Licensing brews storm in coffee sector

By John Njiraini

It has been the typical lull before a storm. In recent years, the coffee sector has witnessed an unprecedented calm to a point it seemed out of the ordinary.

Over the past few years, harmony has prevailed between coffee farmers, middlemen and multinationals as the otherwise bitter rivals put their differences aside to reap from reforms in the sector. And with the price of coffee improving significantly before the advent of the global economic crisis that dampened the market, most farmers have largely been a satisfied lot leaving perennial frustrations to their tea counterparts.

But the tranquillity is set for an abrupt end. A major confrontation that could sink the sector back to its chaotic past is in the offing.

Bordering on the same script and cast, a group of farmers are threatening to neglect the crop and deny the country billions of shilling in foreign exchange.

Licence renewal

In a unity of purpose, coffee farmers in the Mt Kenya region of Central Province are planning to halt coffee production to protest what they call a plot to irregularly seize a licence of a local co-operative society.

The move follows a decision by Agriculture Minister William Ruto and the Coffee Board of Kenya (CBK) to issue a licence ostensibly owned by Mathira Coffee Millers (MCM) to Central Kenya Millers (CKM). According to a director of MCM, the licence that was due for renewal in accordance with the Coffee Board Act was awarded to CKM and the farmers are suspecting foul play.

"There is a scheme by well connected individuals to strip off the licence from the farmers’ society," claimed a source who requested not to be named. The society has since moved to court, which industry insiders say will determine whether MCM has a case over its claim. Central Kenya Millers is associated with C. Dormans Managing Director Jeremy Block, who is also a board member of CBK.

Mr Block is a major player in the coffee sector and has interest in a company called Coffee Management Services that buys coffee at the auction besides running the Dorman’s coffee shops.

Due diligence

Attempts to get comments from him were fruitless as he was said to be out of the office, while our telephone calls were not returned for about two weeks.

But CBK Managing Director Loise Njeru defended the decision to award the licence to Central Millers maintaining the company met all the requirements.

"We carried out due diligence on the company and realised they fulfilled all the conditions for the licence," she told FJ.

Njeru, however, said she did not know if Mr Block is a director of CKM and thus could not comment on whether there was conflict of interest as he served CBK as a board of director.

Although the 26,000 farmers who are members of MCM went to court and secured a staying order stopping the Minister from gazetting the licence, they have vowed to fight to get the licence back.

A meeting of all coffee farmers in the wider Mt Kenya region at the Karatina Stadium is schedule to take place later this month to discuss the next course of action and way forward for he society.

As the farmers prepare for the decisive meeting, there are fears the return of instability could have far reaching ramifications to the sector that had started experiencing renewed hope.

Statistics by the CBK show the country harvested 42,000 tonnes in the 2007/08 crop year and earned Sh8 billion.

Though the sector regulator expected the output to rise to 60,000 in 2008/09, this might not be realised mainly due to the drought that is ravaging many parts of the country. As the tension that threatens to reawaken the sour relations between the farmers and multinationals reaches boiling point, details are now emerging over the link between the society and CKM. According to documents obtained by FJ, MCM and CKM entered into an agreement in 2005 that would see farmers deliver coffee to the latter.

Handsome commissions

The agreement was based on the understanding that farmers would be earning handsome commissions at a time when coffee farming was emerging from years of poor performance.

At the time, coffee farmers were earning about Sh20 per kilogramme of berries delivered and many saw the deal with CKM that promised to pay them commissions depending on coffee delivered as blessing. The minimum amount that a farmer could earn was Sh30 per kg.

According to a letter dated September 28, 2005 written by Bridget Carrington, a director of Dormans on behalf of Mr Block, the agreement entailed the formation of a new company with two main shareholders, MCM and CKM.

Dormans would be the majority shareholder with a 60 per cent stake and it would provide all the financing needed in the joint venture at preferential interest rates.

The two partners jointly applied for a milling license that was granted by the CBK in favour of the new firm.

The CKM would also provide the management for the entity based on its worldwide contacts that it would leverage in marketing of the coffee.

The letter also proposed that the new company acquire a piece of land where the new mill would be located instead of being on the land held by the co-operative to avoid problems that could arise in the future.

The deal stipulated that the agreement would run for a period of 10 years, a time which Dormans would have recovered its investments and made its profits, and then all the asset would revert to the farmers.

While the agreement has been working perfectly, a director of MCM alleges that things started taking an unfamiliar direction in September last year when Mr Block was appointed to the board of CBK. The firm that was formed jointly failed to get its licence renewed, but instead a company linked to Block was awarded a licence, a move suspiciously viewed by the society.

"We started noticing changes after some of the terms in the agreements started to be broken," he said. He further points an accusing finger at CKM for using its links with CBK to influence the awarding of the licence to his company.

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