Company Industry
More firms licensed to market Kenya’s coffee
KPCU’s market dominance comes under renewed attack as more than 40 new players are gazetted as qualified dealers
“This is about opening alternatives other than KPCU to market coffee. The government is keen to help growers, who are crippled by KPCU problems, recover,” Mr Delbar told Business Daily.Run-ins between the state and the giant KPCU are however not new.
In 2007, the government in a surprise action that almost sounded the death knell for the state-owned firm threatened to block it from offering services to its 700,000 members mainly comprising small-scale farmers, pending the clearance of outstanding debts owed to various State agencies such as the Coffee Board of Kenya (CBK), the Coffee Research Foundation (CRF) and farmers.
Though KPCU made a formal application for a milling licence for the 2007/08 season, regulators have demanded that its management offers a permanent solution to persistent debt problems.
Top among the complaints leveled against KPCU is that it has for decades collected cess but failed to remit the same to the relevant authorities. It has also been accused of marketing coffee on behalf of growers but failing to pass the proceeds to them.
KPCU won the war after the government licensed it on “humanitarian grounds” citing the suffering of farmers.
The two parties had yet another showdown early this year when the Government ordered that KPCU be locked out of the weekly Nairobi Coffee Exchange (NCE) over a Sh50 million debt. The dispute landed in court before the parties opted for an out- of- court settlement.
KPCU managing director Gerald Masila however said the differences with the regulator had been settled and the company is headed for good 2009/2010 season.
He said that although the government tipped the Kenya Co-operative Exporters Limited to help reform the industry, the firm may find it a tall order shoring up sufficient volumes for trade.
This is because the new firm is making an entry into the scene as a commercial marketing agent without direct link with the growers.
Critics of the new state-backed company have also argued that the fundamentals that drive the market are “free playing” and would not be influenced by the entry of an individual company or group of them.
“Apart from the large number of new entrants we don’t expect much because what drives pricing is not dependent on the number of players,” a dealer at the NCE said.
Industry inquiries however revealed portions of growers were already angling towards the new company amid anticipation for better earnings and services.
Proponents of the new company have leveraged on the partnership with Co-operative Bank, saying it guaranteed professionalism and ethical business practices unlike has been the case in past where growers remained at the mercy of brokers. Co-operative Bank has since seconded Ms Lucy Murumba to the new company as chief executive officer.
The Economic Survey 2009 showed that the coffee sub-sector registered a 21.3 per cent decline in production from 53,400 tonnes in 2006/07 to 42,000 tonnes in the 2007/08 crop season mainly on effects of weather.
The industry has also witnessed general decline in productivity on reaction by farmers disillusioned by low earnings even when other international players enjoyed firm earnings.
Lack of financing facilities to support good crop husbandry has also impacted on the fortunes of the industry as cash starved growers turned to other cash crops deemed easy to manage.
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