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by Robert Oduol, Kenya, January 2000
THEME = ECONOMY
Kenya's coffee industry continues to be mired in crisis,
even with the envisaged full liberalisation of the industry in sight.
Forced to bear with it all, are the coffee farmers who remain thoroughly disillusioned with the state of their industry (despite the high prices coffee has been fetching lately in the international markets), as can be deduced from the notable decline in levels of production in recent years.
From a high amount of 150,000 tons of total coffee production in the 1988-1989 fiscal year, production fell to less than 50,000 tons in 1998, contrasting sharply with the fact that in the same period, coffee prices rose four-fold. In 1991, farmers earned 53 US cents from one pound of coffee. In 1994, the price had risen to 187 cents, and in 1998 it was 188 cents. Beneath all the upsets, are the new coffee marketing rules gazetted early in 1999, and which have not gone down well with some of the principal players in the coffee industry.
Leading the fight against the Coffee (Authorised Marketing Agents) Rules, 1999, are the Kenya Planters Co-operative Union (KPCU) and the Coffee Board of Kenya, ostensibly because the rules were in conflict with the Coffee Act, and, did not reflect recommendations submitted to the ministry by stakeholders in the industry. Equally opposed to the new rules, is the Kenya Coffee Growers Association (KCGA), which is rejecting the rules on the grounds that they have created loopholes for individuals to buy coffee at the farmgate, a development which could easily result in the collapse of co-operative societies.
The issue at stake - The core issue is, that the government is under intense pressure to abolish the central coffee auctions and allow buyers to purchase coffee at the farmgate. This would be a radical departure from the stipulations of the Coffee Act of 1972, which gave the Coffee Board of Kenya (CBK), the responsibility of marketing and processing coffee, the licensing and control of producers and processors of coffee, and research interconnected with the industry. The Act prohibited anyone else from buying, selling, milling, warehouse or dealing in coffee unless he held a license issued by the CBK. As for export marketing and the curing of coffee, the Act prohibited the exportation or sale of coffee to any other person other than the CBK.
With liberalisation, however, the Coffee Act was rendered somewhat outdated. It is on the basis of these contradictions in the Act, that the Ministry of Agriculture, upon consulting with the CBK, made the Coffee (Authorised Marketing Agents) Rules of 1999. In part, the rules allow planters to appoint a marketing agent and co-operative societies to act as an agent to handle farmers' payments or appoint one, to do that work. The planters can appoint an organisation, combining the functions of commission agent, warehousing, millers and marketing agent, provided that CBK has licensed the organisation for those functions, and issued it with a certificate appointing it as the authorised marketing agent.
When the rules were first gazetted, the CBK was expected to appoint interim authorised agents, and issue them with the relevant licenses and certificates. Among those slated for appointments agents, were the Kenya Planters' Co-operative Union (KPCU), the Thika Coffee Mills (TCM) and Socfinaf Company Limited. The CBK, however, quickly rejected the rules, arguing that issuing a miller with a marketing license, would conflict with its primary role of milling coffee. And in spite of getting the opportunity to market coffee on behalf of the millers, the KPCU, too, rejected the rules, insisting that the extra players introduced by the rules would not benefit the farmers.
The Kenya Planters' Co-operative Union's case was particularly interesting. The giant coffee producers umbrella body had, since its establishment in 1937, held a milling monopoly, and is thus quite capable of handling all locally-produced coffee. But following the gazetting of the new rules governing the growing and marketing of coffee in a liberalised environment, large estates began to show a preference for new millers leading to a shrinkage in KPCU's market share. Any further tilting of the playing field, therefore, was bound to be opposed at all costs.
These views, naturally, did not go down well with those of the pro- liberalisation lobby, which is clamouring for multiple parallel markets, which would allow coffee buyers to purchase coffee from the farmgate. They argue that multiple and parallel marketing outlets, could boost the prices of coffee in the international market, pointing out that the price of coffee in the international market place was currently higher that the offers at the central auctions.
They are of the opinion that the auction system should, ideally, provide for an alternative price to be used and accepted, whenever it is better than the auction price. This, in order to prevent the dealers from ganging up to depress prices by refusing to bid, or by bidding low at the auctions. Instead, they recommend the fixing of a reserve price related to the production costs. Indeed, this marketing system, the pro-liberalisation lobby says, is the main reason why the Kenyan coffee industry has continued to decline, and was now contributing below the dismal 1.5% of world coffee trade.
Opponents - Opponents of full liberalisation, on the other hand, feel the central auction system has allowed the country to promote Kenya coffee as a quality product, allowing even peasant farmers with no access to information in prices in the New York Exchange, to sell their produce at competitive prices on the international markets. What is more, they contend, the CBK has since liberalised the dealing in coffee. Now, there is nothing to stop those who feel that prices in Nairobi are low, from buying coffee at the auctions and selling it abroad. "The auction system", says CBK chairman, Mr.Pithon Mwangi, "is the only way to ensure that Kenyan coffee retains its superior character for which it is known the world over". By-passing the system, they say, would undermine the confidence of buyers and threaten the industry.
END
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