Stand-off looms as Kosgei kicks cartels out of coffee exchange
Agriculture minister Sally Kosgei has gazetted new regulations that remove the Nairobi Coffee Exchange (NCE) from the hands of the cartels. Photo/FILE
What you need to know:
Agriculture minister Sally Kosgei has gazetted new regulations that remove the Nairobi Coffee Exchange (NCE) from the hands of the cartels and give the government supervisory powers over the market.
The regulations have effectively brought the exchange under the Coffee Act to be managed by the nine-member committee with the powers to enforce the Nairobi Coffee Exchange Trading Rules – dealing the cartels a fatal blow.
The committee is made up of five representatives of growers who trade at the exchange and three dealers. Millers and marketers, warehouses and the Coffee Board of Kenya have one representative in addition to an executive officer.
The new rules also require managers of the exchange to file mandatory monthly returns on the market’s operations to ensure accountability.
The takeover comes in the wake of increasing complaints by farmers that cartels have taken over the market denying them full returns from the sale of their produce.
Cartels have emerged over the years and infiltrated the liberalised system to enrich themselves through phony deals.
The management of coffee trading at the Nairobi exchange is set to take a new shape following the introduction of rules targeting cartels.
Agriculture minister Sally Kosgei has gazetted new regulations that remove the Nairobi Coffee Exchange (NCE) from the hands of the cartels and give the government supervisory powers over the market.
“The Nairobi Coffee Exchange shall be managed by the exchange committee as provided for in the Nairobi Coffee Exchange Trading Rules,” Dr Kosgei says in a Legal Notice.
The regulations have effectively brought the exchange under the Coffee Act to be managed by the nine-member committee with the powers to enforce the Nairobi Coffee Exchange Trading Rules – dealing the cartels a fatal blow.
The committee is made up of five representatives of growers who trade at the exchange and three dealers. Millers and marketers, warehouses and the Coffee Board of Kenya have one representative in addition to an executive officer.
The new rules also require managers of the exchange to file mandatory monthly returns on the market’s operations to ensure accountability.
“The new arrangement gives the government a say in what happens at the auction. Those who have been handling matters in disregard of the law will have to play ball or ship out,” said an industry official who is backing the reforms.
The exchange is currently managed by the Kenya Coffee Planters and Traders Association (KCPTA), which is registered under the Societies Act Cap 108.
Its core business is stated as running the commercial coffee trade sample room and ensuring smooth auctioning of produce.
The takeover comes in the wake of increasing complaints by farmers that cartels have taken over the market denying them full returns from the sale of their produce.
Lack of a legal mechanism has however prevented the authorities from intervening in the market’s affairs despite persistent complaints over mismanagement and the rise of cartels.
KCPTA is not answerable to the Ministry of Agriculture or the Coffee Board of Kenya (CBK), the sector regulator, making it impossible for the two to intervene in the market’s affairs.
KCPTA’s article of association exempts it from the provisions of the Coffee Act 2001 or the Coffee (General) Rules 2002 that govern all other coffee industry institutions.
The association has therefore only had a weak link with the government through the office of the Registrar of Societies where it files annual returns. However the registrar has no powers to intervene in its operations.
“It has not been possible for the board to regulate KCPTA and by extension the exchange,” the CBK said in a policy paper that recommended review of the regulations.
“The result is that with the current set up, the board is not able to regulate the operations of the exchange since the trading rules developed by KCPTA are administrative and have no force of law.”
The new guidelines that Dr Kosgei published last week have changed all that and granted the government supervisory powers over the exchange, which handles 98 per cent of all traded Kenyan coffee.
Before 1998, the coffee auction was run by Kenya Coffee Auctions, a subsidiary of the CBK.
The CBK with the majority of 51 per cent stake then co-owned the exchange with Valentine, the company that ran the market.
Mandate changed
It was the government’s decision to allow greater private sector participation that placed the KCPTA at the centre of the exchange’s operations.
Through the Coffee Act of 2001 the CBK’s mandate changed from marketing and regulation to regulation and promotion.
This is the law that gave commercial marketing agents and traders the authority to manage the market.
This group was forced out of the market in 2004 amid claims of gross mismanagement paving the way for KCPTA to take over the operations of the exchange.
Liberalisation of key coffee sector functions such as marketing and auction has however come with challenges.
Cartels have emerged over the years and infiltrated the liberalised system to enrich themselves through phony deals.
In March this year, for instance, the industry witnessed a major turmoil after the auction was suspended for three straight days following protests by marketers that the cartel was irregularly selling their samples.
Existing market regulations require farmers to hand-in representative samples weighing 14 kg per lot of coffee marked for sale to the marketing agents at least eight working days prior to a scheduled auction.
The marketing agents then present the samples to the exchange where they are taken up by licensed dealers.
The dealers are required to make an annual cash deposit of Sh250,000 to access the samples.
Any dealer who fails to buy 1,000 bags (60kg) of clean coffee at the exchange forfeits the deposit which is then remitted to the farmers.
It was further claimed that the rogue dealers were forfeiting the Sh250,000 in favour of higher returns from the sale of the coffee samples helped by prevailing record prices.
The Commercial Coffee Millers and Marketing Agents Association (CCMMAA), an industry lobby group, recently said in a submission to the CBK that the industry was losing close to Sh59 billion annually in issuance of free coffee samples to licensed but dormant coffee dealers.
Leading forex earner Coffee was at one time Kenya’s leading foreign exchange earner but mismanagement of the sector has since seen output decline steeply, leaving the sub-sector trailing tea, tourism and horticulture.
Most small-scale coffee farmers disillusioned by poor earnings have neglected their coffee trees or uprooted them altogether – opting to try their luck in dairy farming.
Kenya earned Sh26 billion from coffee exports in 2010/11 financial year, up from Sh16 billion a year earlier.
Earnings are expected to have climbed during the 2011/12 crop season thanks to good prices.
