The government is planning to bail out the Kenya Planters Co-operative Union (KPCU) following its placement under receivership by KCB Bank over a Sh700 million debt.
“We are going to adopt an Uchumi approach to turn around KPCU now that it is under receivership after previous efforts to restructure failed,” said Mr Joseph Nyagah, the Minister for Co-operative Development and Marketing.
In 2006, the government came to the rescue of retail chain Uchumi Supermarkets after it was placed under receivership by the KCB and PTA banks
The action on KPCU follows a protracted battle between the government, which has been trying to restructure it to safeguard coffee farmers’ interest and KPCU board and management which have resisted such efforts, saying it was a private limited company.
Part of KPCU’S woes come from its dual registration as both a co-operative organisation and a limited company.
As a co-operative movement, it represents coffee farmers who are clustered into seven regions and elect the board of directors.
It is also registered as a private limited company, limiting how far the government can interfere with its running.
The government has repeatedly tried to restructure the once giant coffee miller but it has not been possible as the board has deftly played the cards of its legal entity, whichever way it suited it.
“Every time we want to move in and restructure the miller for the benefit of farmers, the directors have always flashed the private company card hence limiting our efforts,” said Mr Nyagah.
The giant miller, which was a near monopoly in coffee processing— handling over 80 per cent of coffee farmers —is now a shadow of its former self, doing a mere 14 per cent.
KCB’s action follows failure by the KPCU management to remit a monthly payment of Sh7.8 million.
The government’s preference for the now successful Uchumi rescue programme is informed by the steady progress being made by Uchumi supermarkets in repaying its loan to both KCB bank and the PTA bank.
The latter is a regional bank that at the same time replenishes Uchumi store shelves.
Uchumi failure was blamed on a rapid expansion strategy that quickly used up financial resources to pay for brick and mortar branches, denying the store chain liquid cash to stock its new shelves.
When KCB and PTA bank as debenture creditors moved in and placed the Kenyan owned quoted store under receivership, the government, which is the main shareholder through the Ministry of Industry cobbled up a rescue plan which included pumping in fresh cash amounting to Sh800 million to allow the store to stock.
At the same time, the State sought the indulgence of the two debenture holders not to exercise their right to slice up the supermarket for disposal but to give it a lifeline.
Although the minister was not categorical about what time they would engage KCB bank, the tentative plan is to allow the current management to leave office and give way to the two receivership managers from Deloitte Consultancy to assume management.
“We will approach the receivership managers once we hold discussion with the ministry of Agriculture and adopt a common stand,”, said Mr. Nyagah in an exclusive interview with the Business Daily.
The financial woes of KPCU is blamed on falling revenue which it generates from milling coffee berries and offering them for the sale at the Nairobi Coffee Exchange (NCE) which carries out weekly auction of coffee.
The declining revenue is attributed to farmers opting to use other coffee millers who are not only offering higher prices to farmers but also paying on time.
In addition, the private millers are providing farm input to farmers to enhance their crop productivity.
KPCU attribute it’s sinking into the red status to farmers who have stopped delivery coffee to its warehouses hence unable to claim millions of shillings advanced to them as loans and farm input.
The loans which were given on the basis of recovery from coffee deduction have pushed the miller to the fringe of the lucrative coffee business.
Kenya is one of the main exporters of coffee to the world with coffee being the third agricultural foreign exchange earner after tea and horticulture.
According to Central Bank of Kenya (CBK) coffee deliveries to Coffee Board of Kenya (CBK) increased cumulatively in the first seven months of 2009 by 52.43 per cent to 37,909 metric tonnes.
Coffee accounts for 4.1 per cent of the country export bill.
Tea and horticulture account for 18.9 per cent and 14.7 per cent respectively.
Despite the good returns from coffee, coffee farmers have not benefited with their earnings continuing to decline over the years.
This has forced majority of them to uproot coffee plants and replace it with other cash crops such as passion fruits and food crop.
The government plan to rescue KPCU may herald a new era for coffee sector once billed as the black gold of Kenya.