Later this year and with absolutely no fanfare, Kenya will mark an unwanted anniversary. It will be 30 years since its record coffee harvest. This landmark of unde
rachievement comes despite the advantages of climate and the international recognition of the quality of Kenya’s finest coffees.
Back in 1987, the crop was recorded at 128,000 tonnes and its sale made coffee Kenya’s top foreign currency earner.
At that point, nearly a quarter of a century on from independence, Kenya’s blend of acidic soils, rainfall and sunlight, plus an army of willing smallholder farmers seemed certain to keep it among Africa’s major producers.
The country’s mild and fruity coffee also seemed well placed to meet the growing demand for higher quality coffee on the international market. Coffee that year delivered 40 per cent of the East African nation’s export earning.
But 30 years on and Kenya’s coffee sector is in such a parlous state that the government convened a special task force to unravel the mess. Production at 40,000 tonnes per year has dropped below the levels at independence in 1963. Yields from individual coffee bushes once estimated at 30 kilograms have dropped to three kilograms.
The number of hectares under cultivation has fallen drastically and coffee finds itself competing for space in the highlands around the capital, Nairobi, with a booming real estate sector.
The short-term gains from property development dwarf the earning prospects from agriculture to such an extent that bulldozers are consuming former coffee farms at record rates.
Compounding these pressures is a byzantine management system that has, over the decades, inserted any number of rent-seeking middlemen into the process between smallholders farming the coffee and dealers buying the finished product.
When the report of the national task force on coffee reforms landed on president Uhuru Kenyatta’s desk last May it summed up this situation thusly: “Currently, coffee… is facing unprecedented challenges which have drastically affected the production levels. Key among them: low earnings from coffee despite its premium quality, delayed coffee payments, mismanagement and inefficiencies in cooperatives, restrictive coffee laws, high cost of production and lack of direct access to the trading floor.”
While the report was bleak, it was hardly news in a country that has frequently flirted with grand efforts to revive the coffee sector.
Kenyan coffee is grown by two categories of farmers: the smallholders and the estates. Some 60 per cent of Kenyan coffee is grown by an estimated 700,000 smallholders and it is their declining fortune that underpins the crisis.
“In a nutshell, (the) majority of smallholder farmers with half an acre of coffee are making losses,” the taskforce found. “Especially when family labour is factored in the cost of production. This is manifested in abandonment and uprooting of coffee trees, and increased poverty in most coffee-dominated growing areas.”
The stagnation and decline was underlined by the fact that the average age among coffee smallholders is now 60. In their lifetime they have watched small-scale growers railroaded and robbed in a multiplicity of ways.
Under Kenyan law, all growers with fewer than five acres must join cooperatives – after independence it was 20 acres but subsequently reduced. In the early days post independence the cooperatives were a boon for smallholders. They were organised into district unions and these unions provided extension services, inputs, food and offered loans for school fees and development, as well as bursaries for poor families. The unions also offered banking services to their member societies in cooperation and received the proceeds of sales through Kenyan Planters Cooperative Union (KPCU) – which at this point was the sole miller.
In the period before the crash in the late 1980s, this system appeared to be functioning; harvests and land under cultivation were both growing. But the ensuing crash sent debt cascading back through the system, loading much of it onto cooperatives and, by extension, the poorest of the farmers.
The reasons for the crash itself were beyond Kenya’s control. Tensions inside the international cartel, the ICO, which controlled coffee prices saw the collapse in 1989 of the International Coffee Agreement.
A simmering row over export quotas saw them axed, opening up competition overnight. The breakdown of the old system effectively halved coffee prices overnight and saw a six-fold drop in prices for Kenyan coffee.
Kenyan growers who had borrowed on the expectation of future sales now found themselves heavily in debt with no prospect of regaining past prices. While this rupture had a long-term impact, it does not by itself explain the mess in Kenya.
The task force set out to map the links in the “value chain” of Kenyan coffee and found 11 of them. Starting with smallholders and estates, the coffee moves from cooperatives to pulping mills and back to unions, before moving to coffee millers and commercial marketing agents and ending up on the Nairobi Coffee Exchange.
This unwieldy structure loads most of the costs onto the first link – the smallholders. They have been faced with rising costs of inputs such as fertilisers and pesticides. Those costs, the taskforce found, have seen the majority of growers opt for manure in favour of commercial fertiliser and 70 per cent of them opt out of the use of any chemicals.
It also prevents them from pulping their own coffee or from selling it direct on the coffee exchange (NCE). The marketing license required to sell on the NCE requires a US$1 million bank guarantee. While there are 60 licensed dealers – just five of them do the overwhelming bulk of actual trading.
The host of middlemen, the report concludes, means the smallholder gets less than 40 per cent of the value of the coffee sold at auction. In addition, a series of levies – from a tax to pay for local roads to charges for research bodies to commission to marketing agencies and transport and milling costs – mean the cooperatives themselves pocket much of what is left.
“These cooperatives’ high costs are attributable to low capacity utilisation, inefficiencies, poor governance, financial mismanagement, abuse of borrowing powers, and rent seeking,” the report said.
The final insult is that the farmers face delays of six to eight months in receiving even the pittance that remains. While the dealers at the NCE are obliged to settle accounts with marketing agents within seven days, there is no system to ensure the agents pay growers.
While the byzantine system appears almost accidental in its construction, the taskforce concluded that its workings were largely the product of corruption.
“It was the view of the task force that the financial management of most coffee cooperatives was weak, allowed unethical behavior, and sometimes, outright corruption to be perpetuated by some society management with involvement of some cooperative department officials.”
The main recommendations of the report were subsidies to pay for chemical fertilisers and insecticide to the co-op farmers and small estates (fewer than eight hectares), the establishment of an advanced payment facility to get cash to farmers on delivery of the coffee cherry, reform of the cooperative system; remove restrictions on pulping mills, removal of the barriers to growers selling their coffee direct to the NCE, and a complete overhaul of the marketing of Kenyan coffee.
Moreover, it called for a thorough modernisation of the antiquated NCE to turn it into a fully-fledged commodity exchange, as well as the expansion of direct sales to international dealers from 10 per cent to 30 per cent to boost Kenya’s presence in the specialty coffee market. Additionally it called for Kenya to grow domestic consumption to 10 per cent of production, write off debts from bankrupt institutions and revive credit lines through a new banking facility accessible to small growers.
The cost of reviving the sector in the first year was put at $41 million. The predicted benefits were a three-fold increase in coffee production by 2020 equivalent to an annual boost in income of $220 million.
Kenyans do not have to look far to see how this is done. In neighbouring Uganda, where the coffee sector has been liberalised, production has doubled since 1990 and growers take home an estimated 80 per cent of the sale price of exported coffee.
Wearier observers of Kenya’s coffee scene were unsurprised when the reform and investment package stalled on arrival. An enormous battle was underway already between local authorities who have been fighting for control of the coffee trade – specifically over the collection of marketing license fees.
A growers’ union calling itself the New Farmers’ Association sought an injunction in July against the implementation of the report demanding a minimum price of $3.40 per kilogram against the taskforce’s recommended advance of 14 cents per kilogram.
The NFA’s chief, Harrison Munyi, told reporters that the report had been fixed in conjunction with the same players who had ruined the market previously: “The cartel might have joined hands with the taskforce so as to have a report that only favours them and not the farmers.”
The report’s lead author, Professor Joseph Kieyah from the Kenyan Institute for Public Policy Research, replied: “The farmers were misadvised and the taskforce has at its centre the farmer. We are trying to protect the property rights of the farmer.”
While the report foresaw an immediate legislative agenda and rapid investment, it was a full four months before the government appointed a team to oversee the reform program.
Lowering its ambitions for the 2017 growing season Kieyah, who has also been picked to spearhead the implementation team, says that subsidies for inputs could still help boost production from 40,000 tonnes to 47,000 tonnes.
“Before the beginning of the April coffee planting season, we want to roll out short term recommendations that will increase production at a lower cost,” says Kieyah, adding that the high cost of inputs has caused a decline in production.
An international coffee trader remains sceptical that the reform package, well intentioned or otherwise, would ever be delivered in practice. “Tinkering with the existing system with its vested interests and inefficiencies won’t do much, even if it was implemented,” he says.
Meanwhile, away from the court battles, there is a very real cost of the broken system is being felt in coffee mills around Kenya which are being targeted by armed gangs. The higher prices that can be fetched for Kenyan coffee on the open market in Uganda has seen a spate of deadly coffee thefts.
According to Kenya’s Coffee Directorate, more than 30,000 kilograms went missing in 2016, costing the industry hundreds of thousands of dollars, and adding to farmers’ costs as cooperatives must pay private security firms or police to protect their beans during processing.
For now, there are expected to be more victims like Michael Maina Wamai, a 39-year-old watchman who was clubbed to death during a recent robbery at the Ruiru coffee factory near the main highway that connects Nairobi to the nearby town of Thika. GCR