Why team has an uphill task reviving ailing coffee sector

A taskforce formed by President Uhuru Kenyatta to find solutions for the deep-running problems facing the sector certainly has one of the most daunting assignments.

The 19-man team created on Friday by President Uhuru Kenyatta has just 20 days to come up with comprehensive solutions to the extensive rot in the sector. This is itself a tall order without throwing in the headwinds that the team is already experiencing from a section of stakeholders.

Peasant Coffee Farmers Association of Kenya (PCFAK) has poured cold water on the new initiative saying it’s unlikely to succeed as this is not the first time such a move is being made.

Although the Kenya Small scale Coffee Growers Association (KESCOGA) supports the taskforce, it is concerned that it may be infiltrated by cartels and middlemen who have been robbing farmers of their returns, leaving them impoverished.

The oldest coffee Sacco, Kenya Planters Cooperative Union (KPCU) says they have solutions to the problems afflicting the sector and should, therefore, have been included in the team.

“If we would have been included in the taskforce we would have added value as we are already implementing some of the issues that have been troubling the sector,” KPCU chairman William Gatei said.

KPCU, he said runs a programme that offers instant cash to farmers and is partnering with Israel firm Green Arava to irrigate coffee farms.

PCFAK said the sector’s troubles would end if the President had issued a directive to have coffee sold by the national government under one pool.

KESCOGA said the government should adopt the Ethiopian or Columbian model and support small holder farmers to sell their coffee directly to the market.

The stakeholders said farmers only get one per cent of returns on coffee sale while farmers from the neighbouring Uganda gets up to 80 per cent on the sale of the crop.

President Kenyatta wants the taskforce to find ways to substantially increase farmers’ income and recommend ways of financing production training and rehabilitating factories.

During the opening of this year’s Nairobi International Trade Fair at Jamhuri Park, Nairobi, last year, the President Kenyatta praised the reforms instituted so far in the sector saying they would substantially improve the fortunes of farmers.

He cited liberalisation of marketing and milling of coffee, debt waiver to farmers and the establishment of Commodities Fund – which has to date disbursed over Sh2 billion to 80,000 beneficiaries as fundamental changes that would soon pay dividends.

Experts have, however, questioned the reforms saying they have been ineffective with their implementation dogged by political interference leading to hijacking of the sector by cartels.

The analysts say pressure from Western donors and aid experts pushed the Kenyan government into putting in place hurriedly crafted reforms that may have actually worked to kill the coffee industry.

Thanks to the enormous challenges, the sector has seen productivity drop to under 50,000 tonnes from a record level of 130,000 tonnes in 1987/88.
Average production in Kenya from 1990 to 2013 was 1 million bags down from 1.3 million in the hey days of 1989.

Last year’s season that runs to September saw a paltry 568,766 60-kg bags sold at the Nairobi Coffee Exchange from 671,438 bags sold in 2014.
Analysts say the withdrawal of donor funding forced President Daniel Moi to dismantle agricultural monopolies without giving time for markets to develop or putting in place institutions to link farmers to them.

Kenya’s high quality Arabica coffee beans are sought by roasters globally to blend with beans from other producers.
In the 1990’s the market was liberalised through 1986 sessional paper no 1 on Economic management for renewed growth, exposing ill-prepared smallholder farmers to high costs of inputs, a dollar exchange market which they did not understand and later, freedom to opt out of the industry.

Prior to 1988, coffee which currently ranks fourth after tourism, tea and horticulture, was Kenya’s leading foreign exchange earner contributing over 40per cent of the total exports value between 1975 and 1986.

FELL APART

However, at the height of coffee production in 1989, the International Coffee Agreements fell apart after countries refused to agree on quotas an event that was disastrous for many people along the supply chain especially farmers in coffee growing nations.

The International Coffee Organization’s (ICO) composite indicator price for coffees dropped by nearly 75per cent in the subsequent five years, from $1.34 USD per pound in 1989 to an average of $0.77 per pound through 1995.

The Kenyan economy was also witnessing restricted donor financing between 1991 and 2002 and the STABEX funds a grant meant to cushion the coffee sector against the falling world prices also got caught up in this suspension.

While this was happening, the government was facing open criticism from the new opposition Members of Parliament for rot at the KPCU the sole miller which it controlled.

KPCU Director Mr Gitonga Chabari was under pressure over loans he gave to well-connected political elite, perpetually delaying payment to farmers and deducting their returns heavily to pay for these liabilities.
On Tuesday April 5, 1994 MPs said Mr Chabari loaned out the money after being summoned to state house and being ordered to lend the money to these individuals.

As details of the rot at KPCU emerged, the government was under increasing pressure to adopt a liberalized economy, deal with corruption or face sanctions.

This was good for commercial farmers especially those who owned estates but for remote smallholders farmers cost of production has shot through the roof with some paying pay twice as much for fertilizer than their counterparts in Brazil.

KPCU’s monopoly (with Nairobi plant and 4 rural branches) was dismantled in 1993 when three more commercial millers Thika coffee mills (Thika), Socfinaf ltd (Ruiru) and Gatatha farmers’ Ltd (Kiambu), were licensed.

The process was bungled giving the well connected cartels control of the milling business through back hand dealings.
The millers were allowed to issue documentation on quality assessment, final weights and milling losses to the growers or their agents allowing them to determine what farmers would get.

They were also given a free hand to double up as commission agents and are therefore involved in processing of farmers’ payments.
The first thing the Millers did, was set up facilities which increased the capacity even as production dropped resulting to over-capacity of about 60per cent in 2000. The millers then used this reason to keep milling charges high eating into farmer’s returns.

Under the structural adjustment programme (SAPs) 1992 policy guidelines the coffee board of Kenya (CBK) was required to conduct the Nairobi coffee auction in US dollars and pay the farmers who were allowed to retain the US currency for their own use.

Small scale farmers did not to benefit from currency gains or participation in foreign exchange dominated trade since marketed their coffee through co-operatives benefited marginally from the reform. They also lacked the necessary skills needed in the money markets.

Prior to 1993, coffee payments were pooled together by the CBK, which made several interim payments based on the average price for the season and a final payment made after reconciliation of accounts.

In 1992 farmers were allowed to opt for a direct system that would pay the amount their coffee fetches at the weekly Nairobi coffee auction less statutory deductions.

This move also failed to change the smallholder coffee marketing channels as coffee pooling is still practised at the co-operative society level.
The sessional paper on Liberalization and Restructuring (2001) led to the separation of the roles of coffee marketing and regulation allowing CBK to regulate while opening marketing to private agents.

This was followed by the Coffee Act 2002 which allowed abolished the sale of the cherry (mbuni) at the gate leading to arise in a cut throat parallel market.

Making it illegal to trade cherry at farm level made it rampant in most coffee growing regions including Murang’a which by 2000, had 55per cent of smallholder farmers in the either participating in this parallel market or were able to identify active private coffee traders in their localities.

This has killed cooperatives who are unable to service the loans acquired to buy inputs for the farmers and are forced to eat further into the margins of their members.
Small holder farmers organized into co-operative societies who accounted for over a half of coffee growers have been stuck in abject poverty as a result.

The fact that the Coffee Act allowed a smallholder farmer to register with a co-operative society if he/she wanted to plant or uproot coffee effectively abolishing the coffee planting zones and rules on inter-cropping gave them a way out.

This change gave farmers a leeway to diversify from coffee production and to uproot their coffee which explains the decline of the total acreage of coffee by more than 7000 hectares in the year 2003 alone.

The area of coffee plantations in Kenya has fallen to 109,000 hectares from the average of 150,000 hectares in 1980s and 1990s
Kenya’s world market share has since declined from 3.1per cent in 1986 to 0.6per cent in 2006.