Kenyan reforms to help coffee farmers

Karatina — In the shadows of Mount Kenya, brown sacks of coffee beans pile up in factories and milling facilities, stranded after the government embarked on its reform to improve payments to farmers and dilute the power of multinational buyers.

The government’s initiative — launched in June — has sent prices plummeting by forcing purchasers out of the weekly auction that accounts for about 80% of sales.

Though the East African nation contributes less than 1% to global coffee production, its quality Arabica beans are highly sought after by buyers and constitute one of Kenya’s top hard currency earners. Kenya’s coffee production peaked at 129,000 tonnes in 1989 but has dropped to about 40,000 tonnes because of poor management, global price swings and climate change.

Many coffee farmers say the costs to produce the crop far outstrip their earnings. The reforms will raise earnings by forcing buyers to pay more for coffee, the government said.

Deputy president Rigathi Gachagua, in launching the plan earlier in 2023, accused multinational buyers of profiting at the expense of Kenya’s farmers. “Three or four people buy our coffee at a throwaway price, and they don’t tell us how much. Then they go abroad and sell it expensively to profit as middlemen,” he said on the state broadcaster.

Regulators have refused to renew the licences of about half of the usual 50 buyers at the weekly Nairobi Coffee Exchange, saying they have pushed down prices by controlling much of the milling, marketing and exporting activity in Kenya. This has sent the average price per 50kg bag of coffee to about $183 from about $266 a year ago.

While the government’s reforms have contributed to that drop, market participants said, global prices of coffee have also fallen due to a rebound in Brazil’s production. Local officials have joined in the criticism of the multinational buyers. In June, the governor of the coffee-producing county of Embu accused several companies, including Hamburg-based Neumann Kaffee Gruppe, of being a “cartel”.

Neumann Kaffee Gruppe told Reuters it denies “any allegations of our company’s involvement in cartel practices within the coffee industry”.

For farmers, the effect of the current reform push will be felt next April/May when they will be paid for 2023’s crop.

But for the time being, the cabinet has allocated 4-billion shillings ($26.46m) to a fund to prop up their earnings.

At his plot outside the town of Karatina, coffee farmer Simon Mukangu said he supported the reforms but urged the government to take caution. “We are only asking him (Gachagua) to weigh the reforms carefully so they do not become counterproductive,” he said.

Matthew Harrison, an Amsterdam-based buyer at speciality coffee sourcing company Trabocca, said Kenya has to walk a fine line in trying to reduce the influence of big multinationals while not driving them away.

“Though these large corporations ... might wield significant influence and they have potential to sort of manipulate, they are crucial because they are big investors,” he said.

Reuters