Historical Policy Developments in the Kenyan Coffee Sub-Sector

Kenya is known globally for its high-quality Arabica coffee. Across the country, the cash crop is cultivated in Central (Embu, Meru, Thika, Kirinyaga, Nyeri, Kiambu and Muranga), Kisii, Bungoma (Mt Elgon), Rift Valley (Nakuru, Nandi, Kericho, Trans Nzoia and Baringo), Taita Taveta, and Machakos. The coffee subsector holds a vital position in the country’s agricultural sector and economy at large. Coffee production and marketing creates direct and indirect employment opportunities for  rural and urban dwellers. It is also one of the country’s major export earners within the agricultural sector. The total value of coffee exported from Kenya was approximately KSh. 3.8 billion in March 2023 (Kamer, 2023) with the main export destinations being the United States, Belgium, Germany, Switzerland, and South Korea. For these reasons, the subsector has had the support of successive governments ever since the country gained its independence. The biggest help has always come in the form of routine policy improvements meant to enhance the efficacy and efficiency of production and market processes. Shared in this thread/post is a comprehensive historical account of the key pieces of legislation and other events that have molded the industry into its present form.

1893: French missionaries introduced coffee into the country.

1895: The Colonial Development Act of 1895 freed the British government from supporting its colonies financially. The colonial administration in Kenya was forced to look for ways of generating finances that would help run the territory successfully. Cash crops like coffee and cotton were attractive options because they could fetch high prices in the international markets.

1901:  Successful experimentation of Arabica coffee production potential in Nairobi and Kiambu districts by the Holy Ghost Fathers of St. Austin Mission. Production was concentrated in the few estates owned by foreigners. Kenyans were not allowed to own or manage coffee farms despite the non-existence of policies barring participation. European farmers rejected the idea of indigenous communities cultivating coffee because they lacked modern agricultural knowledge. They also feared competition. Small farmers owning coffee farms also meant labor scarcity was inevitable.

1928-1933: The Great Depression saw the value of coffee drop from Kshs.109 to Kshs. 36 per a hundredweight (by July 1933) causing European farmers to accumulate debts in millions of dollars.

1931:  Coffee Industry Bill is ratified. This law stated that the period between 1934 and 1937 would be an “experimental stage” for local smallholder farmers to plant coffee under strict supervision. Experiments were restricted to Meru, Embu, and South Kavirondo. Even though the government introduced cooperative systems, Africans were prohibited from establishing cooperatives.

1932:  Coffee Industry Ordinance gave the government the ultimate power to control the sector.

1933: The Coffee Industry Ordinance led to the establishment of the Coffee Board of Kenya (CBK). The CBK’s role was to stabilize the coffee industry following sharp declines in production. It also issued licenses for land, took over underperforming farms, and levied taxes. Within the same year, the British Colonial Board (BCB) launched a “local growers’ experiment” in Gusii, Embu, and Meru to see whether Kenyans could manage coffee farms.

1934: The Native Coffee Growers Act was established as the first policy to permit and regulate coffee production by small-scale local farmers. The Act defined the maximum and minimum farm size limits for local farmers. It restricted production to 100 trees on lands measuring 0.25 acres and below. Farmers could establish farms away from white estates. However, this policy limited the farmer’s ability to access and benefit from infrastructural developments, training, and financial institutions. The settlers also focused on preventing small farms from competing with British estates. Smallholders were required to join cooperatives run by the Coffee Board. But the Coffee Board favored large estate owners because they had the highest numbers.

1937: Kenya Planters Cooperative Union (KPCU) formed to represent the interests of small-scale farmers. KPCU was registered as a private company and nonprofit union.

1941: KPCU purchased the Nairobi Curing Company leading to conflicts in its dual status.

1942: An ordinance passed this year allowed Kenyans to open their cooperative societies. Indigenous farmers were expected to register as members of cooperatives to sell their coffee.

1946:  Creation of the Coffee Marketing Ordinance No. 6 1946 paved the way for the creation of the Coffee Marketing Board (CMB).

1947: Official establishment of the Coffee Marketing Board (CMB) to regulate marketing. Besides, a government gazette increased coffee planting acreages in Gusiiland to 200 acres.

1962: Kenya became a member of the International Coffee Agreement (ICA). ICA set production quotas and regulated coffee exportation and importation for member countries. Kenyan quota never included in the computations for smallholder production. Therefore, the Coffee Board used its regulatory power to set quotas on these farms and cooperatives. It also controlled pricing and marketing. Large estates left the coffee business.

1964: Government established the Coffee Development Authority (CDA) to support cooperatives and small farmers by offering technical assistance. CDA raised millions from local financial institutions and gave cooperatives loans to build processing factories. Unfortunately, these efforts left the organization in debt.

1968-1970: The creation of the Coffee Development Authority (CDA) to oversee the development of this crop. Its duties would be taken up by CBK’s Field Service Department later on.

1971: Ordinance No. 26 of 1960 combined the Coffee Marketing Ordinance and the Coffee Industry Ordinance to introduce the Coffee Ordinance Cap 333 that gave CBK its regulatory and marketing mandate, until its replacement with the Coffee Act No. 9 of 2001. Thus, the merging of the Coffee Board and the Coffee Marketing Board to form the Coffee Board of Kenya.

1978: Smallholder’s production exceeded estate output for the first time.

1979: World Bank funded the Smallholder Coffee Improvement Project (SCIP 1) to help the Kenyan government tackle the various problems small-scale coffee farmers were experiencing because of increased productivity. The funds helped to solve processing constraints, improve quality, and drive higher production.

1986: Liberalization of Kenya’s market policies based on the provisions of sessional paper no.1 on Economic management for renewed Growth.

1989: ICA collapsed following unsolvable disagreements between consumer and producer countries. Besides, the World Bank sponsored the Second Coffee Improvement Project (SCIP II). These funds were offered as a credit to finance the coffee payment system, purchase input, build factories, and educate farmers.

1992: Trade/ market liberalization took effect officially. Within the coffee sector, the following changes were reported. The government stopped managing and financing the cooperatives. The KPCU and the Coffee Research Foundation (CRF) were established. There was a reduction in the regulation of upstream processes. Coffee growers were allowed to choose their preferred pulping factories, millers, and marketing agents. The coffee auction was privatized and farmers could sell coffee directly to exporters. The coffee board of Kenya (CBK) was required to conduct the Nairobi coffee auction in US dollars for farmers to participate and benefit from currency exchange. Nevertheless, most smallholder farmers continued to sell their coffee through cooperatives. The number of marketing licenses issued increased to twenty-five. These changes occurred over ten years.

1993: Kenya joined the Association of Coffee Producing Countries (ACPC). ACPC controlled supply quotas and prices but eventually closed in January 2002.

1993: Government introduced the direct payment system policy to reduce payment delays. This led to the licensing of three commercial millers. A result was the elimination of the monopolistic power held by the Kenya Planters Cooperative Union (KPCU).

1996: Government reduced the minimum acreage for farmers licensed as planters from 10 to 5 acres.

1998:  Cooperative Societies Act of 1997 barred government involvement in the economic activities of cooperatives.

2001: The Coffee Act of 2001 created Coffee Development Fund (CDF) and abolished the CBK’s role in marketing the cash crop.

2002: A new Coffee Act was enacted to harmonize existing policies. This law separated CBK’s role as a regulator and marketer. It removed old policies that regulated coffee uprooting, planting, and intercropping. It also allowed private sector players to offer extension and advisory services. Besides, all coffee had to be sold through a centralized auction. During this year, the government also ratified the Coffee General Regulations of 2002 that would control exports. This law required coffee producers to acquire and renew their licenses from CBK annually.

2005: The Finance Act of 2005 amended the Coffee Act of 2001. Producers could now sell their coffee directly to foreigners in the “second window” of auction.

2006:  Coffee Development Fund (CODEF) officially established to revive the sector. These funds would assist farm development. CODEF also offered debt relief to farmers who owed Cooperative Bank. Under CODEF, the government waived loans worth Ksh. 6 billion between 2008 and 2012. The fund also supported the coffee research foundation leading to the development of Ruiru 11 and Batian seed cultivars.

2012: Policy to devolve the agricultural sector’s functions ratified. County governments began to manage activities of the coffee sector. Coffee Trading Rules of 2012 were also enacted to regulate exports. They authorized CBK as the issuer of trading licenses.

2013: Enactment of the Agricultural Food and Fisheries Act no 13 of 2013. This statute consolidated the more than 130 legislations in the agricultural sector to remove overlap of functions. CBK was restructured and then merged under the Agricultural Food and Fisheries Authority. It was rebranded as Coffee Directorate. The Crops Act of 2013 was also enacted. It established the Commodities Fund (ComFund). ComFund merged the Coffee Development Fund and Sugar Development Fund.

2016: The Coffee (General) Regulations were introduced. However, thecourts barred its implementation after the Council of Governors filed a petition.

2019:  Enactment of the Crops (Coffee) General Regulations following the failure of the Coffee (General) Regulations. This law authorized the digitization of coffee’s value chain among other things. Also, New KPCU was established to improve coffee milling and warehousing as well as promote marketing that favored and prevented farmers’ exploitation.

2020: CMA got authorization to regulate coffee marketing through the amendment of the Capital Markets Act under the Finance Act of 2016. CMA regulates Spot Commodities Markets and licenses and supervises Coffee Exchange and Coffee Brokers through Capital Markets. So far, it has issued licenses to five coffee brokers.

The Coffee Bill of 2020 was presented with the propositions listed below. It had poor reception from producers and some stakeholders since it threatened the existence of cooperatives.

  • Registration of coffee factories as autonomous societies under the Cooperative Societies Act.
  • Introduction of the Direct Settlement System (DSS) to address delayed payments.
  • Prohibiting millers and marketing agents from giving farmers credit.
  • Forbidding factory management from using farmers’ assets as collateral when borrowing money or for any other reason.
  • Coffee factories allowed to appoint their preferred millers.
  • Capping of coffee milling costs at Kshs. 4000 per tonne and milling losses at 18%.
  • Establishment of Nairobi Coffee Exchange and transfer of money to marketing agents within seven days after bidding.
  • Re-establishment of the Coffee Research Foundation and Coffee Research Institute.

2021: The Coffee Bill of 2021 was introduced to the National Assembly.

 

References

Barnes, C. (1979). An Experiment with Coffee Production by Kenyans, 1933-48. African Economic History, (8), 198-209.

Chelangat, S. I. (2019). Evolution and growth of coffee cooperative societies in Kipkelion, Kericho county, Kenya: 1923–2012 (Doctoral dissertation, Kenyatta University).

Choto, K. (April 12, 2021). Why Farmers Should Support Coffee Bill 2020. Capital News. https://www.capitalfm.co.ke/news/2021/04/why-farmers-should-support-coffee-bill-2020/

Condliffe, K., Kebuchi, W., Love, C., & Ruparell, R. (2008). Kenya coffee: A cluster analysis. Professor Michael Porter, Microeconomics of Competitiveness. Harvard Business School, 2.

International Coffee Organization (March 14, 2019). Country Coffee Profile: Kenya. Retrieved from https://www.ico.org/documents/cy2018-19/icc-124-7e-profile-kenya.pdf

Kamer, L. (Jun 20, 2023). Export value of coffee from Kenya between January 2019 and March 2023. https://www.statista.com/statistics/1130698/monthly-export-value-of-coffee-from-kenya/

Kisii County Government (June 2014). Task Force Report on the Coffee Sector Ministry of Agriculture, Livestock, Fisheries and Cooperative Development. Retrieved from https://devolutionhub.or.ke/resource/kisii-county-taskforce-report-on-the-coffee-sector

Kuguru, K. (2016). Effects of government policies on performance of coffee industry in Kenya. IOSR Journal of Business and Management, 18(6), 53-60.

Monroy L., Mulinge W., Witwer M., 2013. Analysis of incentives and disincentives for coffee in Kenya. Technical notes series, MAFAP, FAO, Rome.

Ogutu, M. A. (1979). Dualism and the Development of Coffee in Meru, Kenya, in 1930s. Transafrican Journal of History, 8(1/2), 140-159.

The Coffee Bill, 2021, Kenya Gazette Supplement No. 84 (National Assembly Bills No. 17) (April 30, 2021), http://kenyalaw.org/kl/fileadmin/pdfdownloads/bills/2021/TheCoffeeBill_2021.pdf

Theuri, B. N. (2012). Factors affecting coffee revitalization programmes in Mukurweini district Nyeri County, Kenya (Doctoral dissertation, University of Nairobi, Kenya).

Thuku, G. K., Gachanja, P., & Almadi, O. (2013). Effects of reforms on productivity of coffee in Kenya. International Journal of Business and Social Science, 4(15), 196-212.

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