Coffee prices dip, layoffs loom amid Rigathi Gachagua reforms

The volume and prices of coffee sold at the Nairobi Coffee Exchange (NCE) have fallen sharply as traders and buyers kept off the market amid looming worker layoffs by processors as confusion over the issuance of trading permits by the State intensified.

The dismal performance at the NCE coincides with reforms under the stewardship of Deputy President Rigathi Gachagua, who oversaw the relaunch of the exchange in mid-August.

Read: Coffee prices hit three-month low on depressed demand

According to data from the NCE, auction volumes in August dropped by 95.62 percent to 192 tonnes from 4,380 tonnes at the same time last year.

At present, the auction attracts an average of 25 buyers on each auction date, a low rate that affects competition in bids from where up to 80 percent of Kenyan coffee is traded.

Of the 121 licensed coffee buyers by the Agriculture and Food Authority for the 2023/24 season, only 58 have registered at the NCE to buy from the auction.

Equally, the average price for a 50-kilogramme bag of coffee beans fell by 31.13 percent to Sh183.41 from Sh266.32 previously.

The tanking of volumes delivered on the exchange’s floor is attributable largely to contracted millers who have not been able to secure licences issued by county governments, affecting the flow of volumes to the exchange.

The low volumes have seen international buyers staying off the market, reducing the demand for Kenyan coffee.

The dismal run marks the continuation of chaos in the sale of coffee, with the auction having come to a standstill in July after a considerable number of brokers lost access to the market.

NCE chairman Peter Gikonyo, however, maintained that no licences were suspended.

“I am not aware of the suspension of any licences as the licences were to expire at the end of June, which marked a transition from previous regulations. I would encourage brokers to comply and make applications for licences with their respective regulators,” he stated.

Coffee millers are now considering laying off workers to minimise their costs. The millers, during a consultative meeting convened in Nairobi on Tuesday by Crop Development Principal Secretary Kello Harsama, announced on Tuesday that they would start retrenching thousands of their workers next month due to the suspension of their trade permits.

“We do not have trading licences and as a result, we are not able to sustain our workers. Before the end of October, we will be laying off a substantial part of our staff who number more than 18,500,” said James Muriithi, who represented the seven of the largest coffee millers.

Coffee traders also lamented that no coffee had been certified in the current licensing cycle that commenced in July, which means that global coffee roasters such as US-based chain Starbucks are moving away from buying Kenya’s coffee.

“In the current licensing cycle about 16,000 bags of coffee have been produced but no single bag has been certified,” said Jack Marrian, who is a member of the Kenya Coffee Traders Association (KCTA).

“Every day roasters are calling us and telling us they want coffee but we have to tell them that we have no coffee. These roasters are moving to alternative markets and once they turn away from Kenya there is no bringing them back.”

Among the ongoing coffee sector reforms are the introduction of a direct settlement system (DSS). The Capital Markets (Coffee Exchange) Regulations 2020 provided for the establishment of a direct settlement system for expedited and transparent payment of coffee sales proceeds.

The Co-operative Bank beat stiff competition from other banks to bag the contract to provide the DSS, but the system has attracted resistance from some coffee sector players.

The coffee stakeholders on Wednesday called for the government to hand them interim licenses to trade as the government carries out reforms, and PS Kello promised to inform DP Gachagua and President William Ruto of their concerns for resolution.

“We are going to make a decision on all the issues that you have raised today and we will formally inform you of the decisions that we will make so that we move forward together,” said the PS.

Last month, DP Gachagua said the reforms are “unstoppable” and that some of the proposals will be made law by December.

Some of the policy documents that have been lined up to revive the sector include Draft Sessional Paper Number 1 of 2023 on sustainable quality coffee production for food security and wealth creation, the Coffee Bill 2023, the Draft Co-operatives Bill 2023, and the Sessional Paper no. 1 of 2020 on the National Co-operative Policy.

Read: Coffee prices rise marginally on demand for quality beans

The Coffee Bill proposes to reorganise the coffee industry by transitioning the regulatory and commercial roles currently undertaken by the Agriculture and Food Authority (AFA) to the Coffee Board of Kenya.

It further seeks to transition the research of coffee currently undertaken by the Coffee Research Institute under the Kenya Agricultural and Livestock Research Organization (Kalro) to the Coffee Research Institute (CRI).

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