Will new wave of reforms rescue coffee from turmoil?

The next few years could be a defining moment for Kenya’s coffee sector. The industry, once a leading foreign exchange earner, has over the years been on a free fall, owing to low returns and mismanagement.

Key industry players now fear a further reduction in production might see the Kenyan ‘jewel’ become unattractive to international buyers who purchase the beans directly from the country.

These low yields could see global buyers use the middlemen instead. The sector is littered with brokers who have been blamed for the low earnings that farmers have been making.

More middlemen could spell a disaster for the sector. It is against such concerns that government reforms have to work and improve production levels and yields.

“If we continue the same way, and if nothing is done, by 2023 or 2024 our volumes will be so low it will not make economic sense for most of the large buyers to come to Kenya,” said New Kenya Planters Cooperative Union (KPCU) Chairman Henry Kinyua during a recent briefing.

“That has its own implications as we will have to deal with several layers of brokers that further reduce earnings for the farmers.”

Local coffee production has declined to 41,000 tonnes in 2018 from a high of 140,000 tonnes in the late 1980s. For others, including neighbouring countries such as Ethiopia and Uganda, production has been on a steady rise.

A report of the National Task Force on Coffee Sub-Sector Reforms says the low earnings from coffee are due to delayed coffee payments, mismanagement and inefficiencies in cooperatives.

Others are restrictive coffee laws, high cost of production and lack of direct access to the trading floor, according to the task force chaired by Joseph Keiyah. The task force was formed by President Kenyatta.

The State has in the recent past started implementing some of the recommendations of the task force, albeit in a painfully slow manner as well as selectively.

There is doubt as to whether the reforms being instituted can turn around the ailing sector.

Among the reforms undertaken include the formation of the New KPCU, which takes over from its collapsed predecessor, KPCU, that was once a giant coffee union but now under liquidation.

Other than carrying out the business of coffee including milling, warehousing and marketing of coffee on behalf of farmers, the State agency will also administer the Sh3 billion coffee revolving fund.

Small scale farmers can borrow cash at a three per cent interest rate and repay it upon receiving payment for their deliveries.

The fund is one of the key recommendations of the task force, but is yet to start advancing loans to farmers due to a lack of enabling regulations.

Mr Kinyua is optimistic about the sector bouncing back, noting further decline would spell doom for the industry.

“Today, the industry is liberalised and there is a lot of competition when it comes to doing the coffee business. For me, however, other players – millers, dealers –  are not our competitors. The competitors of Kenyan coffee include Ethiopia, Uganda and others who are eating into our global space,” he said.

“We want to partner with players across the chain – researchers, marketers – to address the real problem, which is the declining coffee production.”

“It will take partnerships among all players to address the issue of declining production. There will also need to make sure there is confidence building among farmers as well as ensure they own the coffee.

Other issues include addressing different markets. “If we can address these, we can bring the coffee back.”

At the farm level, a single coffee bush produces two kilos annually on average compared to 10 kilos produced during coffee’s glory years.

Kinyua, however, says some farmers still produce 50 kilos per bush annually.

“Even under the circumstances, there are farmers who produce up to 50 kilos per bush. This shows there is an opportunity with the smallholder farmer to grow the industry and all they need is support,” he said.

The State is also reforming the Nairobi Coffee Exchange (NCE) in line with recommendations by the Prof Keiyah task force.

The process that is, however, taking painfully long, is expected to see the Capital Markets Authority (CMA) regulate the exchange as well as the brokers trading at the NCE.

According to proposed regulations, the exchange that runs the auctions where Kenyan coffee is sold as well as brokers selling the beans on behalf of farmers will now have to be licensed by the CMA.

The Crops (Coffee) (General) Regulations, 2019 that are expected to streamline the sector require buyers to pay for the commodity within five days after a sale has been concluded.

This could bring an end to the rogue nature in which a segment of the industry operated as well as woes afflicting coffee farmers.

More than 90 per cent of the coffee produced in the country is traded at the NCE auction, with the balance being direct sales. NCE will also be regulated by the Agriculture and Food Authority.

Coffee buyers and roasters trading at the exchange will be automatically liable for suspension from trading in case of default of payment of coffee proceeds through the direct settlement system.

Other than a revolving cherry fund and reforming NCE, the Keiyah task force had recommended the waiver of debts owed by coffee cooperatives and farmers as well as branding of Kenya coffee.

It also recommended support for smallholder farmers with extension services.

The State has also mooted a direct payment system for farmers that lessens bureaucracy once buyers pay for the crop.

While Kenya needs to address the woes afflicting the sector and reverse the decline in production trends, it has in the past employed measures that failed to arrest the decline in production.

“Past interventions, however, appear not to have been sustainable, as most of the targeted organisations accumulate more debts due to low returns, and poor management practices,” noted the Foreign Agricultural Service of the US Department of Agriculture in a recent review of Kenya’s agricultural sector.

“The State-owned Commodities Fund also faces poor recovery of advances under its coffee financing portfolio, while most commercial banks are hesitant to finance coffee farming.”

It says Kenya’s coffee is regarded as a speciality and is also widely used for blending other coffees.  

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