The Lobby proposes a reduction of milling fees, capping of milling losses, reduction of market
agent fees and removal of underhand dealings between millers, buyers, and marketing agents.
Further, the lobby lauds 5 strategic interventions proposed in the Coffee Bill 2020
The Kenya Tea Sector Lobby has submitted its input to the Coffee Bill 2020, as a confirmation of its belief in the efforts of the Ministry of Agriculture, through The Coffee Bill 2020, to improve the fortunes of the Coffee farmer.
The bill is designed to streamline critical areas in the coffee value chain; production, processing, sales, and payments to farmers.
The lobby sector chaired by Irungu Nyakera said the experience in the tea sector, below are highlights of some major proposed reforms to the coffee sector and the reasons we fully support them;
1. Direct Settlement System:
We support the establishment of the direct settlement system (DSS) to act as the clearinghouse for receipt and disbursement of monies from coffee sales. DSS is the real game-changing reform that we expect resistance from coffee and one that we MUST all support.
DSS is critical to democratize information on earnings from all coffees sold from Kenya by all marketing agents because this information will be public.
Mr Nyakera
The system will make payments to all coffee value chain players (farmers, factories/societies, millers, marketing agents, auction organizers), directly and transparently to their accounts.
This will be a big win for farmers because for the first time the veil of secrecy surrounding deductions from coffee sales and payments to societies, millers, and marketing agents will be opened to public scrutiny.
The DSS will further take away the discretion of
marketing agents to hoard and trade with coffee payments while farmers have not been paid.
“We have estimated that the top three marketing agents by market share of clean coffee exportscould be earning upwards of Ksh.500M per year from just handling farmers’ money,” said Nyakera.
2. COFFEE AUCTION
Coffee shall be sold either at the auction or directly but that all direct sales MUST be validated at the auction. Currently, millers and their sister marketing agents cherry-pick all the top quality coffees and contract them as a direct sale at opaque prices only known to them.
They, therefore, send to the auction the low-quality prices which leads to depressed auction prices that are quoted as the reference prices for Kenyan coffee.
The premium quality coffees are shipped to
their partner international buyers and declare marginal prices above the depressed auction
prices.
Considering that these millers, marketing agents, and international coffee aggregators
are vertically integrated, opportunities for transfer pricing on our premium coffees are real.
Kenyan coffee is bought as raw materials at rock bottom prices and transfer the value to Europe and North America. Considering that auction prices are considered reference prices, farmers are splashed with depressed auction prices in case of complaints.
The proposal is, therefore, to take
all direct sales to the auction, and because all buyers know the good quality coffees, they will
fight for it and the prices will be known.
A success Story was when the Ministry of Agriculture piloted this proposal with KPCU coffee in Meru, where Ntongoro Farmers Society fetched a whooping US$438 (Ksh.48,000) for a 50kg bag, equivalent to 8.8$/kg or (Ksh.930/kg) of clean
coffee.
Therefore, this arrangement will kill the information asymmetry associated with direct
sales and we should support it.
3. Outlawing Of Marketing Agents & Millers Lending to Farmers:
We propose for the restriction of marketing agents and millers from lending to farmers, usually
at Because of the opportunity to make money from providing exorbitant advances to farmers,
millers and marketing agents hoard farmers’ money and on-lend part of it to them at 14%
interest. With the creation of the cherry advance fund at New KPCU that lends at 3%, millers and
marketing agents are being prohibited from lending to farmers.
4. Outlawing of borrowing by cooperative Societies
The bill has disallowed societies from using farmers’ assets to take up expensive loans that do not help the farmers.
Some cooperatives societies, he explained have taken loans from financial institutions
and the funds cannot be accounted for.
“This forces banks forcing the banks and Sacco’s to threaten to sell farmer assets leading to many farmers to start running away from society because their coffee earnings are being used to pay for these loans,” he said.
In some documented cases, there is
a conflict of interest between the cooperative society and the lender, leading to opaque
advances to Cooperative societies.
5. Independence of cooperative societies :
Due to corruption in societies, the bill also proposes that independent factories can apply to become stand-alone societies.
“This will allow factories to move away from societies that collude with millers and marketing agents to steal from them and give farmers a chance to determine their destinies,” he observed
6. Appointment of Millers and Marketing Agents
The bill also proposes that millers and marketing agents shall be appointed by members of a coffee factory during an annual general meeting held before the start of the coffee crop year.
Such an AGM will see at least three millers pitch for the business and give their competitive rates
including proposing a Service Level Agreement that will see the farmers get good prices, low
costs, and proper grading of their coffee.
FURTHER RECOMMENDATIONS ON REDUCTION OF FEES
Futther , the Kenya Tea Lobby Group Proposed the following further Amendments;
a) The capping of the milling fee currently at USD.20 per ton, from the current USD.40 per ton.
b) The capping of milling losses to be reduced to 15% from the current 18% so that millers can be
forced to invest in newer efficient systems.
c) To limit instances of conflict of interest and underhand dealings, marketing agents or their
affiliates should not be allowed to operate as a miller, brokers, or buyers.
d) Market agents fees to be reduced to 1.0%, from the current 2.5% of gross sale, so that the agents
focus on growing the coffee production volumes.
e) In similar measures, commercial millers or their affiliates should not be allowed to operate as
marketing agents, brokers, or buyers to avoid conflict of interests.
f) Millers, buyers, brokers, and marketing agents should not be allowed to sit in the decision making positions of the Nairobi Coffee Exchange. This will allow for transparency in the auction and avoid instances of interference by marketing agencies.
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