How coffee farmers lose millions at the hands of millers

By: John Kamau

For many years, Kenya Planters Cooperative Union (KPCU) operated the only commercial mill in Kenya.

Movement of coffee to the KPCU mills was always watched. By the time the government allowed for the liberalisation of the milling sector, KPCU mills (Sagana, Nairobi and Meru) had a capacity of 142,000 metric tonnes.

That was 119,000 tonnes for parchment and 23,000 tonnes for buni.

MARKETING AGENTS

The first private miller was Pius Ngugi’s Thika Coffee Mills (1994), with a capacity of 73,000 tonnes, followed by Socfinaf which was licensed in 1999.

This brought the total milling capacity to 230,000 tonnes.

The problem was that there was no coffee to meet the milling overheads per kilo.

As a result, the farmers paid more for their coffee.

A document prepared by the Coffee Research Foundation to guide the liberalisation process had voiced concern about the emergence of a cartel in the industry.

While the document — which became Sessional Paper No 2 of 2001 — said that marketing agents will provide linkages between the planter and Coffee Board by ensuring that the right documentation is issued by the miller and the Coffee Board, the authors were worried about the place of these commission agent.

“We have had commission agents acting as commercial millers as well as management agents. Where a commercial agent is also a commercial miller from the same planter and a dispute arises in relation to milling losses and/or wrongful classification, a conflict of interest may arise,” said the report.

“Likewise, commission agents who are management agents would find it difficult to deal with a dispute that arises from the functions of management agency on behalf of their farmers,” it warned.

“SWEEEPINGS” WORTH MILLIONS SOLD ILLEGALLY

But the status quo prevailed and today, in case of milling loses and wrong classification queries, the agents take up arbitration roles.

Millers and marketers have long been accused of colluding to misrepresent grading figures.

For instance, a cooperative that produces 3,000, 50kg bags of AA coffee, could see a fraction of it (let say 1,000 bags) graded as such while the balance is graded as AB.

With the current price of $230 for a bag of AA coffee and $216 for a bag of AB coffee, this means the miller would pocket $15 (Sh1,600) per bag for all the 2,000 bags misrepresented as AB. That is a Sh3.6 million loss.

Besides such grading losses, farmers also encounter loss due to spillage.

Insiders say that during the milling process, undertaken by private and commercial millers for profit, there is a lot of spills worth millions of shillings. In the industry, these are called “sweepings”.

In a year, the sweepings could account for more than 250 tonnes and money from their sales is supposed to be shared across the industry.

A leading coffee farmer we spoke to told us that these sweepings are usually sold illegally after they are handed to the marketing agents.

“I know one person who used to do this,” he told us in confidence. “There is very little accountability of these coffee sweepings.”

According to the Nairobi Coffee Exchange rules, these “sweepings” which also include balance of coffee samples in the sample room not distributed to the traders and spillages collected from milling activities are supposed to be handed over to the marketing agents for sale.

The proceeds are supposed to be shared by farmers on pro-rata basis. Few farmers get to know about these “sweepings”.

“Once we hand the sweepings over to the Marketing Agents, we do not follow that up,” said Daniel Mbithi, the CEO of the Coffee Exchange.

PAYMENT DELAYS

Nothing also explains the delay in payments that the coffee farmers suffer.

Once coffee has been offered for sale, the successful bid is supposed to pay within seven days and the money is received by the Coffee Board (now directorate) and passed over to the marketing agent less the government cess, and Coffee Board’s auction fees and other levies.

The marketing agent then deducts his commission and the miller’s, warehousing and transport fees and hands over the balance to the co-operative society.

Here, they deduct their advances. The balance is paid to the farmer — and in some instances co-operatives remain with nothing to pay farmers.

“In the current arrangement, the coffee farmer is totally exposed,” says Njeru Ndwiga, a former Co-operative minister in the Kibaki government.

In 2007, Ndwiga termed the licensing of dealers as marketers “a mistake” and blamed it for poor prices paid to growers.

“Coffee prices are going down, not because of the second window, but due to the fact that those who got marketing licences are also dealers and they trade in coffee,” he said.

Of late, there have been attempts by coffee farmers to lock out these players by carrying out their own milling and marketing, either individually or through farmer-owned initiatives such as the Kenya Coffee Cooperative Exporters (KCCE) group.

But farmers have yet to find a solution to the poor pay.

SOURCE: DAILY NATION