1. 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

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

3. 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 billion/ Tshs Billion) as foreign income (Source: Coffee Directorate).
Sector directly and indirectly supports close to FIVE million Kenyans.

4. 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

5. 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

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

7. 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

8. 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

9. 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

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

11. 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

12. 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

13. 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

14. 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 Billion (Over Tshs. 25 bn) disbursed to coffee farmers.
Direct Lending: From the Fund to the farmer directly. Amount disbursed: Kshs Billion (over Tshs. 34 bn).

15. 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
($3.064 Million)
20,999
617.8 m ($6.178 Million)
2008/2009
($ Million)
22,501
118.8m ($ Million)
2009/2010
182.4 ($1.824 Million)
11,456
230.0m ($2.3 Million)
2010/2011
($1.137 Million)
5,630
178.3m ($ million)

16. 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
($4.308 Million)
25,500

17. 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

18. 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

19. 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)

20. 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.

21. 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.

22. 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.

23. 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

24. 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.

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