Coffee Prices Drop,Lay Offs in Sight amid Rigathi Gachagua Changes

As confusion about the State’s issue of trading permits increased, merchants and purchasers withdrew from the Nairobi Coffee Exchange (NCE), which resulted in a substantial decline in the volume and pricing of coffee sold there.

The NCE’s poor performance coincides with reforms carried out under the direction of Deputy President Rigathi Gachagua, who managed the exchange’s relaunch in mid-August.

NCE figures show that August’s auction volumes decreased by 95.62 percent from 4,380 tonnes at the same period previous year to 192 tonnes.

Currently, the auction draws 25 purchasers on average every auction date, a low number that reduces bid competition from markets where up to 80% of Kenyan coffee is traded.

Only 58 of the 121 licensed coffee purchasers issued by the Agriculture and Food Authority for the 2023–2024 season have signed up at the NCE to purchase from the auction.

In addition, the average cost of a bag of 50 kilograms of coffee beans decreased by 31.13 percent, from Sh266.32 to Sh183.41.

Contractual millers who have been unable to obtain licenses issued by county governments, which has disrupted the flow of volumes to the market, are mostly to blame for the sinking of volumes provided on the exchange’s floor.

International purchasers have stayed away from the market due to the low volumes, which has decreased the demand for coffee from Kenya.

The auction had came to a stop in July after a sizable number of brokers lost access to the market, signaling the continuation of the instability in the sale of coffee.

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

“I am not aware of the suspension of any licenses as the licenses 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 licenses with their respective regulators,” he stated.

To cut costs, coffee millers are increasingly thinking about terminating employees. The millers declared on Tuesday that they will begin laying off thousands of their employees beginning in January due to the suspension of their trade permits during a consultation meeting called by Crop Development Principal Secretary Kello Harsama in Nairobi.

“We do not have trading licenses 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.

Additionally, coffee dealers bemoaned the fact that no coffee had been approved during the most recent licensing cycle, which began in July. This means that international coffee roasters like US-based chain Starbucks are no longer purchasing Kenyan 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.”

The implementation of a direct settlement system (DSS) is one of the reforms being made to the coffee industry. For quick and transparent payment of coffee sales revenues, a direct settlement system was established under the Capital Markets (Coffee Exchange) Regulations 2020.

The DSS was provided by the Co-operative Bank, which bested fierce competition from other banks to secure the contract, but the system has encountered opposition from several participants in the coffee industry.

On Wednesday, the stakeholders in the coffee industry demanded that the government grant them temporary licenses to trade while reforms are being implemented. PS Kello promised to bring the stakeholders’ issues to the attention of DP Gachagua and President William Ruto.

“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.