Background
Every Tuesday morning in a calendar year, the Coffee Producers (through their Marketing Agents - who represent over 600,000 coffee producers) meet with Coffee Dealers at the trading floor of the Nairobi Coffee Exchange (NCE) for trading of coffee.
The auction creates a forum where competitive bidding for coffee occurs therefore the real price for each lot of coffee on offer is discovered due to the large number of buyers present in a transparent manner.
The auction system has fully withstood the test of the times and currently stands out as one of the outstanding mechanism of selling coffee without compromising the prices.
In 2010/2011, over 95% of Kenya coffee worth USD 221.4 million (about Ksh 21 billion) was traded here with the balance being sold through the direct sale. Coffee Growers and the Coffee Dealers finance the operations of the NCE at KSh 20.00 per 60kg bag sold translating to KSh 13.4 million in 2010/11.
Suspension of the Weekly coffee Auction
On Tuesday 13th March 2012, the weekly coffee auction that was expected to trade in over 25,000 bags of coffee worth approximately KSh 640 Million was suspended.
This obviously affects the financial cash flow of coffee producers and will have a ripple effect on the financing of farming operations. In addition, the suspension denies the government the much needed revenue.
Issues Leading to the Suspension of the Coffee Auction Scheduled for Tuesday 13th March 2012
Distribution of Coffee Buying Samples to Coffee Dealers
In order for the auction to run efficiently Coffee Buyers must receive coffee samples at least 8 days in advance in order to analyze them on the basis of quality so that they can make informed choices when bidding.
Some active coffee dealers who number 29 (those who buy over 1000 bags in a year) out of the 80 licensed by the Coffee Board of Kenya have ended up receiving very little sample material or none at all due to the fact that inactive coffee dealers end up taking most of the sample material drawn from the farmers coffee .
This scenario undoubtedly results in lower bids for the coffees on offer to the detriment of the producers.
Trading in Coffee Samples
Distributing coffee samples of 0.25kgs each for each of the 600 lots on offer per auction for 45 auctions in a year to over 50 inactive dealers translates to 337,500kgs valued at Ksh 180 Million loss to the growers annually (using an average Price USD 6.58 per Kg in 2010/11 season).
This means that each of these inactive dealers is able to make Ksh3.6 Million without participating at the trading floor.
This situation cannot therefore be allowed to continue and must be addressed by the relevant authorities.
Some of the inactive dealers have registered more than one company in order to continue profiting from these free samples.
It is important to note that, Growers are in business, and in the hope of realizing better prices for their coffee provide these samples of 14kgs of clean coffee translating to 112kgs of Cherry for every lot of coffee free of charge to the active dealers.
Growers have no objection to the balance of samples being issued to non-active dealer startups in the hope that these too will become active within reasonable timeframes of a few months to maximum one year, failing which it becomes unreasonable and unrealistic to expect the farmers to continue giving away the product of their sweat to “startups” that are well over 1 year old, to continue enriching themselves at their expense.
Growers do not receive free samples for the inputs they use and have to pay upfront getting heavily indebted and most times procuring loans at high interest rates that sometimes result in loss of property and livelihoods!
Release of Coffee Sample Deposit Refunds to Growers
Coffee Marketing Agents have severally without success requested the NCE manager to issue refund cheques on pro rata (depending on volume of coffee sold in 2010 and 2011) for sample deposits from the dealers that did not meet the threshold of coffee trading as per the Trading Rules.
These refunds amounting to over Ksh 10 million are refundable to growers and have not been processed to date.
The manager of the NCE insists that this is part of his income, a position contradicting the Trading Rules on this matter.
Below is an excerpt;
13.The charges, if any, of availing to dealers the offer samples shall be agreed from time to time between marketing agents and the Management Committee of the Association, and will be informed to dealers in writing in advance. These charges shall be deemed the property of the marketing agent and shall be remitted by the Association to the marketing agent on a lot pro-rata basis.
Conclusion
1) Arising from the above issues the Commercial Millers and Marketing Agents Association (CCMMAA) representing the coffee growers and the Kenya Coffee Traders Association (KCTA) representing the coffee buyers met on the 23rd February 2012 in a meeting attended by the Executive Officer of the Nairobi Coffee Exchange and resolved that only the Active Coffee Dealers will receive coffee samples for sale 16 to be held on 13th March 2012.
This was effected and the Marketing Agents and Traders were ready to proceed with the auction on the 13th March 2012 as scheduled.
2) The CCMMAA representing the growers at the auction and the Kenya Coffee Producers Association (KCPA) representing the owners of the coffee remain committed to ensuring the prosperity of the NCE and will participate fully in any effort aimed at restoring the pride of the NCE and will support the Coffee Board of Kenya in the ongoing structural changes of the NCE towards this end.
Meanwhile we appeal to the relevant government institutions to address this crisis as a matter of urgency.
Signed
Every Tuesday morning in a calendar year, the Coffee Producers (through their Marketing Agents - who represent over 600,000 coffee producers) meet with Coffee Dealers at the trading floor of the Nairobi Coffee Exchange (NCE) for trading of coffee.
The auction creates a forum where competitive bidding for coffee occurs therefore the real price for each lot of coffee on offer is discovered due to the large number of buyers present in a transparent manner.
The auction system has fully withstood the test of the times and currently stands out as one of the outstanding mechanism of selling coffee without compromising the prices.
In 2010/2011, over 95% of Kenya coffee worth USD 221.4 million (about Ksh 21 billion) was traded here with the balance being sold through the direct sale. Coffee Growers and the Coffee Dealers finance the operations of the NCE at KSh 20.00 per 60kg bag sold translating to KSh 13.4 million in 2010/11.
Suspension of the Weekly coffee Auction
On Tuesday 13th March 2012, the weekly coffee auction that was expected to trade in over 25,000 bags of coffee worth approximately KSh 640 Million was suspended.
This obviously affects the financial cash flow of coffee producers and will have a ripple effect on the financing of farming operations. In addition, the suspension denies the government the much needed revenue.
Issues Leading to the Suspension of the Coffee Auction Scheduled for Tuesday 13th March 2012
Distribution of Coffee Buying Samples to Coffee Dealers
In order for the auction to run efficiently Coffee Buyers must receive coffee samples at least 8 days in advance in order to analyze them on the basis of quality so that they can make informed choices when bidding.
Some active coffee dealers who number 29 (those who buy over 1000 bags in a year) out of the 80 licensed by the Coffee Board of Kenya have ended up receiving very little sample material or none at all due to the fact that inactive coffee dealers end up taking most of the sample material drawn from the farmers coffee .
This scenario undoubtedly results in lower bids for the coffees on offer to the detriment of the producers.
Trading in Coffee Samples
Distributing coffee samples of 0.25kgs each for each of the 600 lots on offer per auction for 45 auctions in a year to over 50 inactive dealers translates to 337,500kgs valued at Ksh 180 Million loss to the growers annually (using an average Price USD 6.58 per Kg in 2010/11 season).
This means that each of these inactive dealers is able to make Ksh3.6 Million without participating at the trading floor.
This situation cannot therefore be allowed to continue and must be addressed by the relevant authorities.
Some of the inactive dealers have registered more than one company in order to continue profiting from these free samples.
It is important to note that, Growers are in business, and in the hope of realizing better prices for their coffee provide these samples of 14kgs of clean coffee translating to 112kgs of Cherry for every lot of coffee free of charge to the active dealers.
Growers have no objection to the balance of samples being issued to non-active dealer startups in the hope that these too will become active within reasonable timeframes of a few months to maximum one year, failing which it becomes unreasonable and unrealistic to expect the farmers to continue giving away the product of their sweat to “startups” that are well over 1 year old, to continue enriching themselves at their expense.
Growers do not receive free samples for the inputs they use and have to pay upfront getting heavily indebted and most times procuring loans at high interest rates that sometimes result in loss of property and livelihoods!
Release of Coffee Sample Deposit Refunds to Growers
Coffee Marketing Agents have severally without success requested the NCE manager to issue refund cheques on pro rata (depending on volume of coffee sold in 2010 and 2011) for sample deposits from the dealers that did not meet the threshold of coffee trading as per the Trading Rules.
These refunds amounting to over Ksh 10 million are refundable to growers and have not been processed to date.
The manager of the NCE insists that this is part of his income, a position contradicting the Trading Rules on this matter.
Below is an excerpt;
13.The charges, if any, of availing to dealers the offer samples shall be agreed from time to time between marketing agents and the Management Committee of the Association, and will be informed to dealers in writing in advance. These charges shall be deemed the property of the marketing agent and shall be remitted by the Association to the marketing agent on a lot pro-rata basis.
Conclusion
1) Arising from the above issues the Commercial Millers and Marketing Agents Association (CCMMAA) representing the coffee growers and the Kenya Coffee Traders Association (KCTA) representing the coffee buyers met on the 23rd February 2012 in a meeting attended by the Executive Officer of the Nairobi Coffee Exchange and resolved that only the Active Coffee Dealers will receive coffee samples for sale 16 to be held on 13th March 2012.
This was effected and the Marketing Agents and Traders were ready to proceed with the auction on the 13th March 2012 as scheduled.
2) The CCMMAA representing the growers at the auction and the Kenya Coffee Producers Association (KCPA) representing the owners of the coffee remain committed to ensuring the prosperity of the NCE and will participate fully in any effort aimed at restoring the pride of the NCE and will support the Coffee Board of Kenya in the ongoing structural changes of the NCE towards this end.
Meanwhile we appeal to the relevant government institutions to address this crisis as a matter of urgency.
Signed
- Commercial Coffee Millers & Marketing Agents Association (CCMMAA)
- Kenya Coffee Producers Association (KCPA)
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