A CREDIT FACILITY PROVIDER FOR COFFEE DEVELOPMENT Commodities Fund COMMODITIES FUND, A CREDIT FACILITY PROVIDER FOR COFFEE DEVELOPMENT Richard Omelu Head of Credit – Commodities Fund (Kenya) May 18th, 2017

PRESENTATION OUTLINE Coffee Farming in Kenya; Value chain; Challenges; Govt Intervention Commodities Fund (Background, Role, lending model, performance; Achievements) Lessons learnt, Conclusion

Coffee Farming in Kenya Kenya is a coffee Arabica producer. Coffee - Fourth leading foreign exchange earner after Tea, Tourism and Horticulture. In 2015, the subsector earned USD 206 Million (Kshs. 20.6 billion/ Tshs. 453.2 Billion) as foreign income (Source: Coffee Directorate). Sector directly and indirectly supports close to FIVE million Kenyans.

Coffee Farming in Kenya Smallholder farmers: 77% - producing 65% of total coffee production); estate farmers: 23%, producing 35% of total coffee. 113, 500 ha under coffee, (Coffee Directorate). small holder farmers have less than 1 ha of land under coffee, estate farmers have large farms Estate growers: Easy access financing; modern technologies; better practices; better yield and quality

Coffee Farming in Kenya Segmentation of Coffee Production; Estates vs small holders YEAR ANNUAL COFFEE PRODUCTION (“000”Metric Tons) 2012/2013 2013/2014 2014/2015 2015/2016 SMALL HOLDER 21.90 32.70 27.20 30.90 ESTATE 17.90 16.80 14.80 15.30 TOTAL 39.80 49.50 42.00 46.20

Coffee Farming in Kenya Kenya Coffee Value Chain Miller Cooperative Society Factory Farmer Auction (NCE)/ Buyer Marketing Agent

Coffee Farming in Kenya Challenges Limited access to affordable finance. Long value chain Unpredictable climate change High costs of production Poor and limited agronomical practices Obsolete coffee processing machines Limited access to affordable coffee planting materials

Coffee Farming in Kenya Challenges Leadership and governance challenges faced by co-operative societies Encroachment of urbanization into traditional coffee growing zones Ageing coffee farmers Low domestic consumption of coffee High farmer indebtedness

Coffee Farming in Kenya Government Intervention Establishment - Commodities Fund (Formerly CoDF) Establishment of AFA-Coffee Directorate, Nairobi Coffee Exchange and direct sales option Establishment of Coffee Research Institute Presidential Coffee Task Force: Identify challenges; recommend remedial measures including PPP. Writing off of old coffee debts Supervision of Cooperative societies Devolution of agriculture function-extension services

Commodities Fund Background Established under Crops Act 2013, following merger of two former Funds; Coffee Development Fund and Sugar Development Fund.

Commodities Fund Legal Mandate To provide sustainable, affordable and accessible credit and advances to farmers and development of supply value chain of scheduled crops regulated by the Agriculture and Food Authority (Authority), including: Coffee; Fibre (Sisal and Cotton); Food Crops; Horticulture; Nuts and Oils; Pyrethrum and other related crops; Sugarcane; Tea. The Fund is currently managing coffee and sugar loan portfolios

Commodities Fund The Role of the Fund The role of the Fund is to provide sustainable affordable credit and advances to farmers for all or any of the following purposes: Farm improvement eg infrastructure Farm inputs Farming operations Price stabilization Any other lawful purpose approved by the Ministry of Agriculture, Livestock and Fisheries

Commodities Fund Sources of Monies Monies paid as license fees, commission, export or import agency fees and fees that may accrue to or vest in the Agriculture and Food Authority (AFA) Internally generated incomes-revolving funds Funds appropriated by Parliament. Funds from any other lawful source approved by the Trustees

Commodities Fund Lending Models: Agency Lending: Farmer Based SACCOs, to mobilize, recruit, vet, appraise, approve, disburse and recover due loans on behalf of the Fund. Kshs 1.119 Billion (Over Tshs. 25 bn) disbursed to coffee farmers. Direct Lending: From the Fund to the farmer directly. Amount disbursed: Kshs 1.524 Billion (over Tshs. 34 bn).

Commodities Fund Coffee Funding For The Last 10 Years Amounts Disbursed(Kshs millions Farmers Reached Government of Kenya (GoK) grants (Kshs and USD)   2006/2007 35.2 ($0.352 Million) 2,929 100 million ($1million) 2007/2008 306.4 ($3.064 Million) 20,999 617.8 m ($6.178 Million) 2008/2009 408.5 ($ 4.085 Million) 22,501 118.8m ($1.188 Million) 2009/2010 182.4 ($1.824 Million) 11,456 230.0m ($2.3 Million) 2010/2011 113.7 ($1.137 Million) 5,630 178.3m ($1.783 million)

Commodities Fund Coffee Funding For The Last 10 Years Amounts Disbursed(Kshs millions Farmers Reached Government of Kenya (GoK) grants (Kshs and USD)   2011/2012 114.5 ($1.145 Million) 4,523 100.8m ($1.008 million) 2012/2013 149.5 ($1.495 Million) 1,492 133.2m ($1.332 million) 2013/2014 327.0 ($3.27 million) 450 62.0m ($0.62 Million) 2014/2015 551.0 ($5.51 Million) 21,400 0.0 2015/2016 430.8 ($4.308 Million) 25,500

Commodities Fund Loan Products Short term loans: Financing of primary production / processing of crops. Repayment period: 8 – 12 months Medium term Loans: For rehabilitating coffee crop. Repayment period: more than 12 up to 36 months   Long term Loans: To establish new crops or change season, as well as Cooperatives/Estates who want to install or replace obsolete processing units. For players engaged in value addition. Repayment Period: more than 36 up to 72 months

Commodities Fund: Achievement Financing Coffee Sector to a tune of Kshs 2.6 Billion (Tshs 58.5 Billion) Robust CMIS built database to manage farmer information through online/ mobile phone based system Established a relationship with value chain players Promoted local consumption of coffee through financing coffee shops

Commodities Fund: Achievement Linked farmers with other stakeholders eg Research (CRI), Regulator (Coffee Directorate), inputs suppliers, NGOs (Certification etc) Increased production and quality in funded areas Easy access to low cost credit facility Developing a financial database in the coffee sector – Non –existent there before. (Now able to forecast financial need of the sector)

Lessons A fully empowered low cost Fund is an important vehicle for stimulating and promoting coffee development Embrace information-based financing of coffee by building coffee chain database and clearly understanding coffee value chain requirements. Need for supervised credit administration through phased disbursement of loan funds, disbursements in cash and in kind and close monitoring of projects funded.

Lessons Timely sharing of pertinent information (level of indebtedness, price and market trends, best agricultural practices, etc) is critical. Farmers need to be paid in time and fairly. Need to profile and involve all key stakeholders. Coordinate, supervise and evaluate the role of each stakeholder in the coffee value chain.

Lessons Invest in constant engagement of stakeholders via various communication channels to build close relationships Embrace modern technology at all levels of coffee value chain Adapt to new farming practices to mitigate against climate changes.

Commodities Fund Benefits/Fund will ensure that: Stakeholder objective becomes primary objective A balanced value chain – possible to adjust Fund’s focus to the value chain needs Producers are empowered up the value chain, Processors/ traders down the value chain There is coordinated financing in Coffee sector There is ability to bring in/ retain technology/ GAPs There is affordability, flexibility and sustainability. Generate national (Financial) database for coffee sector in TZ

Commodities Fund Conclusion A vibrant, profitable and sustainable coffee sector is a product of well-coordinated activities initiated by a combination of well supported and fully operational Fund and various coffee sector stakeholders including producers, government agencies (Regulators/ research, policy), processors/ traders, Non Governmental organizations (Certification bodies) and other service providers.

Commodities Fund Thank you! Railways Headquarters, Block D-2nd floor, Workshop Road, Off Haile Selassie Avenue P.O. Box 52714 – 00200 NAIROBI Telephone: (+254 20) 2210806 | 2210807 | 2210809 | Fax: (+254 20) 2210816 | Mobile: (+254 772) 602427/8 | (+254 737) 204278/9 Email: info@codf.co.ke Website: www.codf.co.ke Facebook: www.facebook/commoditiesfund Twitter: @cofkenya Thank you!