Reforms leave coffee farmers and exporters with bad taste in mouth

Harvested coffee at a farm in Nandi Hills, Nandi County. [Christopher Kipsang, Standard] The coffee sub-sector is sinking deeper into a crisis following a stalemate between the government and the key players in the value chain over proposed reforms, a move that has pushed prominent millers out of the market. Consequently, farmers cannot take their parchment coffee to the private millers who are said to be holding thousands of bags they cannot sell. This is happening at a time when prices at the Nairobi Coffee Exchange (NCE) have dropped by 31.13 per cent in August compared to the average price in August last year, which stood at Sh39,535 ($266.32) per bag. According to NCE chairperson Peter Gikonyo, the quantity of coffee taken at the auction has drastically fallen, meaning farmers stand to lose if the crisis is allowed to continue. In the four sales under the auction between August and September, only 17,194 clean coffee bags were traded while the private millers are unable to sell over 100,000 bags because their licenses were revoked. In the same period last year, more than 260,000 bags were traded, out of which 25 per cent were certified coffee, while this year traded bags were not certified. The exit of the millers, who are internationally certified to trade coffee to roasters, according to the Kenya Coffee Traders Association (KCTA), means international buyers will turn to clean coffee beans from other countries. "International coffee prices are indexed against the Intercontinental Exchange Coffee Contract. An absence of legitimate certified coffee is a consequence of all certified coffee millers being unlicensed. Certified coffee enjoys a premium of between 10 and 20 per cent. Certified coffee must be produced by a certified producer and milled by a certified miller to be legitimized," said Benson Kamau of KCTA. He added: "It is imperative that the bottlenecks caused by regulatory reform are sorted out quickly to ensure that the value of the coffee sector is not eroded." Commercial Coffee Millers and Marketing Agencies Association chairman James Muriithi said farmers could lose a lot of money because of the crisis. "Farmers have continued to bring their produce to the private milers despite the State's directive because of the trust they have in us and for the security and safety of their produce amplified by the milling and marketing agreement that lapsed Sunday, September 30," said Muriithi. Farmers on their own He said since Monday, the millers have been forced to shut down, with the fate of more than 800 workers hanging in the balance. Muriithi noted that private millers employ about 20,000 workers who manage coffee estates. "We are still consulting with the government on how we shall deal with the coffee that we have received from farmers. As for our continued stay in the sector, individual millers will decide, but many will opt out while others will redesign and restructure their business model to fit in the market." He disclosed that the seven millers that have been labelled cartels are owned by internationally recognised traders who are globally certified. "We have made investments worth 65 million dollars in the country, translating to Sh9.5 billion, while we have 7,000 hectares that we own and manage at a cost of over 200 billion US dollars, which is Sh3 trillion," he said. Muriithi regretted that the existing global certification procedures that they had adhered to will go to waste. Taylor Winch (Coffee) Ltd General Manager Jack Marrian, who represented the KCTA at a stakeholder's forum at Weston Hotel a week ago, said currently subsidiary companies of international buyers have stopped receiving orders from the roasters. "This is a big blow to the local industry and the government must move swiftly to end the stalemate," he said. Stale coffee Wycliffe Murwayi, a former managing director of Kahawa Bora Millers, said the crisis has persisted for three months as a result of "an abrupt transition" which saw internationally certified millers denied licences. While noting that only 15 per cent of Kenyan coffee has globally accepted standards, Murwayi was categorical that the reforms were a blow to the farmers who took their produce to the local millers with international certificates, but whose licences had been revoked by the government. "There are three organisations that give international certificates, which include Rain Forest, Caffe practice and Organic organisations, who certify value chain and whose buyers enjoy 15 per cent premiums. The state should have given them a six-month window to transition," he said. He warned that the coffee risks being rendered stale if farmers harvest the crop currently in the farm. "By the time the private millers' licences were revoked, they had already milled and stored the coffee. By removing them out of the market, who will be obligated to ensure that they don't count losses?" said Murwayi. But Deputy President Rigathi Gachagua has dismissed reports that the reforms he is spearheading have offended the global marketing structure, reiterating that he has already secured international buyers from China, Columbia and Germany. Gachagua is upbeat that in the next three months, farmers will be laughing all the way to the bank. "Brokers have created the artificial problem, but we are steadfast and committed to streamlining the sector. If they won't buy our produce at Sh150 per kilogram we won't allow them. In three months' time, all will be well," he said. At the same time, the DP defended the one-man-one-job mantra in the coffee supply chain, saying farmers' input ends upon the delivery of coffee to millers who market and broker their produce without involving them. Data from the Agriculture and Food Authority (AFA) shows the average price of a kilo of coffee was Sh78 for five kilograms' producers per tree with Sh44 going into the cost of production with the remainder being the profit which accounts for 80 per cent return on investment which is profitable to a farmer. Big boys "On average, the gross margin for the traditional varieties (SL 28, SL 34 and K7) were lower compared to the improved varieties and the attendant cost of production was higher this was attributed to the increased cost of fungicides and since these varieties are susceptible to Coffee Berry Disease(CBD) and Coffee Leaf Rust (CLR), farmers have to keep on spraying against these diseases," reads the report in part. "A fixed management cost of 5 per cent of the total production cost was considered as a payment to the farmer in case he/she was doing other on-farm or off-farm activities." According to Coffee Year Book 2021-2022, a publication by AFA, private companies mill and market 86 per cent of Kenya's coffee, which accounts for 51,000 metric tonnes, while they market 93 per cent of the produce. The report shows that NKG Coffee Mills had the highest milling share in the 2021-2022 coffee year at 24.6 per cent, followed by Central Kenya (18.0 per cent), Kofinaf (15.4 per cent), Kahawa Bora (13.9 per cent) and Sasini PLC (8.8 per cent) "During the period under review, Ibero (K) Limited was the top exporter by 16.5 per cent followed by TFMK with 10.7 per cent. Other top exporters were C Dor-mans (10.2 per cent), CMS (9.2 per cent) while Taylor Winch volumes amounted to 8.4 per cent," reads the report.

Reforms leave coffee farmers and exporters with bad taste in mouth

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Reforms leave coffee farmers and exporters with bad taste in mouth

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