How groups of coffee farmers overcame cartel

Tuesday November 17 2015

There is no reason on earth — other than to protect a cartel of profiteers — for the Coffee Directorate to deny small farmers and their cooperatives licences to mill, warehouse, market and sell their own coffee at auction.

There is no reason on earth — other than to protect a cartel of profiteers — for the Coffee Directorate to deny small farmers and their cooperatives licences to mill, warehouse, market and sell their own coffee at auction. GRAPHIC | MIKE MOSOTA NATION MEDIA GROUP

By NATION TEAM
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There is no reason on earth — other than to protect a cartel of profiteers — for the Coffee Directorate to deny small farmers and their cooperatives licences to mill, warehouse, market and sell their own coffee at auction.

The dense maze of pointless regulations and endless stages in the production chain ensure that farmers and their officials have nowhere to start.

And with falling coffee production, there are too many mills chasing too little coffee so the business has become violent, many times bordering on organised crime, including orchestrated theft of beans worth millions of shillings.

After growing their coffee, smallholder farmers are required by law to take their coffee — at this stage called cherry — to their local factory where it is pulped, washed and dried into something called parchment.

The parchment is taken to a miller, who removes the dry outer skin to expose the beans, which are graded and handed over to a marketing agent.

UNREASONABLE OBSTACLES

The Coffee Directorate has made it so difficult for ordinary Kenyans to participate in this value chain that it has imposed a $100 million bank guarantee for anyone seeking to registered as a marketing agent.

Being so lucrative a business, millers and other sharks are not above bribing officials of cooperative societies to take their coffee to them, even when it is not in the interest of their members. Those who can’t be bribed will sometimes have their coffee stolen.

Small scale farmers have realised that their survival in the business depends on taking control of the value chain — milling, warehousing and marketing their own coffee.

But many have neither the knowledge nor the funds to do so. Besides, the government, the regulator and some of the wealthiest companies in the world, stand in their way.

MERU FARMERS PAVE THE WAY TO FREEDOM

Meru Central Farmers Cooperative Society, after obtaining a Sh1 billion bank guarantee, became the first small scale entity to be allowed to market its own coffee at auction and directly to its international buyers.

Their first company, Mt Kenya East Marketing Agency, which was supposed to sell coffee from Embu, Tharaka Nithi and Meru, was driven out of business by established millers.

At their second attempt, the Meru Cooperative acquired a Grower’s Marketing Licence, allowing it to sell coffee for its 34-member societies. Even then, their way was blocked by the cartels.

“Our growers’ licence didn’t help because we did not have market experience and we had no miller. Most of our societies opted to go to private millers. It was also difficult for us to convince (international) buyers. This is when Meru coffee leaders started pushing for a local coffee mill,” said the chairman, Mr Zablon Mbaabu.

DEVOLUTION HELPED

In many cases, officials of cooperative societies conspire with private millers to give them business in return for bribes. 

Fortunately for the Meru Cooperative, an idle Kenya Planters Cooperative Union (KPCU) mill and warehouses in Meru, and the devolution of agriculture, made it easy for them to obtain a miller’s licence.

“The most difficult part of the process was securing a bank guarantee of USD100 million. We went to many banks without success. We secured the guarantee from the Commercial Bank of Africa,” said Mr Mbaabu.

Meru County Coffee millers General Manager Joseph Mwiti said the mill received 16,500 bags from the recent crop, a drop from 40,000 bags last year, due to delays in getting licences.

But things are getting better. Farmers have earned Sh736 million since the mill was set up, of that Sh100 million was from direct sales.

Since they are selling their own coffee, Meru farmers get their pay within 14 days, rather than waiting for months, or even years. And they will earn much more because commissions, transport costs and milling losses have been eliminated.

BETTER RETURNS

In 2010, Othaya Farmers Cooperative Society members passed a resolution to mill and market their own coffee.

Today, the society’s Secretary and Manager, Mr Kimondo Ndegwa, says they have reaped better returns by reducing milling losses.

By milling their own coffee, Othaya farmers reduced their losses from more than 30 per cent to 17 per cent.

The society has 16 coffee factories and is the largest in Nyeri, with more than 80 per cent of the society’s coffee being sold directly to countries such as the US, South Korea, Denmark and Norway.

So popular is coffee from Nyeri in the export countries that a brand known as “Othaya Coffee” is sold in South Korea.

The society’s officials told the Nation that before they bought their own mill, superior coffee grades of AA, AB and PB formed only about 30 per cent of the total coffee delivered to millers.

Now, however, as much as 80 per cent of their produce is in the superior grades which buyers like and which fetch higher prices.

Coffee production in Othaya has doubled from 1.4 million kilos in 2010 to 28 million kilos of cherry in the 2014/15 crop.

But the Nyeri and Meru societies are rare exceptions.

The bulk of Kenya’s coffee remains in the grip of profiteers, with farmers remaining poorly serfs, enslaved by the greed of private businesses, the corruption of the regulator, the ignorance of cooperative officials and the inattention of government.

Reported by David Muchui in Meru and James Ngunjiri in Nyeri.