Kenya plans to remove middlemen in the coffee subsector with new regulations aimed at requiring farmers to join co-operative societies as a condition to access a $30 million fund.
The Coffee Cherry Advance Revolving Fund, which is part of the regulations, will provide affordable, sustainable and accessible advances to smallholder coffee growers.
The fund is part of efforts to ease the woes of 700,000 smallholder farmers that range from delayed payments, mismanagement and inefficiencies in co-operatives, restrictive laws, high cost of production and lack of direct access to the coffee exchange trading floor.
In some parts of the country, particularly central Kenya, farmers have been uprooting their coffee trees seeking more profitable options, including real estate.
“The task ahead is daunting but not impossible. You have to return the coffee farmer to the optimum returns of the 1970s and even higher,” said Peter Munya, the Cabinet Secretary for Industry, Trade and Co-operatives on Wednesday at the ministry’s headquarters, where he inaugurated the New Kenya Planters Co-operative Union (New KPCU) board whose mandate is to oversee the revival and restructuring of the giant farmers’ society.
According to the regulations, only farmers who are members of a registered coffee co-operative society or affiliated to the revamped New KPCU will be eligible to benefit from the fund. The regulations bar farmers from selling coffee to middlemen who have largely been accused of impoverishing smallholder farmers.
Advances from the fund would be based on coffee delivered to co-operative societies or to New KPCU.
Eligible farmers will access advance coffee payments computed on the basis of 40 per cent of prevailing average sales price at the coffee exchange, Ksh20 ($0.19) per kilogramme of cherry delivered, and 40 per cent of the payment rate to members by a co-operative society for the immediate past crop year.
“Any coffee advance shall attract an administration cost of three per cent of each amount advanced,” state the Public Finance Management (Coffee Cherry Advance Revolving Fund) Regulations, 2019.
In Kenya, the coffee subsector is in deep crisis with production plunging from 130,000 tonnes in the 1980s to 40,000 tonnes currently.
The government is implementing a raft of reforms aimed at increasing production to more than 100,000 metric tonnes by 2022.
In the 2018/2019 crop year, Kenya recorded a 20.3 per cent decline in coffee export earnings, to $102 million, largely attributed to plummeting prices at the international market that nosedived from $1.43 per pound to $0.97 per pound in two years.
Despite producing less than one per cent of the world’s coffee, Kenya’s coffee is highly regarded for blending and specialty markets.
Regional countries have emerged as top producers. Ethiopia has overtaken Kenya to be the region’s largest coffee producer with its production currently standing at about 7.5 million bags annually.
Uganda is the region’s second largest exporter earning $436 million from the crop in 2018, with Tanzania earning $127 million.
Rwanda is also emerging as a key coffee producer, earning $70 million in 2018 and targeting double incomes from the crop by 2022.
While production has been on a decline in Kenya, on the global scene it has significantly increased.
Data from the International Coffee Organisation showed global production in 2018/19 to be 168.55 million bags, exceeding world consumption that stands at 164.8 million bags.
In a statement, the government informed stakeholders in the coffee subsector and members of the public in general that the rules and regulations required to govern the Ksh3 billion ($30 million) Cherry Advance Revolving Fund had been approved by Cabinet.
“Members are invited to submit written comments and feedback by January 15, 2020,” the statement read. To discourage mismanagement of the fund, the regulations prescribe tough penalties, including imprisonment for a term not exceeding five years or a fine not exceeding Ksh10 million ($100,000) or both.