Can the courts uproot cartels from troubled coffee sector?

When President Uhuru Kenyatta received a coffee task force report last year, many believed that the country had woken up and smelled the coffee.

Farmers would finally be saved from the faceless cartels working in cahoots with some Government functionaries to fleece them and ensure they remained poor.

Indeed, President Kenyatta had gone outside the industry to recruit a 19-man team led by Prof Joseph Kieyah to reduce conflicting interests that have come to define what was once Kenya’s leading forex exchange earner.

But soon after, the shadowy figures fought back and took the matter to court, challenging the regulations that were lauded to finally release coffee farmers from a State-sanctioned stranglehold.

A little-known organisation, New National Farmers’ Association, filed a petition at the High Court claiming that its interests had not been catered for in the coffee report and subsequent regulations.

The association told Justice George Odunga that the taskforce had thrown out its contributions and, instead, presented the President with “views of the powerful personalities in coffee industry as opposed to ordinary farmers”.

Justice Odunga ruled that the procedure of enacting the legislation was defective and thus unlawful.

He, however, observed that invalidating the rules would effectively hand the sector back to the cartels and issued a remedy where the court will supervise the law’s regularisation.

The ruling allowed the Government to rectify the breeches under supervision of the court.

“An explicit court order to satisfy constitutional obligations can support Government officials against pressure from small but politically powerful interest groups opposed to certain rights,” said Justice Odunga. Next week, the lawyers for the interested parties plan to issue a notice calling on the Government to submit a comprehensive report explaining its action plan to remedy the challenged violations.

Save regulations

The plan is expected to specify a period within which it is to be implemented or a series of deadlines by which identified milestones have to be reached.

Once the report is presented, the court will evaluate whether the plan remedies the constitutional infringement and whether it brings the Government into compliance with its obligations.

“The Government’s failure to adhere to its plan (or any associated requirements) essentially amount(s) to contempt of court,” said Justice Odunga.

The next Parliament will have a month to save the regulations, which is crucial in bringing sanity to the coffee sector — especially because a close-knit group of eight players literally controls the commercial segment of the industry.

The regulations had eliminated a four per cent ad valorem levy previously imposed in the Coffee General Regulations of 2002 and the requirement of a bank guarantee of Sh100 million ($1 million) for a marketing agent licence, thus opening the field for more players and removing cartels.

“If you say one can only sell maize if they have a guarantee of Sh100 million, how many people will be able to engage in maize farming?” an industry insider told Weekend Business.

The source said that those who held pulping licences were the same who were holding marketing licences, and basically fixed prices.

While opening up coffee marketing to more competition — which would allow a farmer to sell to anyone locally and internationally — the report also called on marketers and factories to cap the minimum advance payments to farmers at Sh15 for a kilo of cherry.

The source also revealed that most of the international players were doing transfer pricing by selling coffee to shell companies in Geneva and then reselling the coffee to their subsidiaries in Europe and the United States of America.

Instant payments

The task force report also recommended that Government set up a cherry advance fund worth Sh2 billion that would process instant payments to coffee farmers pegged at a minimum of 40 per cent of the prevailing price for cherry they deliver, which would be raised from the taxpayers.

The petition against the regulations was joined by the Council of Governors, which said that the new laws would go against an agreement between the devolved units and the national government on how to share the licence fees.

According to the agreement, revenues collected by Agriculture and Food Authority were to be based on a 75:25 ratio depending on the relative weight of the constitutional function of each level of government and was to take effect upon signing of a memorandum of understanding.

oguguyu@standardmedia.co.ke, mmichira@standardmedia.co.ke