Inside the coffee wars as Rigathi Gachagua reforms bite

Nairobi Coffee Exchange acting chief executive officer Lisper Ndung’u (left) and chairman Peter Gikonyo at a media briefing on the implementation of coffee reforms.

Photo credit: File | Lucy Wanjiru | Nation Media Group

Failure to issue licenses to private coffee mills, which has led to delays in the milling of coffee, is one of the key issues that have split coffee sector players amid a raft of reforms being pushed by Deputy President (DP)Rigathi Gachagua.

President William Ruto has delegated reforms in key agricultural sub-sectors particularly tea, coffee and dairy to his deputy to ease the plight of millions of farmers who rely on the produce for a livelihood.

Amid the reforms, some coffee millers have failed to secure licenses from the respective counties in which they operate, forcing them to temporarily close shop, even as the State-backed reforms in the sector enter the tenth month.

As part of the reforms, the 47 county governments are responsible for licensing millers, the Capital Markets Authority (CMA) licenses brokerage firms, while the Agriculture and Food Authority (AFA) is responsible for licensing coffee buyers.

Private millers have especially fallen afoul of the changes, which are backed by various laws, including the Crops (Coffee) (General) Regulations, 2019, the Capital Markets (Coffee Exchange) Regulations, 2020, and Nairobi Coffee Exchange Trading Rules, 2023.

An industry insider, who spoke on condition of anonymity, said private millers are being pushed out in favour of the State-owned New Kenya Planters Cooperative Union and a small number of other millers.

“This has led to a pileup of coffee waiting to be milled because of capacity issues at the licensed millers. Coffee is being delivered by farmers in large quantities but the licensed millers do not have adequate capacity to process it,” said the source.

As a result, the reforms have split farmer groups who have strong divergent views on how they are being implemented.

The most recent tiff emerged a fortnight ago when the Kenya Coffee Producers Association (KCPA), a lobby group that represents a section of coffee farmers, protested against some of the outcomes of the reforms.

KCPA chairman Peter Gikonyo called out delays in payment of farmers’ dues, which he said had been outstanding for up to three months.

Farmers sell their cherries at the Nairobi Coffee Exchange (NCE) through their own brokerage companies after which they are to be paid in US dollars through the Direct Settlement System (DSS). The DSS was introduced last year to streamline payment for coffee farmers and is provided by the Co-operative Bank of Kenya.

“Some of the unexplained settlement delays date back from sale 10 done in December 19, 2023, to sale 20 done on March 12, 2024,” said Mr Gikonyo.

To underline the split in the sector, the National Coffee Cooperative Union Ltd (Naccu), which represents coffee cooperative union farmers from 31 counties, immediately leapt to the defence of Mr Gachagua’s reforms.

“Our members, who form 70 per cent of the coffee producers’ capital, are a living testament of the success of the coffee reforms,” said Naccu Chief Executive Festus Bett.

Instead, the lobby protested the issuance of coffee milling licenses to some firms that are also registered as coffee buyers in contravention with the law. This is high level impunity, and we pray that the DP directs an inquiry on how such a licensing anomaly can occur,” said Mr Bett.

On the issue of milling, Mr Gikonyo, the KCPA chairman, requested counties to expedite the issuance of milling licenses. He further lamented that mills which are currently operating have excess spillage of the cherries, leading to losses to farmers.

Other sticky issues that have been raised include non-provision of a pre-milling analysis report to the farmers, mixing of coffee grades, lack of standard bagging (more weight in the bag than what is declared leading to huge losses to farmers) and substandard storage facilities such as leaking roofs affecting the moisture content of the cherries.

“We observed unwarranted delays in milling caused by capacity constraints and also selective licensing of coffee mills. Some counties don't have a single private mill to serve the many small and medium estate farmers who must use a mill for coffee presentation for auction,” said Mr Gikonyo.

Coffee farmers are also staring at a new 0.25 percent fee payable to CMA on coffee traded at NCE.

The fee will also be paid by farmers of other produce such as tea, sugarcane, dairy, maize, rice and wheat and is part of efforts by the government to generate additional revenue.

The multi-billion-shilling Cherry Fund has also been a hot potato for coffee growers amid accusations that the fund is being used by New KPCU to arm-twist farmers to mill their cherries at the company.

The Cabinet last year approved Sh4 billion into the fund run by new KPCU to give affordable cherry advance to smallholder farmers.

Coffee is one of the main cash crops in the country and is grown in 33 counties. However, due to mismanagement of the value chain which has led to low returns, many farmers have ditched the crop over the years in favour of more lucrative crops.

As a result, domestic production of coffee has dwindled from a peak of 128,637 tonnes in 1988 to just 51,852 tonnes in 2022.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.