Kenya to lose Sh1.4b in coffee row

March 16, 2012
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NAIROBI, Kenya, Mar 16- Kenya stands to lose an estimated Sh1.4 billion in foreign exchange over the next two weeks if the ongoing dispute between coffee dealers, producers and millers over free coffee samples continues.

The stand off over whether inactive coffee dealers should continue receiving and trading in free samples is threatening to paralyse coffee auction which would translate in huge losses.

The disagreements have already led to the suspension of March 13 auction after coffee marketers resolved to supply their samples to only the active dealers who number 29 out of an estimated 80 dealers.

In the last session on 6th March, 23, 245 bags were sold at a cost of $7.4 million (Sh614.2 million).

“We have had a lot of complaints from buyers who say that they are getting very little sample material with which to analyse coffee and make informed decision while bidding for it at the floor of the Exchange (Nairobi Coffee Exchange). As the commercial millers, we decided to that coffee samples will only be distributed to active coffee buyers,” explained Commercial Coffee Millers and Marketing Agents Association (CCMMAA) Secretary Martin Ngare.

The resolve he explained stemmed from their realisation that each inactive dealer was making approximately Sh3.6 million from the sale of the 14 kilograms of samples they receive per auction without participating at the trading floor. In addition, some of the dealers have registered more than one company which enables them to continue profiting from the sample materials at the expense of the farmers.

The 14kgs samples translate into 112 kilograms of cherry and a subsequence loss of Sh11,000 to the farmer.

Initially, the millers supplied samples of 250grams each for the 600 lots on offer per session. However, they have resolved to provide samples of two kilograms (kgs) at the sample room with one kilo used for display and the other used as the buying sample.

As expected, this decision however did not go down well with the Kenya Coffee Producers and Traders Association (KCPTA) which is the body that manages the Coffee Exchange.

The association accused the CCMMAA of delivering two kilograms instead of the stipulated 14kgs pointing out that this was in contravention of the trading rules.

“Despite being advised to comply with the rules, the marketing agents were adamant on delivering two kilograms which led to the stalemate and ultimately the failure of the auction to take place,” KCPTA Executive Officer Charles Mbaluka protested.

Mbaluka accused the millers of operating in a cartel-like manner that was involved in insider trading and threaten to ‘expose them’. Another bone of contention is the processing of refunds amounting to Sh10 million owed to growers, which the Exchange manager insists is part of his income.

The millers however stand by their word and have called for the fast tracking of reforms at the Exchange without which the profile of Kenya as a producer of premium coffee was being jeopardised.

In addition, it might erode the credibility and effectiveness of the auction which has since introduction been an avenue for negotiating better prices for coffee farmers.

“Any publicity that is negative that brings uncertainty in a commodity or in trade certainly affects the buyers out there. They will start to wonder ‘can we trust that we are even going to get this coffee? Should we kick it out of our blend because we are not sure when we will get it?” Ngare cautioned.

This unpredictability also has the capacity to depress prices that Kenyan coffee can fetch internationally.

An estimated 95 percent of coffee produced in Kenya is traded through the auction with the remainder going through the direct sale window. In 2011, the system (auction) accounted for Sh21 billion worth of coffee traded.

The ongoing disputes however point to the failure of the Coffee Board of Kenya as an effective regulator.

The Board has come under heavy criticism from a group of Members of Parliament (MPs) from coffee growing areas over its failure to rein in rogue coffee dealers and bring sanity in the auction.

Led by Mukurweini MP Kabando wa Kabando, the legislators want the Board to flex its muscles and among other things get rid of the dormant dealers who thrive by collecting and selling the free coffee samples submitted by genuine marketing agents.

“The coffee board needs leadership that has the grit and guts to stamp its authority on the coffee exchange in the same fashion the CMA (Capital Markets Authority) does for the Nairobi Securities Exchange,” the MPs said.

They accuse the board of being ineffective and acting at the whim of a ‘long-established cartel of foreign-owned coffee marketers who have defied any attempts at reforms of the coffee market.

Besides failing to streamline the Nairobi Coffee Exchange, the legislators were irked by the board’s continued licensing of agents despite the fact that over 50 of them are not active.

“The board licenses all industry players every year and renews their licenses. How comes it has never realised that some players are non-performing? What due diligence is put in place when licensing? What policy and administrative has the regulator put in place to facilitate the industry to run smoothly?” they wondered.

In addition, there are concerned that no one seems to care about how these disagreements will impact the small scale farmers who are likely to be the major loser should these issues remain unresolved.

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