- Since the 1987/88 crop year, Kenya has seen a 70% decrease in coffee production
- In recent years, the Kenyan coffee supply chain has come under scrutiny
- On review, Deputy President Rigathi Gachagua has set out to reform the coffee sector
KENYAN COFFEE is renowned around the world for its bright and complex flavours. It’s also a crucial component of the country’s economy: coffee is Kenya’s third-largest agricultural export and provides employment for over 600,000 farmers – 75% of whom are smallholders.
However, the Kenyan coffee sector has also faced challenges in recent decades. Since the 1987/88 crop year, Kenya has seen a 70% decrease in coffee production – from 130,000 metric tonnes to around 40,000 in the 2020/21 coffee year.
The country’s climate has played a part. East Africa has been subject to a number of erratic weather patterns in recent years – which many attribute to climate change. This includes irregular rainfall, decreased water availability, and elevated temperatures, all of which can adversely affect coffee production.
On top of this, Kenya’s coffee supply chain has become increasingly consolidated, and certain actors have emerged that have been able to freely profiteer to the detriment of the sector – especially farmers.
“Our coffee sector is predominantly three companies, who have branched out and have their own coffee milling firms. The same companies transform themselves into marketers, then they move ahead and become buyers,” said Governor Cecily Mbarire during the Coffee Farmers Summit in June.
Some argue that Kenya’s previous coffee regulations have worked against farmers. The law made it easy for wealthier intermediaries to trade coffee, but almost impossible for small-scale farmers to mill or sell their own crop. This allowed intermediaries to exploit farmers, effectively forcing them to settle for low prices – as they were the only ones with direct market access.
“The current value chain is exploitative in nature and is not designed to benefit producers,” says Laban Njuguna, founder of Zabuni Specialty Coffee Auction.
Rigathi Gachagua’s reforms
Kenya’s Deputy President Rigathi Gachagua aims to put a stop to these challenges. He said the Ruto administration intends to increase coffee production from the current 50,000 metric tonnes per year to 200,000 metric tonnes within five years.
“We need these reforms to franchise producers into the value chain, not as lesser partners but as equals,” says Laban. “They must be able to derive economic benefit from the coffee they grow just like other players in the value chain. This in turn will lead to better coffee for consumers.”
These reforms will review existing licences held by millers and marketing agents, with a focus on revoking any unfairly held licences. Previously, some entities held multiple roles – a miller, marketing agents, exporter, warehouse manager, and logistics provider under one roof. The reforms seek to eliminate this consolidation in the value chain, requiring different entities to specialise in specific roles.
For example, several roles previously filled by marketing agents that were associated with millers have been assigned to licensed brokers. This includes coffee classification, preparation of sale catalogues, and submission of coffee for sale at the Nairobi Coffee Exchange – the primary auction platform responsible for trading over 85% of Kenya’s coffee.
Licensing will also be decentralised. Local governments, the Capital Markets Authority, and the Agriculture & Food Authority will each oversee licensing for milling, brokerage, and coffee buying respectively.
“By having three distinct licensing authorities, there will be checks and balances along the value chain for the best interest of the Kenyan coffee farmer,” said Cooperatives Principal Secretary Patrick Kiburi Kilemi.
The Capital Markets Authority will also supervise a new trading system at the Nairobi Coffee Exchange, with Cooperative Bank securing a bid to provide the Direct Settlement System (DDS) – a platform for coffee trading.
The DDS will help to ensure transparent and efficient price discovery and faster settlement for farmers. Under the system, funds will be dispersed within 48 hours of sale – in contrast, farmers can wait up to 4 months to be paid under the current system.
This should address the current problem where buyers pay funds to marketing agents. In this scenario, marketers often withhold payments to farmers, or fail to communicate their fees transparently.
Marketing agents are individuals or companies hired by farmers to represent their coffee at the Nairobi Coffee Exchange. During this process, marketing agents act solely as intermediaries and do not assume ownership of the coffee.
In the past, cooperatives were not allowed to sell directly to the NCE. As such, farmers and cooperatives relied on marketing agents to present their coffee at the Exchange.
However, many have argued that these agents do not operate with farmers’ best interests in mind. In some cases, they have reportedly interfered with cooperatives’ management elections, often to ensure a candidate is installed that will award them marketing contracts.
Marketing agents also often control pricing. They set reserve prices, supposedly in partnership with farmers, but often undersell the coffee. Because the farmer has such limited involvement after the coffee is sent to the NCE, marketing agents are able to manipulate and ultimately drive down coffee prices.
However, under the proposed new trading rules, farmers will no longer be required to designate a marketing agent, and they will receive their sales earnings directly through the new Direct Settlement System.
“The journey to putting the money to where it belongs – the pocket of the farmer – is firmly on course,” Gachagua said. “We are reforming these agencies to serve the farmer better. I wish to assure our farmers that the reforms are unstoppable. Our interest and focus remain on the farmer, especially the small-holder, earning more at the international market.”
Farmers will also be able to skip cooperative unions should they wish to, who have often been criticised for extremely delayed payments to farmers.
However, one area that the Deputy President is focusing on is reforming the country’s cooperatives model – and strengthening the New Kenya Planters Co-operative Union (KPCU).
Eleven cooperative unions have already been licensed to sell coffee directly at the Nairobi Coffee Exchange and overseas, further reducing the need for marketing agents. More are on course to attain the necessary licensing.
“We must come up with economically viable cooperatives and threshold for election of leaders and officials of the societies. If we do not look at the Cooperative Act, we won’t get anywhere, because there are serious governance issues,” Gachagua said.
Gachagua plans to amend the Cooperatives Act as part of the Coffee Bill, which is awaiting parliamentary approval. This will streamline the governance of cooperative societies. He also proposes merging existing cooperatives which are not financially sustainable
Can he do it?
The Kenyan coffee sector’s challenges run deep, and they have persisted for a long time without being addressed at a systemic level. These proposed reforms seek to address that – but implementing them will be a colossal undertaking.
“If the reforms are done right, the producers, the consumers and the industry stand to gain. If they are not, then we will simply replace the current ‘cartels’ with new ones and nothing will change – it may even get worse,” explains Laban.
However, all the signs suggest that these reforms are comprehensive, and seek to target all areas of the supply chain. In other words: the Deputy President means business.
“The Deputy President does have what it takes to effect change,” says Laban. “First, he has the support of his boss, President William Ruto.
“Second, he has a good and first-hand understanding of the industry, as he is from the largest coffee-growing region in Kenya – the Mt. Kenya region,” Laban adds. “Third, I think there is a consensus from leaders and producers that things must change.”
Reviving Kenya’s coffee sector will be no small feat – but Deputy President Gachagua’s reforms are comprehensive, and they outline a clear vision for the future of Kenyan coffee. They are clearly the most exhaustive efforts anyone has made to combat these deep-rooted challenges in years. Whether or not they will succeed? Only time will tell.
Deputy President Rigathi Gachagua will be attending PRF Colombia on 14 & 15 September, and will speak on his proposed reforms at the event.
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