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Forensic audit of huge debts at 500 coffee saccos starts

Saturday May 25 2019

coffee picking

The long-awaited forensic audit of all the 500 coffee farmers’ co-operatives has started. FILE PHOTO | NMG  

NICK MAINA
By NICK MAINA
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The long-awaited forensic audit of all the 500 coffee farmers’ co-operatives to establish why they continue to sag under huge debts despite past waivers has started.

The Coffee Subsector Implementation Committee (CSIC) appointed in 2016 by President Uhuru Kenyatta to spearhead reforms in the sector said that the exercise will run for one year.

REFORMS

CSIC chairman Prof Joseph Kieyah said future debt waivers in favour of small-scale coffee farmers will be determined by the audit, which will affect co-operatives and other affiliated organisations such as rural saccos and county farmers’ unions.

“We are currently undertaking a forensic audit of 500 coffee societies in terms of current debts and past granted debt waivers,” he said at a media breakfast session on the status of coffee subsector reforms this week.

Prof Kieyah said the audit, which will cost Sh300 million, will culminate in the merger of some economically unviable units so that they may enjoy the full benefits of economies of scale.

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He noted that some factories were in a dilapidated state, a situation that had pushed up the cost of processing cherry coffee. “This sorry state of facilities has contributed to escalation of corruption among co-operatives’ leaders, who continuously borrow money on the pretext of putting it into repairs.”

The debt waiver programme was initiated by President Mwai Kibaki in 2006 and since then, the government has waived Sh12.2 billion.

The waivers and other reforms have, however, not translated into growth of the subsector.

COLLATERAL

Past waivers include the Sh5.8 billion Stabilisation of Export Earnings (STABEX) to Co-operative Bank, money that had been granted by the European Union (EU) under a compensatory finance scheme to stabilise export earnings of the African, Caribbean and Pacific Group of States (ACP).

The Kibaki administration further wrote off Sh4.7 billion that farmers owed the savings and credit co-operative societies (Sacco) and farmers’ co-operative unions in 2010. Coop Bank was further paid Sh1.7 billion in Kibaki’s second term.

Prof Kieyah pointed out that even though the debts were written off, farmers were still reeling under financial woes, a situation that has discouraged most of them to continue growing the crop.

The committee also wants to understand why Saccos and unions are yet to give farmers their title deeds, which they had used as collateral years after the government paid the arrears.

Since then, farmers have incurred more debts.

SUBDIVISION

“Through the forensic audit, the government will be able to find out the size of the debts the farmers are grappling with. The findings of the audit will determine whether another waiver will be granted or not,” he added.

The Saturday Nation has established that coffee co-operatives are stuck in debt due to overborrowing. In some institutions, leaders have been abusing the borrowing power, leading to huge debts and losses.

The coffee industry suffered a big blow in the late 1980s and early 1990s after the introduction of Structural Adjustment Programmes by the Bretton Woods institutions — the World Bank and International Monetary Fund (IMF).

This led to massive subdivision of the giant coffee co-operative societies into economically unviable units mainly in Mt Kenya counties.