KENYAN TEA SECTOR LOBBY SUBMITS PROPOSALS TO THE COFFEE BILL 2020

KENYAN TEA SECTOR LOBBY SUBMITS PROPOSALS TO THE COFFEE BILL 2020.

By Irungu Nyakera, Chairman Kenya Tea Sector Lobby Group

The Lobby proposes a reduction of milling fees,

capping of milling losses, reduction of market

agent fees and removal of underhand dealings

between millers, buyers, and marketing agents.

Further, the lobby lauds 5 strategic

interventions proposed in the Coffee Bill 2020

As Kenya Tea Sector Lobby submitted its

input to the Coffee Bill 2020, as a confirmation

of its belief in the efforts of the Ministry of

Agriculture, through The Coffee Bill 2020, to

improve the fortunes of the Coffee farmer. This

will be achieved through various proposals that

will streamline critical areas in the coffee value

chain; production, processing, sales, and

payments to farmers.

Direct Settlement System support the

establishment of the direct settlement system

(DSS) to act as the clearinghouse for receipt

and disbursement of monies from coffee sales.

DSS is the real game-changing reform that we

expect resistance from coffee and one that we

MUST all support. DSS is critical to

democratize information on earnings from all

coffees sold from Kenya by all marketing

agents because this information will be public.

DSS system to make payments to all coffee

value chain players (farmers, factories/

societies, millers, marketing agents, auction

organizers), directly and transparently to their

accounts. As this will be a big win for farmers

because for the first time the veil of secrecy

surrounding deductions from coffee sales and

payments to societies, millers, and marketing

agents will be opened to public scrutiny.

DSS will further take away the discretion of

marketing agents to hoard and trade with

coffee payments while farmers have not been

paid. With an estimated that the top three

marketing agents by market share of clean

coffee exports could be earning upwards of

Ksh.500M per year from just handling farmers’

money.

Coffee shall be sold either at the auction or

directly but that all direct sales MUST be

validated at the auction. Currently, millers and

their sister marketing agents cherry-pick all the

top quality coffees and contract them as a

direct sale at opaque prices only known to

them. They, therefore, send to the auction the

low-quality prices which leads to depressed

auction prices that are quoted as the reference

prices for Kenyan coffee.

The premium quality coffees are shipped to

their partner international buyers and declare

marginal prices above the depressed auction

prices. Considering that these millers,

marketing agents, and international coffee

aggregators are vertically integrated,

opportunities for transfer pricing on our

premium coffees are real. Kenyan coffee is

bought as raw materials at rock bottom prices

and transfer the value to Europe and North

America.

Considering that auction prices are considered

reference prices, farmers are splashed with

depressed auction prices in case of complaints.

The proposal is, therefore, to take all direct

sales to the auction, and because all buyers

know the good quality coffees, they will fight for

it and the prices will be known.

A success Story was when the Ministry of

Agriculture piloted this proposal with KPCU

coffee in Meru, where Ntongoro Farmers

Society fetched a whooping US$438 (Ksh.

48,000) for a 50kg bag, equivalent to 8.8$/kg or

(Ksh.930/kg) of clean coffee. Therefore, this

arrangement will kill the information

asymmetry associated with direct sales and we

should support it.

Lobby propose for the restriction of marketing

agents and millers from lending to farmers,

usually at Because of the opportunity to make

money from providing exorbitant advances to

farmers, millers and marketing agents hoard

farmers’ money and on-lend part of it to them at

14% interest. With the creation of the cherry

advance fund at New KPCU that lends at 3%,

millers and marketing agents are being

prohibited from lending to farmers.

The bill has disallowed societies from using

farmers’ assets to take up expensive loans that

do not help the farmers. Some cooperatives

societies have taken loans from financial

institutions and the funds cannot be accounted

for. This forces banks forcing the banks and

Sacco’s to threaten to sell farmer assets

leading to many farmers to start running away

from society because their coffee earnings are

being used to pay for these loans. In some

documented cases, there is a conflict of interest

between the cooperative society and the Lender,

leading to opaque advances to Cooperative

societies.

Due to corruption in societies, the bill also

proposes that independent factories can apply

to become stand-alone societies. This will allow

factories to move away from societies that

collude with millers and marketing agents to

steal from them and give farmers a chance to

determine their destinies.

The bill also proposes that millers and

marketing agents shall be appointed by

members of a coffee factory during an annual

general meeting held before the start of the

coffee crop year. Such an AGM will see at least

three millers pitch for the business and give

their competitive rates including proposing a

Service Level Agreement that will see the

farmers get good prices, low costs, and proper

grading of their coffee.

Further , the Kenya Tea Lobby Group Proposed

the further Amendments;

The capping of the milling fee currently at USD.

20 per ton, from the current USD.40 per ton.

The capping of milling losses to be reduced to

15% from the current 18% so that millers can be

forced to invest in newer efficient systems.

To limit instances of conflict of interest and

underhand dealings, marketing agents or their

affiliates should not be allowed to operate as a

miller, brokers, or buyers.

Market agents fees to be reduced to 1.0%, from

the current 2.5% of gross sale, so that the

agents focus on growing the coffee production

volumes.

In similar measures, commercial millers or their

affiliates should not be allowed to operate as

marketing agents, brokers, or buyers to avoid

conflict of interests.

Millers, buyers, brokers, and marketing agents

should not be allowed to sit in the decision-

making positions of the Nairobi Coffee

Exchange. This will allow for transparency in

the auction and avoid instances of interference

by marketing agencies.

Kenya Tea Sector Lobby Group lauds all

stakeholders who have submitted their inputs

to the Coffee Bill 2020 before the deadline of

today, 18th November 2020. This is yet another

opportunity to see our cash crops rise and

which is good for the farmer, and the economy.