Coffee cherry fund advance to farmers up by 500pc to Sh6.7 billion

Close to half a million small-scale farmers have borrowed Sh6.7 billion from the Coffee Cherry Advance revolving fund, with seven counties in the Mount Kenya region enjoying 59.7 per cent, a new report reveals.

The fund administered by New Kenya Planters Cooperative Union (New KPCU) benefited 497,221 farmers, a trend the organisation’s top management attributed to low interest rates and improved governance disbursement systems.

Coffee Cherry Advance Revolving Fund report released by the organisation this week indicated that as of December 19, 2024, loan advancement to farmers increased by over 500 per cent from mid-November 2023.

New KPCU Managing Director Timothy Mirugi in an interview in his office explained that the increase in borrowing by farmers has been supported by the implementation of coffee reforms the national Government and counties are undertaking, for example in the marketing. The Fund advances credit to farmers based on their coffee delivery at an annual rate of three per cent, which is supposed to cover the administration costs.

“The loans advanced to farmers have increased to Sh6.7 billion compared to Sh1.1 billion which had been advanced as of Nov 14, 2023. The increase has been largely motivated by a reduction in paperwork and awareness by the Government and improvement in prices at the NCE,” said Mirugi.

“The increase in loan advancement has been prompted by lack of collateral conditionality apart from coffee and cherry required, no cumbersome paperwork like the financial institutions as long as you are proved to be a coffee farmer who is producing coffee in Kenya. Further introduction of the Direct Settlement System (DSS) as a payment system has motivated farmers' morale.”

In 2019 President Uhuru Kenyatta announced the establishment of a Sh3 billion cherry advance revolving fund as part of bigger plans to revive the struggling coffee subsector.  Kenya Kwanza Government boosted the fund with Sh4 billion more in December 2023 to accelerate the recovery of the sector.

In November this year, Mirugi confirmed the National Treasury and Planning released to New KPCU Sh750 million with the balance of Sh2.25 billion expected to be extended in every quarter of the current financial year.

The New KPCU said there are low defaults as loan recovery is made through the DSS. The system, which was launched in August 2023 and the Cooperative Bank of Kenya appointed as the implementing agency, is a technology platform on which coffee trading is conducted. The establishment of DSS was aimed at easing the payment of proceeds to farmers and other value chain players.

Currently, The Capital Markets Authority has licensed 16 coffee brokers to trade at NCE.

Mirugi confirmed seven counties from Mount Kenya have as of December 19, 2024, borrowed Sh4 billion of the total amount accounting for 59 per cent of the loan taken.

Nyeri County topped the list of beneficiaries with 82,927 coffee growers borrowing Sh943.4m million followed by Kirinyaga with 99, 258 farmers as beneficiaries of Sh845.6 million.  According to the Coffee Directorate of Agriculture Food Authority (AFA), the country has 800,000 coffee farmers.

129,501 coffee farmers from Kiambu, Murang’a, Embu, and Meru counties borrowed Sh820.6 million, Sh579.2 million, Sh449.9 million, Sh319 million respectively. Other top borrowers include Kericho County where 32,258 farmers borrowed Sh624.5 million, Bungoma County Sh414 million and Trans Nzoia County farmers accounted for Sh319.2 million.

Mirugi observed that the increased borrowing of loans from the kitty has led to the introduction of coffee in non-traditional regions such as Trans Nzoia, Uasin Gishu, Nandi, Migori, Nyamira, Baringo and Kisii. 

“We have witnessed an increase in coffee bushes in parts of Rift Valley, Western and Nyanza region, an indication that in the next two to three years’ national production is expected to increase from current below 50,000 metric tonnes to over 150,000 metric tonnes by 2027,” he added.

At the time of this report, 81,745 farmers have borrowed Sh1.182 billion between October 2024 and December.  Kirinyaga County led in the last three months as 27,368 farmers borrowed Sh267 Million followed by Kiambu County Sh194 Million and Machakos County Sh170m and Embu County Sh112.3m.

Cabinet Secretary for Cooperatives and MSMEs Wicliffe Oparanya earlier said that local coffee consumption has increased to 19 per cent.

The CS said that Coffee production in Kenya has declined by 6 per cent to 0.81 million bags. He attributed the drop to erratic weather patterns and the natural cyclical nature of coffee production.

Despite the drop in production, Kenya remains the third largest producer of Arabica coffee in Africa.

“The area under coffee cultivation has grown to 111,902 hectares supported by a quality seedling program,” he said, projecting production for the year 2023-2024 to increase to 54,800 tonnes.

According to the CS, the coffee sector is faced with significant challenges such as high input costs, shrinking coffee growing areas, delayed payments, climate change and fluctuating market prices.

“Additionally, Weak governance in cooperatives societies and outdated legislations have hindered the sector’s growth potential,” CS Oparanya said earlier in the year.

Earlier this year, in the run-up for the 2024/2025 budget, the National Treasury made a proposal to add Sh2 billion to the Sh4 billion Coffee Cherry Advance Revolving Fund (CCARF) to push the agricultural sub-sector to profitability.

The revolving fund targets coffee farmers under land not exceeding 20 acres. CS Oparanya while speaking at the New KPCU’s five-year anniversary noted that the area under coffee cultivation has grown hence the ministry projected production for the year 2023-2024 to increase to 54,800 metric tonnes.

Additionally, to avoid over-borrowing by cooperatives, the ministry instructed the development of a dividend policy that will ensure cooperatives do not borrow to pay dividends or declare dividends when they have made losses.

To this end, the New KPCU asked that the coffee research institute be empowered to produce Robusta seeds.