Task force's proposals, if followed, may save coffee farmers

Thursday June 23 2016

Prof Joseph Kieyah, the head of the governance division at the Kenya Institute for Public Policy Research and Analysis, speaks at the organisation's office in Nairobi on April 5, 2016. PHOTO | ROBERT NGUGI | NATION MEDIA GROUP

Prof Joseph Kieyah, the head of the governance division at the Kenya Institute for Public Policy Research and Analysis, speaks at the organisation's office in Nairobi on April 5, 2016. PHOTO | ROBERT NGUGI | NATION MEDIA GROUP 

There is a new dawn for farmers, but only if proposals by a presidential task force on coffee are followed. Prof Joseph Kieyah, the chairman of the task force, spoke with John Kamau.

Question: You went to the field and spoke to all the stakeholders. In a nutshell, what did you find?

Answer: There was a lot of insider trading in the coffee industry and the cartels the Nation wrote about are real. We discovered that there was cross-ownership between dealers and marketing agents and lots of collusion. We also found out that farmers have no say on their coffee after it leaves their farms and they spoke of local cartels at the co-operative level.

What was the danger?

The way the coffee sector was organised would have impoverished the farmers. Finally, they would have abandoned this crop, like many did. We found out that this country has too many co-operatives and some of them are not viable. They are too small and do not take advantage of the economies of scale. Because they eat into farmers’ profits, we propose that they be amalgamated. We should have a minimal threshold based on volumes or numbers.

There must be some effective co-operatives out there.

Othaya Co-operative is a classic case. This is one of the few that did not break up when others split into small co-operatives. As a result, it has the volumes and pays much better than the others. They now have their own mill and get premium pay for their coffee. In Murang’a, we found the reverse. There is a lot of interference from the county government. The co-operatives are highly indebted and they pay farmers poorly.

What have you proposed?

We have decided to cap the administration costs at 15 per cent. We found out that some co-operatives borrowed money from banks and farmers have no idea about such loans. But they end up paying from their produce. Some of them are currently borrowing to put up mills and we are telling them this is not a good investment.

Why is that?

Our milling capacity is currently at 400,000 tonnes, but we only utilise 10 per cent of that. That means we have a lot of idle capacity and co-operatives should not invest in mills at the moment. We anticipate the reorganisation of coffee mills, especially the commercial ones.

Is it true that farmers did not know how much they pay these commercial millers?

Very true. We have proposed that all charges must be advertised in advance. This way, farmers can estimate how much they get from their coffee and understand the charges.

Marketing agents were also part of the problem.

These were perceived to be farmers’ representatives, but they were not. They were middlemen or companies set up by the dealers who buy our coffee to make sure that they (dealers) get our produce at low prices. They colluded with these dealers and did not in any way act for the interest of the farmers, yet they were central in the coffee chain. To make it worse, they were also paid by the farmers and not the dealers. These are the people who delay payments to farmers because after receiving the money, they can keep it for months.

How have you resolved this?

We have resolved that farmers do not need a marketing agent. We have also recommended that the $1 million (Sh100 million) bank guarantee that was demanded for this licence be done away with. This way, farmers or co-operatives can sell their own coffee at the Nairobi Coffee Exchange (NCE).

You have proposed an overhaul of the NCE.

We think that this should be a commodity exchange. We have proposed a warehouse receipt system in which farmers can be given an ownership number to their coffee. Our proposal is that a farmer with even two bags of green coffee can sell. Previously, he could not. That receipt is like a title of ownership. Once we digitise the process, the farmer can follow his coffee within the value chain and get a fair price.

It was hoped that you would open the market for cherry (the red beans).

Unfortunately, the farmers were opposed to this. They told us that it would encourage theft of coffee at the farm level. Our proposal is to stop trading of cherry and parchment (dried coffee at the factory level). We are saying that coffee cannot be sold until it is converted into green beans. A farmer with green beans can now sell without any inhibition.