The great rip off: How coffee agents take farmers for a ride

Around May this year, a coffee cooperative society in Kirinyaga County offered 160 bags of grade AA coffee for sale at the coffee auction through its marketing agent.

The agent got back to the cooperative's management, with what at the time sounded like good news, informing them that he had gotten a direct buyer for the coffee who would buy it at $500 (Sh75,000) against the $400 (Sh60,000) per bag it would fetch at the auction.

The agent was seeking approval from the cooperative to go ahead with the direct sale.

The management gave consent. The agent however hit a snag when he tried to sign a contract with the buyer, who insisted that they would only sign the contract with the farmers - in this case through the cooperative - and not the marketing agent.

The insistence by the buyer turned out to be to the delight of coffee growers, who were to discover that the direct buyer was offering $700 (Sh105,000) per bag and not the $500 (Sh75,000) that the marketing agent had presented them. The agent would try to explain that this was a different butter than the one who had offered $500 (Sh75,000) but it was clear these were lies.

Had it not been for the buyer's insistence on dealing with the coffee farmers, they would have lost $32,000 (Sh4.8 million) for the 160 bags the farmer had for the direct coffee sale. Aside from pocketing this money, the agent would have also got his commission.

Excluded from sale

This is one of the haunting stories that a team of researchers heard when they were trying to figure out the extent to which coffee farmers are involved in the sale of their product once it leaves their farms.

The new report by the Kenya Coffee Producers Association (KCPA) found that the farmer is excluded from nearly all points of getting the produce to the market. This has ensured that they continue to get a paltry amount for their coffee, which fetches premium prices in the world market, despite being the people who do the heavy lifting while bearing the largest risks.

"The baseline survey documented a lopsided contractual arrangement in favour of service providers...only 11.5 per cent of growers in the survey confirmed comprehensive reading and understanding of the milling and marketing contracts," said the report, noting that the coffee farmers have a legal language limitation and lack a good understanding of the contracting process. This has given some unscrupulous services an opportunity to swindle them.

"The contracts are developed by the service provider and presented to the grower to sign instead of the other way round and by practice; the service provider takes with them the signed contract and in many occasions does not return the signed copies to the growers," said the KCPA report.

The contracts do not state clearly the cost levels for the services on offer and also majorly include arbitrary costs.

The experience of the Kirinyaga cooperative is familiar across coffee cooperatives but sadly many never find out. Another way the cooperatives are losing out is when it comes to the conversion of the dollars into local currency once a transaction - either at the auction or a direct sale - has been concluded.

While coffee is traded in US Dollars, there are no requirements that growers are paid in dollars. The report noted that only 19 per cent of the cooperatives have dollar accounts, which means that most farmers are paid in shillings.

"Majority of the growers are normally paid in Kenya shillings. The marketer receives the payments from the coffee buyers on behalf of the growers in dollars and has the liberty to convert the dollars into Kenya shillings and the correct rate of conversion may not be communicated to the grower," said the report.

This may have meant that the farmers may have missed out on what would have been a boom over the last year as the shilling posted major losses against the dollar.

Expensive assumptions

The report further adds that the majority of coffee growers make some expensive business assumptions which translate to high business losses.

"A significant number of growers assume the weight of one empty coffee bag to be one kilo while the bag weight ranges depending on the make. The millers therefore deduct one kilo from every bag used for coffee delivery at the mill while some bags are less than one kilo," said the report.

"Coffee growers assume the moisture content level of parchment coffee both at the primary processing level, storage and before delivering coffee for milling."

The survey also found that 80 per cent of farmers are not involved in reserve price setting. This is despite policy provisions for grower involvement in reserve price setting.

There are however no policy guidelines on the valuation of coffee at Nairobi Coffee Exchange, which the report notes means that there is limited accountability and transparency in reserve price setting.

"Majority of the growers also have limited capacity to understand reserve price setting and therefore to engage the marketing agents on reserve price setting," said the report.

"The coffee valuation process is largely out of the reach for the majority of the growers.

Kenya produced 51,900 tonnes of coffee last year, which was a major improvement from 34,500 over the 2020/21 crop year on account of conducive weather. Production has registered a major decline from the golden years in the 1980s when local farmers would produce 130,000 tonnes annually.

While it has taken a beating in recent years and registered major declines, coffee is still a significant sector of the Kenyan economy and players contend that it still has potential.

In the year 2020-21, coffee contributed 0.15 per cent to the gross domestic product, according to the Agriculture and Food Authority (AFA), and about 20 per cent of the total agricultural export earnings.

The sub-sector supports over five million people or 10.5 per cent of the Kenyan population directly and indirectly, according to the Kenya National Bureau of Statistics.

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