Grower-marketer licences offer more hype than hope
Little direct trading is happening for farmers who had expected to reap big by bypassing middlemen
When Solomon Mahugu applied for a grower-marketer licence five years ago, he was convinced that he would finally get rid of the long chain of middlemen that took up 99 per cent of the value of coffee leaving farmers with peanuts.
The grower-marketer licence was created in 2006, giving farmers a window to sell their own coffee directly to buyers overseas. It allows them to negotiate prices and to receive payment directly from buyers.
Mr Mahugu’s expectation was that his high-quality coffee would sell with much ease in the direct market. But all these hopes have been largely dashed, as he is yet to reap any benefits from this window created by the government as part of the efforts to address the woes afflicting the sector.
A cocktail of factors, such as complicated logistics, inability to market themselves in the international stage, inconsistent seasons, little government support, and lack of pre-financing has conspired to ensure that very little direct trade takes place.
A coffee-trading expert in Nyeri told the that buyers have also been unwilling to take up the risk of paying farmers for coffee before they receive it and confirm its quality.
"The current chain of commercial marketers and dealers are able to absorb this risk due to the trade finance options open to them which allow them to pay farmers even before coffee is shipped to buyers," said the expert, who declined to be named.
Hundreds of coffee farmers such as Mr Mahugu have accused the government of creating a one-way restrictive trade channel that only benefits established coffee tycoons.
“The marketing system and structures are set in a way that rigs prices against the ordinary farmer, as only a selected few benefit from the coffee trade at the auction,” noted Mr Mahugu.
Coffee beans go through at least five levels of middlemen before reaching the end consumer.
Mr Mahugu said he was compelled to acquire the grower-marketer licence to avoid a vicious push and pull between him and millers who double up as marketers.
Ordinarily, almost all the coffee societies in the region deliver their parchment to millers, who process and sell it through their sister companies to the highest bidders at the Nairobi auction. The chain does not end there, because these companies are also linked to dealers who buy the coffee at the auction.
This double-licensing has raised eyebrows, with allegations of collusion and price-fixing.
“The millers are colluding with coffee dealers to intimidate farmers who are new entrants with no established networks in the existing system,” noted Mr Mahugu.
Once the coffee is in the millers’ hands, they ostensibly have predetermined markets, and that makes them discourage any direct trade deals that seek to divert coffee from their hands.
Allegations of underhand dealings, such as refusal to provide direct buyers identified by farmers with samples, switching samples, and adding impurities to direct-trade coffee have been rife.
“We are not sure whom to trust, because the trusted people are working for other people who wish to rip off the ordinary farmer," noted Mr Mwangi Kamau, another farmer.
As a result, a majority of smallscale coffee farmers have borne the burden of direct sales gone bad. This has discouraged many buyers from seeking direct trade from Kenyan coffee, threatening to bring down the whole project.
Even co-operative societies that have applied for grower-marketer licences have been facing the same issues as individual farmers.
Mr John Ngure, chairman of the Gikanda Coffee Society said the collusion has prompted some millers to refuse to hand back the farmers’ coffee after grading because they prefer to be the sole link between farmers and buyers.
“We have not really managed to use the grower-marketer licence because we are yet to understand the logistics in exporting and trading our coffee,” said Mr Ngure.
Though farmers are unable to use the licences, they have been renewing them annually for Sh10,000, paid to the Coffee Directorate.
Coffee farmers said too many regulations have erected unnecessary barriers that have perennially created an unfavourable environment for fair coffee pricing and for direct sales to thrive for ordinary farmers.
A farmer inspects a coffee bush at a farm in Nyeri on November 28. The grower-marketer licence was created in 2006, giving farmers a window to sell their own coffee directly to buyers overseas.