Grower-mar­keter li­cences of­fer more hype than hope

Lit­tle di­rect trad­ing is hap­pen­ing for farm­ers who had ex­pected to reap big by by­pass­ing mid­dle­men

Daily Nation (Kenya) - - BUSINESS - BY IRENE MUGO

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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.

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