It's a mixed bag for State's coffee reforms, a year on

Deputy President Rigathi Gachagua (C) chats with coffee farmers as Cabinet Secretary Mithika Linturi and Governors Kawira Mwangaza look on during the Coffee Summit in Meru County on June 9, 2023. [DPCS]

The ongoing reforms in the coffee sector by the government have borne mixed results.

The Kenya Kwanza administration at the start of last year embarked on a coffee sector reform journey, hoping it could take on the challenges crippling the once vibrant sector, which past regimes tried to steer into a growth path but fell short.

Successive regimes, including the current one, have blamed deeply entrenched cartels for running down the sector that was once a leading foreign exchange earner.

The result has been low earnings that have seen thousands of farmers abandon the crop.

There are, however, more than 700,000 farmers and another five million Kenyans employed by the industry who continue to suffer low incomes due to a dysfunctional system that appears to favour middlemen and other “cartel” members.

Looking back at the year of reforms spearheaded by Deputy President Rigathi Gachagua, they have been slow to put money in the pockets of farmers.

They have also left some sector players unsure as to where they fit in amid claims by government officials that it is just a case of “cartels fighting back.”

Kenya Coffee Producers Association (KCPA) Chairman Peter Gikonyo noted that while it is too early to assess the impact that the reforms have had on coffee farmers, they have created an opportunity for the farmer but also present challenges. 

Some of the challenges, he noted, could be hiccups to do with the implementation of certain new systems that could be ironed out along the way.

“We are not yet there to be able to determine the impact of the reforms, but the bottom line is that the reforms have created an opportunity for the farmer to be able to engage in his own business. What is needed is a lot of capacity building and also civic education to enable the farmer to understand the law and what it expects the farmer to do when conducting their business,” said Mr Gikonyo.

He, however, noted that there are farmers who are experiencing delayed payments for their produce.

The buyers are supposed to make payments within five days of concluding a transaction, but Mr Gikonyo cited instances where farmers get their pay a month later.

They are also not getting timely pre-milling reports, which are supposed to guide them on the quality of their coffee, as well as sales reports.

Both reports guide the farmers on what to expect in terms of their pay.

“There are issues that farmers are delayed in terms of delivery and are also not getting the reports as required. Farmers are not getting reports like the pre-milling analysis and the sales reports as required,” he said.

“There are also concerns about how the money is being channelled through the Direct Settlement System (DSS). There is confusion because when the money is posted into the DSS, it is supposed to be remitted into the farmer’s account, but they have been experiencing delays in a number of instances. A case in point is a farmer who said they sold their coffee in November but received the money on December 28, which is contrary to the regulations that require the farmers be paid within five days.”

Mr Gikonyo added that farmers should play a more active role in determining what happens to their coffee after production to get better value and increase their earnings.

“Farmers need to understand that this is their business, and they need to be well organised. As KCPA, we are already on it, we have had meetings with several growers, and we are soon going to come up with a framework to enable farmers to sell directly to some of the buyers,” he said. 

“When you’re used to a particular system and changing and adapting to a new system, there could be a feeling that there is a gap, and this might create the fear of the unknown. But we are already there. The question is not how we got here but how we swim.” 

As part of the ongoing reforms, the State has not been issuing licences to some of the industry players, which has taken a heavy toll on some players.

Among those affected are coffee millers, with the law now prohibiting the milling and marketing of coffee by one company, which has forced coffee farmers to largely rely on New KPCU for milling, which Mr Gikonyo noted has resulted in delays.

Previously, there have been several commercial mills that worked alongside New KPCU, increasing the milling capacity.

Among the hardest hit by the non-issuance of permits is listed agriculture firm Eaagads.

The difficulties that the firm faced were evident in its results for the six months to September 2023.

The company posted a 99 per cent drop in revenue over the half. The company, which largely sells coffee, reported revenues of Sh1.1 million, having plunged from Sh159 million over the same period in 2022.

The firm gave a vague explanation, saying the drop in sales was on account of the coffee sector reforms being undertaken by the government.

“During the reporting period, significantly minimal coffee sales were made owing to the ongoing government-initiated coffee reforms which have negatively impacted the company’s ability to do direct sales as has been the practice,” said Eaagads when it announced the results.

The firm also reported a Sh33 million loss over the period compared to a Sh37 million profit over the same period in 2022.

Due to low sales, the company said, it had to borrow heavily to finance its operations.

“The lack of sales has severely impacted the company’s cash flow, having a financial gap that necessitated borrowing a substantial sum of Sh108 million. This borrowing has served as a means to cover operational costs, maintain business continuity and manage existing financial obligations in the absence of revenue from sales.”

While the company was not specific on what had caused the drop in sales, an industry source said the company could not sell its coffee directly to buyers as its licence had not been renewed.

Several companies, the source said, have hundreds of tonnes of coffee stored in their warehouses, which they were unable to sell after failing to secure new licences.

This was as the government delayed the issuance of licences as it sought to weed out rogue players.

The period has also been marked by the transition to a new licensing regime following the implementation of the new regulations that came into effect last year.

In its statement, Eaagads said it had applied for a grower miller licence from the Kiambu County Government that would enable it to undertake direct sales.

“Eaagads Ltd has taken the initiative to apply for a grower miller licence from the country government of Kiambu. This licence will enable direct sales to progress, likely streamlining operations and sales processes,” said the company.

The reforms spearheaded by the deputy president are yet another shot at reforming the sector that has for years failed to live up to expectations and if anything, it has been on the decline.

The previous Jubilee administration made an attempt through the Presidential Executive Order in March 2021 on coffee sector reforms, which envisioned reforms across different areas, including access to credit for farmers.

Earlier, the State had in 2016 constituted the National Task Force on Coffee Sub-sector Reforms, which was to look into the problems facing the sector and come up with recommendations to save the sector that has for decades stared at total collapse.

The 19-member committee led by Prof Joseph Kieyah made recommendations that players agreed could have saved the industry if implemented fully, but this was done piecemeal and half-heartedly.

The task force in its May 2016 report noted that the sector faced “unprecedented challenges, which have drastically affected the production levels.”

The team went on to make recommendations, including prompt payment to farmers for coffee on delivery to coffee mills, the opening up of the Nairobi Coffee Exchange for farmers to directly trade at the auction and a coffee production subsidy to increase production.

It also recommended reforming coffee cooperatives to enable farmers to hold them to account and proposed such measures as capping administrative expenses at 15 per cent and punitive measures for cooperatives that fail to comply with the law.

The committee had expected the implementation of the different measures would increase coffee production to 90,000 metric tonnes within four years.

Sector earnings, according to its projections, would grow by Sh29 billion per year. The sector earned Sh27 billion last year.

Coffee is grown in 31 counties, mostly by smallholder farmers estimated at 700,000, according to government data, while there are about 4,000 estate farmers across the country.