Coffee wars heat up over Sh132m loans

The coffee wars pitting governors against brokers have taken a new turn, with brokers demanding to be paid Sh132 million in funds paid to farmers as advance and input.

Acting under the Commercial Coffee Millers and Marketing Agent Association, the 12 brokers are seeking the Coffee Board of Kenya’s intervention.

They also want the board to stop registering or approving any new marketing or milling agreements with any factory that “still has outstanding financial obligations to our members.

“Our members are demanding that these amounts be settled immediately following the flagrant breach in the contractual terms,” the association says in a letter dated 5 March. 

The brokers are also threatening to go to court to have the farmers forced to honour the agreement.

“Such breach of contract is enforceable,” they say. The letter is copied to Agriculture Cabinet secretary Felix Koskei and principal secretary Sicily Kariuki.   

The turn of events comes as news of international buyers making direct enquiries from cooperatives starts unsettling local agents, which are mostly multinationals, taking the battle for control of coffee marketing global.

Those affected most are Central Kenya Coffee Mill — a Sh150 million milling factory in Nyeri —,and Neumann Kaffee Gruppe (NKG) Coffee Mills — a Germany-based coffee firm which claims to supply about 10 per cent of the world’s coffee demand.

Others are  Highlands Coffee Mill based in Thika, and Sasini Coffee Mill, owned by business magnate Naushad Merali.

The brokers are also concerned that projects initiated under corporate social responsibility will “go into a state of disuse” if they are not allowed to continue buying coffee from farmers.

“Our members have also supported numerous social economic projects among the coffee growers which are now in jeopardy following these actions,” they say.

Players in the sector, however, say unregulated funding of coffee societies by the officials is partly to blame for the poor earnings by farmers as this ties up farmers to particular dealers even when the payments are poor.

“The government should streamline the sector to cushion farmers from this arrangement that leaves them heavily indebted. Farmers should participate throughout the value chain to be able to earn better returns for their coffee,” said Lucy Murumba, the Kenya Coffee Cooperative Exporters (KCCE) managing director.
LIBERATE COFFE FARMER

“Our mandate is greater than making money. It is to liberate the coffee farmer. Unless that is done, we are not done yet,” Murumba said.

Some players in coffee marketing say commercial dealers are responsible for the woes facing the Kenya Planters’ Cooperative Union.

The union was placed under receivership in 2009 after commercial dealers signed marketing contracts with the coffee societies that owed the union money.

Coffee societies have taken advantage of the new Constitution, which has devolved agriculture, to seek greater control of marketing the produce.

If successful, experts say, it will result in a profound restructuring of coffee marketing currently dominated by multinationals through auction at the Nairobi Coffee Exchange.

“Coffee is a relationship commodity. There is loyalty between the seller and the buyer. Penetration of this market has been made difficult in the past as multinationals ring-fenced the end-buyers. This is bound to change,” the source said.

An international buyer, Collaborative Coffee Source (CCS), acknowledges that farmers are not paid well, but notes that they have to deal with firms that have a track record in coffee business.

“Regrettably, there is no doubt that coffee is generally not well paid for, which has been a sad truth not only in recent months but for decades. Unfortunately, exploitation and corruption in all sectors of trade can and sometimes do happen,” CCS says in a letter to its customers.

The firm promises not to buy coffee marketed under the new system, saying “to do so would not be in tune with our principles of transparent coffee trading and it would also be untactful to our long-standing relationships.”

KCCE was established in 2009 to address various challenges encountered by small-scale coffee farmers since the liberalisation of the crop.

It was to enable cooperatives to use the direct sales window by raising capital, mobilising volumes and enabling farmers to cut costs by dealing in bulk.

The marketing body was, however, dealt a blow after it was denied a licence for six months by the regulator, the Coffee Board of Kenya, for the 2011/2013 coffee year, resulting in cooperatives reverting to other agents.

“We lost many cooperatives and revival has been hard. It was the wish of some players that we go under. Last year, we handled 40,000 bags but we will be handling 150,000 bags by the end of the year,” Ms Murumba said.

RECEIVED NEW IMPETUS

As a result, the body that is guaranteed by the Cooperative Bank has gone through tough times, from initially controlling 15 per cent of the market to its current share of just under 5 per cent.

But it has received new impetus by offering technical support to counties that are seeking to find alternative marketing channels to improve farmers’ earnings.

Plans initiated last month by counties to launch their own coffee marketing system triggered resistance from multinationals, who have dominated the market.

In an initiative started by Nyeri governor Nderitu Gachagua and later joined by governors William Kabogo of Kiambu, Mwangi wa Iria of Murang’a, Joseph Ndathi of Kirinyaga, and Peter Munya, formerly of Meru, the counties vowed to collectively market their coffee in a bid to improve farmers’ earnings.

However, of the five, only Nyeri and Meru have taken concrete steps to switch to the new marketing model. Whether Meru will stick to the system with the fall of Mr Munya — after losing an appeal petition against his election — will be closely watched.

In the initial tug-of-war, the brokers, led by C. Dormans managing director Bridget Carrington, had come up strategies to counter what they termed as “madness by politicians”.

In a note to stakeholders, Ms Carrington was upbeat that the “status quo would be restored” as “local politicians know very little about coffee”.

Her note details the strategies that multinationals want to use to kill the initiative, which they said they thought “was rather political hot air which would blow over.”

“Of course, in the background is a huge amount of lobbying by coffee trade associations, marketing and milling agents... with both the Coffee Board and the principal secretary to the Cabinet for Agriculture. The matter is being taken to the highest level,” Ms Carrington says.

Coffee production has plummeted from the 1980s’ highs of 130,000 tonnes to an average of 45,000 today. The low production has spawned cut-throat competition for the little available coffee beans in the local market.