New coffee loan to guard against price instability

Lending to coffee farmers from common fund for commodities (CFC) will be restructured to cushion farmers from price fluctuations in the international market, an official from the fund has said.

CFC Project manager, Caleb Dengu said the farmers required a structured input credit that would enable farmers practice good crop husbandry to improve on quality and levels of production.

Speaking during a visit to beneficiaries of the loans from the fund in Muranga, Mr Dengu said low coffee production in the country was as a result of low investment. The pilot project is under the Kenya Planters’ Co-operative Union (KPCU).

“The banks are not providing loans to coffee farmers because of high transaction costs and high risks. The credit will include a price risk management component to mitigate against low payment to farmers.” Mr Dengu said.

He said CFC had provided $2.5 million for lending to the coffee farmers in the country.

Mr Dengu said $1.5 million was in form of grant while $1million was in form of loan but the government has not taken the loan component.

“The government has not been able to draw the loan of $1 million and we want to have enhance price risk management” Mr Dengu said.

He said the farmers would use the smart card that would help reduce the risk and the transaction cost.

Mr Dengu said past credit schemes had failed because the farmer was not cushioned from downswing of prices in the international market which exposed them to great losses.

The credit schemes also failed to match the coffee calendar leading to late delivery of inputs and fertilizers, hence their impact in improving quality and production was limited.

KPCU acting managing director, Salesio Mbogo said the aim of the CFC credit scheme was to be replicated in other parts of the country to enable the coffee sector recover.

The production of coffee had plummeted to 30,000 metric tonnes in 1990’s from high of 130,000 metric tonnes in late 1980s.

Coffee Board of Kenya its projects that production will reach 60,000 this year.

A chief economist from International Coffee Organisation (ICO), Denis Seudieu said coffee production in Africa was declining even as the international market for the crop appeared promising.

“Production of coffee in Africa has been going down which means they can not take advantage of the prevailing good international prices.” he said.