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Kenya: Coffee Millers Cry Foul As Farmers Switch Loyalties
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Business Daily (Nairobi)
30 April 2008
Posted to the web 30 April 2008
Solomon Mburu
The dark side of liberalisation in coffee marketing has started to emerge, with millers and marketers saying they are now saddled with millions in debt after farmers switched loyalties without observing due process.
The agents complain that farmers are not honouring contractual agreements to middlemen, despite receiving advances for farm inputs, preferring to move on to new millers.
"Societies are changing millers and marketers without having cleared loans and advances they had been given by them," said Mr Noash Akuma a manager with the Coffee Board of Kenya.
According to Mr Akuma, the board has been caught off guard by the development that has gained currency this year.
"Every agreement between farmers and millers has to be registered with us but the farmers are signing new contracts without our knowledge," said Mr Akuma.
Farmers often switch loyalties after being dissatisfied with services rendered by their agents. Their concerns largely revolve around late and low payments for crop deliveries.
The coffee board is now seeking to tighten the rules of contractual agreements between farmers and millers and marketing agents. While previously farming societies were only required to register contracts with the regulator, they now have to get clearance forms from their present marketers before they move on to new ones.
"They should give a proof of clearance from the previous miller and marketing agent showing that they have no liabilities," said Mr Akuma.
If the farmers have outstanding bills and they still want to change millers, then they should write an agreement with the former miller or marketing agent on how they intend to pay them, explained Mr Akuma.
The board is moving to rein on millers who, because of competition and overcapacity in the sector, entice societies from contracts with rivals through packages, many of them bordering on corruption involving society officials.
"We can suspend millers for taking up farmers with loans. We can even ask them to pay up the loans and advances the farmers had," said Mr Akuma.
The issue has given momentum to a new push by millers to have the one year contractual period of agreements with farmers expanded to three to five years.
According to the Coffee Act of 2005 farmers are allowed to sign contracts with marketers or millers for an indefinite period.
However, the Cooperative Act narrows the contractual agreement period to one year thus forcing farmers to sign annual contracts.
"We need harmonisation of these two laws so that there is no conflict of interests," said Mr John Karuru the operations manager at Thika Coffee Millers
Mr Karuru said one year contracts are too short for agents to realise tangible value from them, saying it takes upwards of two years for inputs to have a telling impact on the crop. "Millers prefer signing a contract of 3 to 5 years so that we can get a good return on equity," said Mr Karuru.
On the other hand, farmers favour annual agreements because this ensures that they are not tied to one miller for long and can move on when services from marketers are wanting. This also gives them leeway to take advantage of new and better packages and opportunities which are offered by various millers and marketers.
However, Mr Akuma said that if farmers were to agree on longer durations of contracts through their Annual General Meetings, then the Coffee Board would give them the go ahead.
"If farmers meet at an AGM and say they want a three year agreement, then we will agree," said Mr Akuma.
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Farmers have in the recent past been warned against burdening themselves with expensive loans and advances from millers and marketers so soon after the Government bailed them out from loans they were unable to pay.
The Government last year spent Sh4.2 billion in paying up loans which coffee farmers had acquired when the World Bank co-financed rehabilitation of the coffee small holder sector through the Small-holder Coffee Improvement Project SCIP.
The money had been channelled through the Cooperative Development Bank.
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