Kenyatta University, named after Kenya's first President, is located in the heart of Kenya's coffee rich Central Province and during the tenure of its founding father Jomo Kenyatta (1963-1978) it would have been unimaginable that the children of coffee growers wouldn't have the money to pay for a year's fee.  Kenyans, when I grew up, used to be awestruck by the good fortune of those privileged Kenyans who grew ‘black gold.'

Coffee, one of the most popular beverages in the world, is also a valuable tradable commodity internationally.  Coffee futures' trading occurs at the New York Stock Exchange where washed Arabica coffee futures contracts are bought and sold by financial speculators. 

It is estimated that there are over 700,000 Kenyan coffee farmers today.  Kenya is a leading producer of Arabica coffee yet its small holder farmers are amongst the poorest Kenyans due to bad governance and oppressive regulation in the coffee value chain which has spawned a dealer's and marketing cartel which has distorted price and market forces to their advantage at the expense of the small growers.   This happened in 2005, when amendments to the industry's basic statute The Coffee Act (introduced through the annual Finance Bill which details taxation measures) radically altered the balance of power between coffee farmers, regulatory institutions and the trading market to the disadvantage of the farmers. 

A SKETCH HISTORY OF COFFEE IN KENYA

Coffee was introduced to Kenya by the Holy Ghost Fathers Catholic Order which first farmed coffee at what is now Saint Mary' Boy's School in the Lavington area of Nairobi.  In colonial times, coffee was a political crop and Africans were denied the right to plant it even though coffee production was a lucrative occupation for white farmers.  The right to plant coffee was a grievance articulated by among others Chief Koinange of Kiambu earning him punishment by the colonial authorities. 

When Africans were eventually allowed to plant coffee it was in two districts (Kisii and Meru) of the country where there was no competition with white farmers, and only on a prescribed experimental basis (limited to 100 trees a farmer).  White farmers formed powerful lobby groups that influenced the provisions in the first regulatory piece of legislation for the cash crop - The Coffee Act of 1933 - by ensuring that the legislation prescribed that farmers would be involved in the management of the coffee industry. 

Coffee farmers agreed to finance the operations of the various managerial, regulatory and research bodies which were created or given responsibility under the Coffee Act by way of a statutory ad valorem tax which the farmers themselves set voluntarily, they say, at the time the law was enacted.  It has always been their expectation that this ad valorem tax and the Coffee Act itself would not be changed without consultation with farmers, and for 7 decades this held true.  The ad valorem tax on the sale of coffee by farmers is 6% of the value of the coffee at the point and time of sale.

This farmers' representation system ran from 1933 until the Coffee Act was amended in 2001.  Established under the Coffee Act was the Coffee Board of Kenya, which had the following functions:  regulation of the coffee industry, marketing and sale of Kenyan coffee, promotion of Kenyan coffee. 

Structural Adjustment and the Coffee Board

As Kenya's economy declined in the 1980s, the Government accepted to institute the Structural Adjustment programmes of the World Bank and International Monetary Fund which among other things insisted that government should get out of business and abhorred state monopolies. 

The Coffee Board of Kenya which until that time had been responsible for both regulation and marketing of coffee was regarded as being inefficient and it was decided by the Government to amend the law to liberalise marketing and the auctioning of coffee to private players, leaving the Coffee Board only to perform regulatory and promotion functions.  The farmers participated in the discussions preceding the 2001 Coffee Act's enactment, the last meeting for example took place at the Blue Posts Hotel and in attendance were all Members of Parliament from coffee growing areas.  Among them the current President Kibaki who represented Othaya constituency growers of coffee.  At this time also many of the most draconian provisions of the Coffee Act including the criminalisation of the neglect and uprooting of coffee trees were removed from the law.

Marketing Agents

The law once amended created new players in the industry called licensed coffee marketing agents who earned commissions on the sale of milled coffee.  They could be either companies or other bodies who signed marketing contracts with farmers.  To safeguard farmers section 24(1)(a) of the Coffee Act of 2001 required that marketing agents had either a bank guarantee of between 1 and 12 million US dollars deposited with the Coffee Board of Kenya; or one-and-a-half times the value of the coffee to be transacted during their operational year.  To prevent conflict of interests millers could only be marketing agents of they incorporated a new company with separate directors.  Presumably, millers could be investors but not directors of marketing agent companies.

Transition Period

The story of the transition period is instructive to demonstrate how vested interests can resist reform.  The Coffee Act was not operationalised on the day it was given presidential assent in its entirety.  Certain provisions were to be brought into force by the Minister for Agriculture and certain interim measures were to be taken during a transition period.  Unfortunately the length of the time period was not delimited and it ran for more than 8 years.  So the Coffee Board was prohibited from marketing coffee, and during the transition the three existing millers (SOCFINAF, Thika Coffee Mills and the Kenya Planters Cooperative Union) were appointed by law as the only licensed marketing agents in Kenya of coffee.

The Coffee Board tried to end this transitional oligopoly but was thwarted whenever it tried to completely liberalise the marketing of coffee by separating the role of millers and marketing agents.  Each Board that tried found itself attacked by political interests.  The KPCU initially even refused to incorporate a separate company as required by law.  The other two millers complied but their owners are the driving force behind the new companies albeit not as directors.  This raises the question of whether the conflict of interest safeguard actually worked.  Today there are several marketing agents.  During the same period dealers also started to insist that they too should be allowed to be marketing agents.

During the transition period there was also generally a policy of Government to reduce entry to trade or bureaucratic barriers to trade.  Targeted in this reform were the 11 licenses issued under section 18 of the Coffee Act by the Coffee Board, which were viewed to be too many.  They were:

1.        Category ‘A' license to import and export clean coffee

2.        Category ‘B' to import and export buni coffee

3.        Buni dealers license to export buni coffee from anywhere

4.        Marketing license

5.        Millers license

6.        Roasters license

7.        Auctioneers licence

8.        Warehouseman's license

9.        Packers license

10.     Pulping station license

The 11 coffee licenses were subsequently reduced by the Licensing Laws Repeal and Amendment Act of 2007 to 4.  After this reduction of licenses dealers could play the role of selling and buying, creating a big conflict of interest.

European and World Bank Funds
Also during the same period there were funds disbursed by the European Union as Matching Funds, which were used not to benefit farmers but to benefit lobbyists of multinational dealers.  Under the Lome Convention a multilateral treaty that has since expired European funds on behalf of EU consumers were used to support coffee farmers and other agricultural commodity producers in Africa, the Caribbean and the Pacific.  In the case of Kenya's coffee farmers as fund of about Ksh 12 billion was made available to support Kenyan coffee production, claimed from Europe by the Government of Kenya on their farmers' behalf. 

High-level corruption and obvious political interests saw most of this fund diverted to the cereals sector.  Apart from paternalism and theft the Moi regime had no pressing reason to economically empower farmers in the Central Kenya region, which he viewed as, and in actual fact was, oppositionist. 

A Ksh 2 billion revolving fund placed with the Cooperative Bank of Kenya also had unintended consequences for the unlucky farmers.  Loans were given to farmers, secured by their farm title deeds to secure working capital and farm inputs.  The Tanzanian version of this scheme (Stabex in bureaucratic slang) that worked better at the end of the day saw direct compensation in cash to the coffee farmers there.  In Kenya instead of giving the money to the farmers to buy input for themselves, the money was given to middlemen from whom farmers collected fertiliser and other inputs.  These inputs did produce a bumper crop, but as seen elsewhere this eventually depressed the price domestically for the Kenyan farmer.  The farmers' loss meant that their title deeds were seized by the Cooperative Bank, and all over Central Kenya and Eastern Province farms are at risk of auction.  Conversely, pre-recession foreign owned coffee farms (SOCFINAF), which had easy access to cheap northern credit, didn't suffer the same fate.  Whether they enjoy freedom from these debts waits to be seen. 

Many believe that over 10 billion shillings worth of the Stabex funds disappeared in shady rural electrification and road building schemes.  Only 135 million shillings can be traced to the investment in a tissue culture laboratory at the Coffee Research Centre.   That the Kenyan coffee farmer is no better off for these funds is a common opinion amongst farmers. 

The Second Window

In 2005 farmers wanted to sell their coffee directly, hence the idea of a second window.  This was opposed by the KPCU and the Minister for Cooperatives, even as it was supported by the Coffee Board of Kenya, which wanted another marketing chain, as did the Minister for Agriculture. 

The demand by the farmers was motivated by a price-fixing scheme in which dealers suppressed the auction price to as low as US$ 30 per ton while millers (often the same ownership as the dealers) charged farmers US$ 100 per ton to mill coffee delivered by farmers.  Farmers arriving at millers to collect their payments were presented with invoices for what they owed in milling costs because of the low price their milled coffee obtained at the auction.  Throughout this period the real world price for Kenyan coffee was never lower than US$ 300 per ton.  Records of the International Coffee Organisation show that the price paid for a cup of coffee by consumers remained stable, and the Kenyan auction collapse could not be justified, and indeed was only explicable as a pernicious scheme.

Agitation for direct sale by farmers was initially opposed by government and the established millers for obvious reasons - they didn't want competition for the three millers that had been designated marketing agents.  But the logjam was broken by the entry onto the scene, supported by the highest levels of Government, of Tetu Coffee a coffee brokerage, which proposed to buy every bag of Kenyan coffee available at minimum guaranteed prices higher than those offered by the auction.  The proposal made to the Coffee Board of Kenya that almost cornered the Kenyan coffee market.  Tetu Coffee, owned by Job Kareithi a politically connected Kenyan living in Houston, Texas advocated direct gate-sales of with guaranteed minimums a policy which was eventually accepted after an inter-ministerial committee of seven ministries approved the policy.  The scheme failed because Tetu could not secure the monopoly it sought and after it was revealed the promoter was not financially stable. 

Nonetheless, farmers after the amendments to the Coffee Act, which were introduced in the Finance Bill of 2005, remained free to appoint any licensed marketing agent, and today there are over 100 such agencies operating at the auction which sells Kenyan coffee every week.  However only about 10 are really active.  But these were not the only amendments to the Coffee Act as will be seen later.

The Finance Bill of 2005

Every year the Minister of Finance introduces a Finance Bill as part of the budget to Parliament.  Debate on the Finance Bill in Parliament is usually restricted to taxation and revenue measures but for whatever reason during the final stage (3rd reading) of that year's Finance Bill, Patrick Muiruri, MP for Gatundu, moved several amendments to the Coffee Act of 2001 including a radical recomposition of the Board of the Coffee Board of Kenya and other bodies responsible for policy and research related to Coffee.  Though his amendments were opposed by Martha Karua, Mr. Muiruri's amendments held sway and section 49 of the Finance Bill did away with the farmers elected representatives on the Coffee Board of Kenya and gave the Minister of Agriculture to appoint as many persons as he deemed fit to the Board instead.  Three years later this amendment would provoke litigation as farmers felt disenfranchised of their rights to representation to the board and other bodies for the first time since 1933.  It is not clear what Government objective was to be met by this amendment as it ran counter to the whole basis of reforms which had been carried out in the coffee sector since the structural adjustment liberalisation phase of the 1980s and 1990s.

Since they were being disenfranchised farmers opposed the amendments to the Coffee Act.  They convened a special general meeting of the Kenya Coffee Growers Association which is the premier farmers (small and large) lobby group in February 2006 and made resolutions to petition the Minister of Agriculture to respect their right to elected representatives as had been the case since the first Coffee Act of 1933. 

The Minister's Appointments of September 2008

In July 2008, the term of the last elected directors of the Coffee Board of Kenya expired.  On September 25th 2008, citing a non-existent provision of law as authority for his appointments, William Ruto the newly appointed Minister for Agriculture appointed an 8 member Board for the Coffee Board of Directors, none of whom were coffee farmers, and many of whom were actually coffee traders, marketing agents and dealers.  There was uproar in the coffee farming circles but the Minister stood his ground.  Just before Parliament went on a Christmas break, a question was asked in Parliament by the Chairman of the Departmental Committee on Agriculture as to why the Minister had appointed the directors without reference to Parliament as required by the controversial amendments brought by the Finance Bill of 2005.  The Assistant Minister for Agriculture asked for two weeks to responds while conceding that the appointment procedure appeared not to have been followed.  The promised reply has never been brought to Parliament since that time, and the departmental committee does not appear to have any more interest in the matter.

The farmer's complaint is two or three-fold.  They believe that the Coffee Act was amended by stealth through the last minute expansion of taxation measures in the Finance Bill of 2005 to radically reshape the composition of all elected boards on which they had representatives - every time to their disadvantage.  Further they believe that the current Boards are invested with conflict of interest and are suspicious of the high predominance of non-farmers and traders on the Minister's list of appointees. 

 Finally farmers recalling an Americanism argue that they are now being taxed without representation by a board on which they are not represented, and that in excluding them from the board of the Coffee Board of Kenya and other institutions assets which their ad valorem tax payments built up over the years have been effectively nationalised by the Government of Kenya.  A twist of fate that is the inevitable consequence of logic, when one thinks about it the farmers are right.  Farmers still harbour bitterness at the invoicing incident of the early years of the transition period, and many hold current directors responsible for the schemes that collapsed coffee prices only in Kenya. 

A civil constitutional petition filed by a farmer from Western province soon after the Finance Bill amended the Coffee Act in 2006 still awaits a hearing date in 2009 months after the appointment by the Minister for Agriculture.  Further evidence in farming circles of the grand conspiracy against them.  This is not a paranoiac attitude.  When one examines the ramifications of the last 8 years of official policy it is clear that the farmers have suffered several adverse effects, even though all reforms have claimed to be for their benefit.  Conversely, at every stage of the reforms non-farmers have gained in leverage and influence over every aspect of the pricing and profit of this most valuable cash crop.  Looking at the farmers and their pauperisation it is clear that something very unfair has been going on in Kenya, and that despite their sophisticated branding the intermediates are running something of a con-game on rural folk.

Effect of the Minister of Agriculture's Appointments

The farmers have petitioned Kenya's President, but do not appear likely to get a reversal.  Today their political cache is much diminished.  Many Central Kenyan politicians who were once solidly behind the farmers during the days of opposition to Daniel Moi's dictatorship appear to have a moderated view of the political worth of the farmers cause.  Many appear to have developed more sympathy for the intermediates between the farmer and the coffee drinkers. 

In the first Kibaki administration there definitely was attention towards boosting coffee production and farm inputs were easier available through a voucher system by which a European Union Fund was  channelled through the giant Cooperative Bank to appointed input (fertilisers etc...) brokers and ultimately to the farmers.  Bumper crops were realised at the time the second window was opening, but farmers had to mortgage their farm titles and after the invoicing incident the bubble burst. 

Today, it is claimed by knowledgeable farmers' representatives that the auction block awaits hundreds of thousands of farmers unless there is an enlightened policy intervention.  They hold out a faint hope that if the consumer knew of their suffering they would get a better deal, but no Kenyan press appears interested in what looks like a fascinating story of market regulatory contamination by a special undeserving interest the middleman.  A Kenyan problem that has also recently been seen in the maize scandal that saw the emptying of the country's Strategic Grain Reserves by Ministry of Agriculture bosses in collusion with MPs and businessmen.

So, if farmers have the worse end of the deal called reform of the coffee sector, who are the winners?  A casual search of the controlling hands and directorships of the companies between the farmer and the consumer in Europe or the United States tells a sorry tale of a cartel which appears to have insinuated itself into free market reforms and cunningly transformed itself into a shadowy system of gatekeepers extracting unwarranted share of the black gold which 700,000 poor farmers grow in Kenya.

Three-and-a-Half Million Victims

There are over 300 cooperative societies of coffee growers in 6 of Kenya's 8 provinces.  700,000 farmers are registered as growers and with their dependants it is estimated that 3.5 million Kenyans depend on coffee for a living, even without counting the industry and trade that surrounds this bitter beverage. 

 On June 9th 2009, this issue of illegal gazettment of Coffee Board Of Kenya was in Parliament. Coffee Board of Kenya - Illegal Gazettment - Hansard - June 9th 2009 as you will see there has been no action for the coffee farmers. This is likely to be the position we put our airports in if we allow the finance Bill to be passed without ammending Mr Uhuru Kenyatta's proposal to Parliament. "mambo ni yale yale"