD
By | June 2nd 2009
By | June 2nd 2009
FINANCIAL STANDARD

By Benson Kathuri and Patrick Mathangani

A major showdown is looming between the Ministry of Agriculture and traders of coffee and tea over the proposal to close auctions by December.

The traders have vowed to resist any attempt by the ministry to scrap the auctions in Nairobi and Mombasa arguing they are private entities and not State agencies.

While players in the tea industry are concerned that Agriculture Minister William Ruto’s announcement, last week in Karatina, might dampen tea prices at Mombasa auction, coffee traders were least bothered.

They went ahead to question the minister’s rationale in desiring to scrap the auctions arguing the Nairobi-based coffee exchange and the tea auction are private entities.

A farmer and his freshly picked coffee. Agriculture Minister William Ruto has proposed to scrap auctions by December, arguing that they act as a conduit to exploit poor farmers whose high quality produce is used to blend other countries’ coffee. [PHOTO: FILE]

"The decision cannot affect coffee prices at the exchange because we have very little coffee to sell. The board will weigh whether the minister was serious," said Dick Sikmuller, vice-chairman of the Kenya Coffee Producers and Traders Association that runs the coffee exchange.

Mr Ruto said the coffee and tea auctions would be disbanded by December because they are being used as a conduit to exploit farmers. He said instead of selling through the auctions, coffee and tea would be branded and sold as premium Kenyan products.

"The move will create wealth, encourage farmers to take care of their crops as well as create employment," the minister added.

No commitment

However, experts are not convinced that the Government is committed to support value addition that is highly recommended if the sector is to live up to Vision 2030 goals.

"The Government is yet to offer meaningful incentives to attract investors to engage in tea and coffee packaging," said an industry player who did not want to be named. "How has the State helped local investors like Kenya Tea Packers Association (Ketepa) to export their products to key markets like the European Union?

He argued that stakeholders have been waiting for the Government to establish the special economic zones to turn Mombasa into a free port.

Such a move would enhance the Mombasa Tea Auction (MTA) to a level closer to its competitors such as Dubai Tea Trade Centre that is fast developing into a centre for value addition for teas sourced from the auction.

"This will allow tea companies to access facilities duty and VAT free among other incentives required to fast track value addition initiatives," he said.

Sikmuller says the minister’s statement was simplistic considering the complex nature of tea and coffee marketing. Some players in the tea industry differed arguing that the existence of the MTA is not a hindrance to value addition in the tea industry.

"Even in countries that have succeeded in value addition efforts like India and Sri Lanka, the auctions still exist and tea packed is first sold in the auction," said Kipkurui Lang’at, managing director of the East Africa Tea Traders Association that runs the Mombasa auction.

The auction is also a private company run by tea producers and traders and the Government had no role in determining its operations.

supplier influence

However, considering that the Kenya Tea Development Authority (KTDA) is the largest supplier of tea to the market, the minister through the Tea Board of Kenya can wield some influence. "The minister has not communicated to us and we were shocked when he suggested the market will be abolished," said Langat.

Ruto said the move to abolish the auctions would improve prices and fortunes for farmers, who have been battered by poor prices in recent years.

Besides, the auctions were being used to exploit farmers, he added. The minister’s remarks could have targeted individual traders and multinational companies dominating the auctions where farmers are poorly represented.

There have been suspicions that a group of buyers have formed formidable cartels that fix prices at the auctions.

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