German coffee firm shuts Kenya operations on sector reforms chaos

A global coffee miller has announced plans to shut its operations in Kenya next month as the bungled government-backed reforms in the coffee sector continue to disrupt the industry.

NKG Coffee Mills Kenya, a member of Germany’s Neumann Kaffee Gruppe, says it will lay off staff by the end of February, citing recent regulatory changes in the industry, after the implementation of the Coffee Regulations, 2019 and Capital Markets (Coffee Exchange) Regulations, 2020.

“Following these changes, NKG Coffee Mills Kenya Ltd has not been able to secure the milling license and it is in this regard that the company has taken the decision to close the milling operations. In these ongoing changes, there is a potential/possibility of certain posts within the company’s staff establishment becoming redundant,” the company said.

The letter by the company’s regional head of Human Resources (HR) Hellen Akumu followed a meeting on January 16 by the business to assess its operations and said that there would be consultations to explore alternatives before the February 29 deadline.

The company, which operates across different countries, said it was finalising the plans this month and next.

“The business will set up consultative meetings within the months of January and February 2024. The ideas offered will be given due consideration as we finalise the plans. We shall after this period communicate the final position on the intended redundancy,” Ms Akumu said.

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“Whilst exploring alternative avenues during consultations, we wish to notify you of the intended redundancy. If no alternative is found and the redundancy confirmed, as per existing laws, (it) will be effective from February 29, 2024,” the letter stated.

The Hamburg-headquartered NKG has more than 60 companies across the globe.

Kenya coffee is marketed either through the weekly Nairobi Coffee Exchange or sold directly to buyers abroad.

It is not clear the number of workers who will be affected by the looming layoff since the company has not made public details of its employees in Kenya.

Available details, however, show that the company, which has operations in 27 countries, employs 495 people in Africa. Across the 27 countries where it operates, the company employs more than 3,200 people.

In Kenya, the company operates through two subsidiaries, Ibero Kenya Limited, which deals in export and milling, and Tropical Farm Management Kenya, a marketing agent, financer and service provider to farmers.

The exit of the miller and exporter is also set to hit farmers and other workers not directly under its employ but have benefited from its operations across value chains.

President William Ruto in January 2023 signed an executive order tasking his deputy Rigathi Gachagua with spearheading reforms in the coffee and tea sub-sectors.

The campaign has proposed restructurings that include the introduction of a direct settlement system (DSS) aimed at realising expedited and transparent payment of coffee sales proceeds.

The drive is also seeking to push the enactment of the Coffee Bill 2023 that proposes to reorganise the industry by transitioning the regulatory and commercial roles currently undertaken by the Agriculture and Food Authority to the Coffee Board of Kenya.

Further, the legislative proposal also aims at transitioning coffee research currently undertaken by the Coffee Research Institute under the Kenya Agricultural and Livestock Research Organisation to the Coffee Research Institute.

These scheduled reforms have, however, triggered chaos in the sector amid delays in the issuance of marketing and milling permits. This has left millers and marketers without stocks for processing and sale.

Read: Coffee sector players upbeat Gachagua steering reforms

Kenya’s coffee is much sought after by roasters and blenders and the international prices are used as a benchmark for the local price at the Nairobi exchange. The sector is, however, limping and requires a revamp as more farmers abandoned the crop for better rewarding ventures such as real estate and avocado farming.

The State is working to curb the slump amid concerns that the once thriving coffee sub-sector has lost its shine, with production declining from 130,000 tonnes to an average 40,000.

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