By Irungu Nyakera, Chairman Kenya Tea Sector Lobby Group
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
As Kenya Tea Sector Lobby 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. This
will be achieved through various proposals that
will streamline critical areas in the coffee value
chain; production, processing, sales, and
payments to farmers.
Direct Settlement System 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.
DSS system to make payments to all coffee
value chain players (farmers, factories/
societies, millers, marketing agents, auction
organizers), directly and transparently to their
accounts. As 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.
DSS will further take away the discretion of
marketing agents to hoard and trade with
coffee payments while farmers have not been
paid. With an estimated that the top three
marketing agents by market share of clean
coffee exports could be earning upwards of
Ksh.500M per year from just handling farmers’
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
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.
Lobby 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.
The bill has disallowed societies from using
farmers’ assets to take up expensive loans that
do not help the farmers. Some cooperatives
societies 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. In some
documented cases, there is a conflict of interest
between the cooperative society and the Lender,
leading to opaque advances to Cooperative
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.
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 , the Kenya Tea Lobby Group Proposed
the further Amendments;
The capping of the milling fee currently at USD.
20 per ton, from the current USD.40 per ton.
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.
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.
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
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.
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.
Kenya Tea Sector Lobby Group lauds all
stakeholders who have submitted their inputs
to the Coffee Bill 2020 before the deadline of
today, 18th November 2020. This is yet another
opportunity to see our cash crops rise and
which is good for the farmer, and the economy.