Tea and coffee cash crunch hits Saccos

KTDA Managing Director Lerionka Tiampati said the decline in tea bonus has been attributed to global factors that have pushed down the price of tea. Photo: Courtesy

 

Saccos in the Mt. Kenya region are seeking strategies to avoid being left with huge unmanageable nonperforming loans following unexpected low payments of tea and coffee, which are the main source of income for a significant number of their members.

Saccos often led farmers in expectation of recovering the loans when the bonus payment is paid in the case of tea and the main payment in the case of coffee. Both crops were paid significantly lower, by more than 40 percent or nearly half of what they were paid last year.

Some Saccos o­fficials said they have lost the ability to recover more than 50 percent of their loans, following the price drop, and have to find a strategy to navigate through it.

It is worse for Saccos, which were formed by tea or coffee cooperatives, as they form the biggest number of their members. This is despite the opening up that has seen the Saccos register members from all sectors of the economy.

The situation is expected to increase the level of non-performing loans or loans that are not being serviced within the Saccos.

By the end of December 2018, at least Sh15.2 billion in loans were considered dead across all deposit-taking Saccos in Kenya, which was an increase of 42.5 percent from the previous year, according to the Sacco Societies Regulatory Authority (SASRA).

It also means Saccos may be forced to scale down loaning members against their crops payment in a move that will reduce the money available to individuals for development and squeeze household budgets.

The matter is further aggravated by a similar stance taken by banks since 2016 following the capping of interest rates, which has now been made mandatory when MPs made it a constitutional requirement last week.

Reschedule

James Mbui, the CEO of Amica Savings and Credit said they have decided to reschedule loan repayment for the farmers a­ffected by the low tea bonus and co­ffee payment.

“Rescheduling the loans will certainly a­ffect cash flow but we are being empathetic to our customers who have supported the Sacco for many years,” said Mbui.

“The reasons behind reduced tea bonus are beyond farmers and thus we cannot punish our customers due to reduced bonus rates.”

Low returns

The majority of tea factories within Murang’a County, like many parts of the Kenya region that grows tea, will be paid bonuses ranging from Sh20 to Sh30, an amount which is 40 percent less from what they were paid 2018.

On co­ffee, data shows that earnings for Murang’a farmers reduced to Sh500 million in 2019 from Sh1.5 billion in 2018.

“We give credit facilities to farmers to improve their production but with reduced returns, our customers have been put to a situation where they are facing uphill to repay their loans,” noted the CEO.

Agnes Wanja, the CEO of County Sacco Society there will be the advancement of a reduced loan to members but also forecast loan buyouts by institutions that want to take bigger risks in loaning farmers.

“It will reduce members’ ability to borrow more loans. We also, expect loans buyout by other financial institutions promising members huge loans,” she said.

Loans buyout is a major threat to Saccos especially those whose members are mainly tea farmers since membership will definitely reduce. She said there is also a likelihood of a jump in double borrowing by farmers, which further exposes the Saccos.

Many Sacco leaders have accused KTDA owned Greenland Fedha Limited, a no deposit-taking microfinance institution, which uses its privileged position to overload farmers with loans and then recovers it before KTDA releases the money to Saccos and banks.

Greenland Fedha uses KTDA infrastructure, which means it enjoys a captive market, and therefore an unfair playing ground against the Saccos which members have invested in for tens of years.

Wanja said in case of members fail to achieve double borrowing or miss an alternative, farmers may be forced to practice tea hawking and leasing to bridge the gap that has been created by low bonus.

“There may be cases of tea bushes leasing and green tea leaves hawking to other farmers in order to bridge the gap and have quick money to cater to their needs. This happens when members fail to clear their loans yet there is a need for more money to cater for other things such as school fees,” she said.

Rosa Muthoni, the Group Operations Officer of Focus Realtors said loan recovery for their Sacco based in Runyenjes, Embu will also be affected though not in a big way since most of their farmers are diversified.

“Yes, we have tea farmers who term bonus as a source of income that is usually used to pay their debts but they are not many. You find that some of them have other channels of income,” she said.

However, Muthoni noted that the low bonus payout will adversely affect the members’ savings since most of the tea farmers who are their members use the bonus to boost their savings.

She said lack of enough rains for the last two seasons had raised food prices, therefore, the little pay from the bonus will first be directed towards the purchase of the foodstuff­ thus a­ffecting savings.

Spiral e­ffect

“Considering that tea farmers take foodstuff­ from most of our members who are business people on credits, we will be a­ffected slightly in case they will not be able to pay their debts using the bonus,” she said. She noted that low bonus is also likely to a­ffect this year’s tea production that will be paid in next year’s bonus as farmers invest less in their bushes, hawk tea and lease to meet immediate financial needs.

Jane Mugo, the CEO of Bingwa Sacco said the low bonus is a major hit for the Saccos. She, however, reserved her comments saying they may put her on a collision course with KTDA. The Sacco was formed by tea farmers although it has since diversified membership.

Low prices explained

KTDA Managing Director Lerionka Tiampati said the decline has been attributed to global factors that have pushed down the price of tea. These included higher tea production globally, while consumption remained stagnant as well as ills afflicting Kenya’s major tea markets that have in recent years been cutting down on tea imports.

Pakistan’s devaluation of its currency by 50 percent made tea imports expensive. Iran, a key market for Kenyan tea, is grappling with sanctions spearheaded by the US, while Sudan is grappling with a political crisis. The UK, another key market, plans to exit the European Union causing more anxiety.

Tiampati noted that other tea producing countries including Kenyan neighbours Uganda and Rwanda as well as major competitors such as Sri Lanka has also been a­ffected by the slump in tea prices.

“Due to these factors, the current performance is 18 percent below last year’s performance when the factories earned Sh85.74 billion. Out of the Sh69.77 billion revenue, farmers will receive a total of Sh46.45 billion, being the sum total of Sh17.69 billion in the initial payment and Sh28.76 billion as second and final payment,” Tiampati said.

Co­ffee prices are also expected to remain low because of the high global production, according to the Nairobi Co­ffee Exchange CEO Daniel Mbithi.

The low prices are a global concern with stakeholders like Vivek Verma, the head of global agri-business giant Olam International ‘s co­ffee division and renowned economist Je­ffry Sachs calling for the setting up of a global co­ffee stabilization fund to caution farmers from the low prices and e­ffects of climate change.