12
KE
ANALYSIS BREAKING THE CARTELS
Protecting farmers: Why
Coffee Auction is a scam
So negligent is the coffee regulator that it has allowed the conglomerate to set up subsidiary companies,
which claim to finance Kenyan coffee production, but in fact are lending farmers money, at a usurious 10 per
cent interest monthly, primarily as a device to ring-fence coffee for their marketing agency companies
I
MWALIMU MATI learned a bit about the Kenyan
@TheStarKenya coffee sector in the past three years
I have worked with farmers. A
more exploited and cheated lot I
have yet to encounter. Ninety-five per
cent of all Kenyan coffee is sold at an
auction held on Tuesdays by the Nai-
robi Coffee Exchange. If you ask, the
auctioneer will tell you that this is a
transparent mechanism to bring to-
gether coffee sellers and buyers; bids
are placed and the seller accepts the
offer he is pleased with — theoretically
and invariably, the highest bid. How-
ever, the Kenyan auction is riddled
with conflict of interest, and always
has been.
Save for one onerous exception, the
Kenyan coffee farmer is not, by law, al-
lowed to approach the auction direct-
ly. He must act through an appointed
marketing agent who pools the coffee
of many farmers and acts for them on
annual contracts.
Unfortunately for the farmer, the
marketing agent he is likely to engage
with already has his salary paid by
an international commodity trading
conglomerate, which also employs the
major buyers attending the auction
each week. Yes, you read it correctly;
in Kenya the coffee farmer’s market-
ing agent is invariably an employee of
the buyer.
The coffee farmer has been set up
by law, policy and regulatory failure,
as the target of a long-running racket
from which escape without political
will is well-nigh impossible. Behind
the scenes, international commodi-
ty trading conglomerates determine
how much buyers at the Nairobi Auc-
tion should offer for each bag of coffee
beans, and instruct their other em-
ployee, the Marketing Agent, to accept
the offer and explain to the farmer
why this is the best deal obtainable.
To add insult to injury, the Marketing
Agent subsidiary charges the farmer a
commission of 2.5 per cent of the sale
price for ‘market advisory services’.
With the full knowledge of the reg-
ulator, these international traders play
both sides of the auction — farmer’s
adviser on sale price and buyer —
thereby profiting shamelessly, while
remaining out of the reach of accusa-
tion. As the farmer is exploited week
in week out, the auctioneer, a govern-
ment employee says nothing — only
ensuring that he collects the statutory
auction levy on each sale so that he
can pay his own salary and kick the
More news on rest upstairs to the Coffee Directorate;
our website. the industry’s purported regulator, his
Scan this quick boss, and owner of the auction. As of
response code 2016, the Auctioneer banned all but
using your six farmers from directly offering their
smartphone. coffee for sale at the Auction.
THE-STAR.CO.KE
13
THE COFFEE FARMER HAS BEEN
SET UP BY LAW, POLICY AND
REGULATORY FAILURE, AS THE
TARGET OF A LONG-RUNNING
RACKET FROM WHICH ESCAPE
WITHOUT POLITICAL WILL IS
WELL-NIGH IMPOSSIBLE
I once sat agog in a meeting called
by the Coffee Directorate, where they
explained why no farmer should be
allowed access to the aAuction, un-
Saturday / Sunday | 25 -26 March 2017
Coffee berries less he could supply 20,000 tonnes of
at a factory in coffee per annum. I won’t repeat the
Kienjege,
Kirinyaga
long-winded irrational explanation
but the reader should be aware that
county, on to produce such an annual volume of
July 24 coffee, one would require well over 30
/REUTERS hectares ( 75 acres) of land under cof-
fee trees; a rarity these days. Just pro-
posing such barriers to access the auc-
tion is sufficient proof that the Coffee
Directorate prefers the situation in
which the farmer is forced to hire one
of the Conglomerate’s employees to be
his intermediary at the Auction.
The coffee farmer has no alterna-
tive but to comply with this system or,
despite the difficulty of doing so, try
to circumvent it by directly exporting
Saturday / Sunday | 25 -26 March 2017 THE-STAR.CO.
to associated companies, a process
that takes anywhere between 14 days
and six months after the Auction date.
the producer of what everyone else in
the value chain is trading with. The
focus must shift away from exploit-
THE
Grower Marketing Licenses 2016
NAME DATE LICENCED LICENCE NUMBER
The 2016 Report of the Presidential ative intermediary entrepreneurs to SOLUTION
Task Force on the Coffee Sub-Sector
correctly identified the conflict of in-
farmer-owned entities such as KPCU,
the coffee farmer’s collective trading
IS FOR THE 1 Gicheha Farm Ltd 18.07.2016 000228
POLICY TO
terest problem, but essentially left its company established in 1945, which
resolution to the Coffee Directorate.
The Task Force Implementation Com-
has been refused access to the Auction
by the Coffee Directorate since 2009.
REFOCUS ON 2 KenSam Estate 21.07.2016 000229
mittee is controlled by the regulator’s Expecting the Coffee Directorate, THE KENYAN
bureaucrats, even though everybody as presently constituted, to reform the 3 Joey Micah Njenga 15.08.2016 000236
knows that the Coffee Directorate cur- coffee marketing chain is fanciful. It is COFFEE
rently earns more from directing ev-
ery bean through the dubious Auction
too compromised and conflicted. The
Task Force Implementation Commit-
FARMER, 4 Salim M Simwenyi 15.08.2016 000237
than it ever would if the coffee farmer tee should be revamped to incorporate THE
was free to deal in his property as Ar-
ticle 40 of the Constitution intended.
the KPCU and other farmer-owned
enterprises to secure the interest of the
PRODUCER 5 Sakami Ranches Ltd 08.09.2016 000240
The solution is for the policy to re- farmer — the hen that keeps laying the 6 Mima Estate 08.09.2016 000241
focus on the Kenyan coffee farmer, golden egg.
Kenyan coffee is exported through a host of foreign-buyer subsidiaries, who each take a cut of profit, before the coffee reaches the putative foreign buyer/ roaster.
This means that the Kenyan coffee farmer will receive only a fraction of the selling price.
Kenya Coffee Marketing Companies Cross Ownership (as of September 2016 )
NATIONALITY & NAME INTERNATIONAL DEALER (BUYERS/ MARKETING AGENT WAREHOUSEMAN COMMERCIAL MILLER MANAGEMENT
OF PARENT COMPANY BUYER & ROASTER ROASTERS AGENT) (FARMERS AGENT) SERVICES – INPUT
/ OWNER OF KENYA LENDING TO FARMERS
COFFEE TRADE ENTITY (AT INTEREST)
1 German - Neumann Kaffee Neumann Kaffee Gruppe Ibero (K) Ltd Tropical Farm Manage- NKG Coffee Mills (K) Ltd NKG Coffee Mills Tropical Farm Manage-
Gruppe (subsidiary of Neumann Kaffee ment (K) Ltd (subsidiary of Neumann Kaf- (subsidiary of Neumann Kaffee ment (K) Ltd
Gruppe) (subsidiary of Neumann fee Gruppe) Gruppe) (subsidiary of Neumann
Kaffee Gruppe) Kaffee Gruppe)
2 Swiss - ECOM Agroindustri- ECOM Agroindustrial Sangana Commodities (K) Ltd. Sustainable Management Sustainable Management Highlands Coffee Mills Coffee Management Ser-
al Corp Ltd Corp Ltd (subsidiary of ECOM Agroin- Services Ltd Services Ltd (subsidiary of ECOM Agroin- vices Ltd
dustrial Corp Ltd) (subsidiary of ECOM (subsidiary of ECOM Agroin- dustrial Corp Ltd) (subsidiary of ECOM
Agroindustrial Corp Ltd) dustrial Corp Ltd) Agroindustrial Corp Ltd)
3 Swiss - ECOM Agroindustri- ECOM Agroindustrial Dormans Coffee Ltd Coffee Management Ser- Coffee Management Services Central Kenya Coffee Mills Coffee Management Ser-
al Corp Ltd. Corp Ltd. (subsidiary of ECOM Agroin- vices Ltd Ltd (subsidiary of ECOM Agroin- vices Ltd
dustrial Corp Ltd) (subsidiary of ECOM (subsidiary of ECOM Agroin- dustrial Corp Ltd) (subsidiary of ECOM
Agroindustrial Corp Ltd) dustrial Corp Ltd) Agroindustrial Corp Ltd)
4 Swiss - ECOM Agroindustri- ECOM Agroindustrial Armajaro (K) Ltd SMS Ltd / CMS Ltd Sustainable Management CMS Mills Ltd Coffee Management Ser-
al Corp Ltd. Corp Ltd. (subsidiary of ECOM Agroin- (subsidiary of ECOM Services Ltd / C Dorman Ltd. (subsidiary of ECOM Agroin- vices Ltd
dustrial Corp Ltd) Agroindustrial Corp Ltd) (subsidiary of ECOM Agroin- dustrial Corp Ltd) (subsidiary of ECOM
dustrial Corp Ltd) Agroindustrial Corp Ltd)
5 Swiss - ECOM Agroindustri- Swiss - ECOM Agroindus- C Dormans Ltd Dormans/ ArtCaffe (local C. Dorman Ltd (Private Ware- Central Kenya Coffee Mills Coffee Management Ser-
al Corp Ltd trial Corp Ltd (subsidiary of ECOM Agroin- chain of coffee shops) houseman) (subsidiary of ECOM Agroin- vices Ltd
dustrial Corp Ltd) (subsidiary of ECOM (subsidiary of ECOM Agroin- dustrial Corp Ltd) (subsidiary of ECOM
Agroindustrial Corp Ltd) dustrial Corp Ltd) Agroindustrial Corp Ltd)
6 Eagaads (originally French Oaklands Coffee Market- Kofinaf Coffee Mills Kofinaf Coffee Mills Kofinaf’s own farm & third
– Socfinaf) ing Limited party clients
7
8 Kenyan - Cooperative Bank Kenya Cooperative Coffee Kenya Coffee Cooperatives Kenya Coffee Cooperatives Ex- Kenya Coffee Cooperatives KCCM third party clients
of Kenya Dealers Exporters porters (does not own ware- Millers (does not own a mill - (licence not renewed by
houses – leases KPCU Sagana leases KPCU Sagana Mills) Coffee Directorate in 2016)
warehouses)
9 Kenyan - Sasini Ltd. Aristocrats Coffee Sasini Mills
10 Kenyan - Sasini Ltd. Savanna Coffee Lounges (local Sasini Mills
chain of coffee shops)
11 Kenyan – family of Pius Kenya Nut Co Ltd. Thika Coffee Marketing Thika Coffee Marketing Thika Coffee Mills Thika Coffee Mills
his coffee. At the same meeting, the Ngugi
Coffee Directorate also stated direct
exports are ‘dead’, the Kenyan farmers
being too unsophisticated to find buy-
12 Kenyan - Nyambene Farm-
ers Cooperative Society
Nyambene Estates (in liq-
uidation)
Nyambene Mills (in liquida-
tion)
ers and complete deals for themselves. Ltd, owned by Kisii farmers
So negligent is the coffee regulator (now in liquidation)
that it has even allowed the conglom-
erate to set up subsidiary companies
which claim to finance Kenyan coffee
13 ??? Sustainability (K) Ltd
production, but in fact are lending 14 Kenyan – KPCU public KPCU Exporters Ltd (licence not KPCU Marketing Services KPCU Warehousing Company KPCU Mills (licence not re- KPCU Management Ser-
farmers money, at a usurious 10 per
cent interest monthly, primarily as a
company owned by farm-
ers nationwide
Renewed by Coffee Directorate Ltd (licence not renewed
in 2016) by Coffee Directorate in
(licence not renewed by Cof- newed by Coffee Directorate vices Ltd. (licence not re-
fee Directorate in 2016) in 2016) newed by Coffee Director-
device to ring-fence coffee for their 2016) ate in 2016)
marketing agency companies. Before
the farmer receives any money from 15 Meru county Meru County Coffee Mill (does
the Auction, the conglomerate’s alter not own a mill - leases KPCU
ego will ensure he has deducted loan Sagana Mills)
repayments and milling charges owed