The coffee sub-sector is now different for three main reasons. One, the volumes of coffee traded at the auction, two the prices being realised and finally the players. This started in 2019 when coffee regulations were drafted aimed at addressing the many challenges faced by farmers.
Farmers have always complained of multiple licensing in the sector. This has the probability of causing a conflict of interest. Multiple licensing is where a company gets a coffee dry milling license, gets a warehousing license, a coffee marketing license and finally a coffee buying license.
This may not always be the case, but there are situations when sister companies are used to get different licenses. In this scenario, a company mills the coffee and hands it over to a sister company's warehouse where coffee samples are drawn and handed over to a sister company's coffee marketing firm that sells the coffee to a sister company.
In such a trading arrangement, the farmers, who as per the law are the owners of the coffee until it is paid for, fear they might be shortchanged by the chain of the closely related sister companies. However, these regulations were shelved until this year. This was followed by the major coffee conference that had no pre-crafted agenda but was meant to have stakeholders brainstorm on how to improve the sector.
This happened successfully in Meru under the leadership of the deputy president. It was agreed that, as part of the coffee reforms, multiple licensing be done away with once and for all. The changes, according to many people, are to blame for the low prices at the auction. The current average prices at the auction are 77 USD lower than the ones fetched in 2022 and 118 USD lower than 2021 prices. This is a price differential of monumental proportion.
However, scientifically, the low prices cannot be attributed to the changes as there are many factors that determine prices at the at the Nairobi Coffee Exchange (NCE) including very unusual ones like the weather in Brazil. What should be done now and urgently is to cushion the farmer until the NCE prices stabilise. Players in agriculture have always advocated for guaranteed minimum returns (GMR).
GMR has worked very well in commodities like dairy because the milk delivered by all the farmers is homogenous. At least whatever is accepted at the collection centre is homogenous (of the same type and quality). All the farmers are, therefore, paid at the same rate per litre or kilogramme of milk.
The challenge of GMR in coffee is that farmers deliver cherries of different quality. Farmers who have taken good care of their plants can deliver coffee of high quality that can be worth as high as Sh150 per kg. Other farmers can deliver low-quality coffee that is worth as low as Sh20 per kg.
The quality of this coffee cherry is not discovered when the coffee is delivered. We know the quality once the coffee is processed. The coffee from the above two farmers is processed together. If we come up with a GMR, these farmers would be paid the same amount per kilogramme. This is what makes GMR unworkable in coffee.
The best way to implement a GMR in coffee is on the graded and classified coffee. The processed coffee is mainly graded to seven main grades AA, AB, C, TT, PB, E and T. This grading is mainly based on the size and density of the bean. These are then classified into 10 classes (class 1 - 10) depending on the bean and cup quality.
The GMR for main grades can be determined by considering and adopting prices they fetched when farmer got the best payment. An example is Wanjengi Factory in Murang'a. When farmers were paid Sh120 per kg, they felt they got value for their efforts. The government can consider the prices the coffee grades fetched at the auction to be the lowest and do a top up for all the lots that fetch lower than this. This way, the farmer will be guaranteed a payment of not less than Sh100 per kg. In the end, we will have reliable data on how much government should subsidise. This is a strategy that can work for the farmer immediately.
Dr Maina is a director, Murang'a Coffee Directorate
