STiR coffee and tea magazine

STiR coffee and tea 23 farm productivity, which is currently es- timated at 2kg to 4kg of cherries per tree annually for estates and smallholder cof- fee producers respectively. Furthermore, the government hopes to leverage on the ongoing reforms in the coffee sub-sector to double annual coffee output over the next five years from the current 51,852 tons to 102,000 tons. "Measures are underway to boost cof- fee productivity from 2kg to 10kg per tree and from 50,000 metric tons to 102,000 metric tons a year by 2027," Kenya's Presi- dent William Ruto said in June 2024. Kenya's coffee sector has a history of poor financing for coffee growers as mis- management of previous funding pro- grams left the farmers with huge debts that crippled some cooperative societies and pushed out many small-scale coffee growers, according to the national coffee policy by the Ministry of Agriculture and Livestock Development. With declining direct government financing for the coffee sector, through State agencies such as Commodities Fund and Agricultural Finance Corpo- ration, farmers have in the past relied on other funding schemes such as the World Bank funded Smallholder Coffee Improvement Projects (SCIP I & II) that provided funds for extension support, factory rehabilitation, farm inputs and cherry advance, the STABEX program that funded cherry advance, working capital and farm inputs and government funded Coffee Development Fund, later transformed into the Commodities Fund supporting farm inputs, working capital, cherry advance and development. "Since 2006, the government has bailed off farmers' loans debts to the tune of KES7.5 billion in respect to STABEX loan and KES5.5 billion to SACCOs and Union," the policy adds. Coffee growers have also been get- ting financing for their farming from commercial banks, SACCOs and Unions, NGOs, commercial coffee millers and marketing agents. The ministry attributes the lackluster performance of Kenya's coffee sector to "the abolition of valorem levies and road cess paid by growers to finance research, infrastructure and regulatory functions slowed the growth of the subsector in the last decade." Coffee price volatility, de- layed payments, and unclear loan recov- ery mechanisms associated with Kenya's coffee value chain players have led to lack of appetite for funding of coffee by com- mercial lenders, according to the Ministry of Agriculture. A previous report by the ministry says financial institutions, which are the other option of accessing credit by cof- fee growers, have categorized the coffee industry among high-risk sectors hence can only offer minimal lending. This, of course, increased the cost of credit. Kenya's coffee sector, the report says, is also associated "with many credit pro- viders such as NGOs, marketing agents and millers who are unregulated and un- coordinated and charge exorbitant inter- est rates" "This has led to emergence of un- ethical lending practices in the subsec- tor leading to multiple hypothecation of the crop, over borrowing, bad debts and overall financial mis-management wit- nessed in the coffee cooperatives," As of June 2024, historical debts owed by coffee farmers in Kenya were estimated at KES6.8 billion ($52.4 mil- lion). The Cabinet chaired by President William Ruto resolved in June 2024 to waive the debts to boost revival of the coffee sector. A large share of the coffee debt was triggered by the collapse of the Interna- tional Coffee Agreement in 1989 leading to a plunge in coffee prices. This meant many of the coffee farmers were unable to service their outstanding loans from financial institutions, coffee cooperative societies and unions. See page 24 for more information on the effects of liber- alization on coffee producing countries. Treasury Cabinet Secretary Prof Njuguna Ndung'u announced additional financing for coffee farmers in current fiscal year. Photo courtesy African Economic Research Consortium New Kenya Planters Cooperative Union Chairman Daniel Chemno says coffee farmers have responded well to new financing initiative. The government has now asked all primary coffee cooperative societies, saccos and other creditors owed by the farmers to provide a list of farmers "who owe them money and with all the sup- porting documents for verification and processing of payment." However, the government's initial plan to include the forgiven debts in the national budget for fiscal year 2024/2025 may have faltered after the Finance Bill 2024, which outlines government rev- enue measures, triggered bloody protests across Kenya forcing President William Ruto to withdraw the bill. This means, the government would have to borrow to pay off the debts cof- fee farmers owe. President Ruto says Ke- nya would have to cut its total national tax revenue estimates for 2024/2025 fiscal year, estimated at KES348 billion ($ 2.7 billion) by 50%. "Listening keenly to the people of Kenya , who have said loudly that they want nothing to do with this Fi- nance Bill 2024, I concede and therefore I will not sign the 2024 Finance Bill and it shall subsequently be withdrawn," he said during a televised address from State House, Nairobi. Financing of Kenya's coffee industry by both the public and private sector will in the long term depend on sustaining the ongoing improvement of the sub-sector's regulatory framework and with current political goodwill from the government of the day, achieving output of 102,000 met- ric tons may not be far off, after all.

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