The movement and initial processing of coffee in Kenya is dominated by two main categories of players: Cooperative Societies (Unions) and Private Estates/Millers.
- Cooperative Societies and Factories (The Smallholder System)
This structure is the backbone of Kenyan coffee, accounting for the vast majority of smallholder production.
Role Entity Function
Primary Level Farmer Cooperative Society (FCS) / Wet Mill (Factory) This is the first stop for coffee cherries. Farmers deliver freshly picked cherries here. The FCS performs the wet processing (pulping, fermenting, washing, and sun-drying) to produce parchment coffee.
Secondary Level Cooperative Unions These are federations of FCSs. They often own the larger dry mills (like New KPCU or private competitors) and provide shared services like marketing, quality assurance, and financial management to their member societies.
Policy Note: Recent reforms have empowered FCSs to select their own millers and marketing agents, breaking the previous restrictive ties to specific cooperative unions, thereby introducing competition and promoting better returns. Private Estates and Millers- Private Estates: Large-scale coffee plantations that operate their own wet and dry processing mills. They often manage their entire value chain, from cultivation to marketing.
- Private Millers: Commercial entities that offer dry milling services to Cooperative Societies, private estates, and individual farmers. They compete directly with mills owned by the Cooperative Unions (like New KPCU).
The Movement Process: From Cherry to Clean Coffee
The journey from the farm to the NCE involves highly specialized processing steps: - Cherry to Parchment (Wet Milling): The coffee cherry is pulped, fermented, and washed at the farmer’s wet mill (factory). The resulting product is known as parchment coffee (the bean still encased in its final papery layer).
- Parchment to Green Bean (Dry Milling): The parchment coffee is transported to a dry mill. Here, the parchment is hulled off, the remaining silver skin is removed, and the beans are meticulously sorted and graded (e.g., AA, AB, PB) based on size, density, and defect count. The final product is the “clean” green coffee ready for the auction.
- Grading and Cupping: Samples of the clean coffee are analyzed by professional liquorers (cuppers) who assign a quality score. This score, along with the physical grade, is what buyers at the NCE rely on.
These cooperative unions and private millers are essential in ensuring the high quality that Kenyan coffee is known for and play a key role in the traceability of the beans.
Would you like to explore the specific challenges currently facing these coffee cooperative societies, particularly in the context of recent government reforms?
That’s an insightful question that hits at the heart of the challenges in Kenya’s coffee sector. The cooperative model, while intended to empower smallholder farmers, has been the source of the sector’s deepest governance issues.
Here are the key challenges facing the Cooperative Societies and Unions and how government reforms are attempting to address them:
🛑 Key Challenges Facing Coffee Cooperatives
The issues facing the cooperative structure are primarily two-fold: Governance and Financial Transparency.
- Governance and Mismanagement
- Weak Leadership: Many cooperative societies and their unions suffer from poor management, often attributed to a lack of professional financial and operational skills among elected officials.
- Corruption and Rent-Seeking: Historically, officials have been accused of engaging in corrupt practices, which include:
- Embezzlement of funds and siphoning off a large portion of coffee proceeds.
- Taking out unauthorized loans and advances, using the farmers’ coffee as security, only to leave the farmers responsible for the debt.
- Manipulating internal elections to maintain control and ensure contracts are awarded to favored millers or marketing agents.
- Lack of Term Limits: The absence of term limits for cooperative officials has allowed entrenched leadership to control the society’s affairs for decades, stifling competition and accountability (a challenge the new Coffee Bill aims to address).
- Financial and Operational Challenges
- Delayed Payments: Before the recent reforms, farmers would often wait 3 to 4 months to receive final payments for their coffee. This delay eroded trust and forced farmers to rely on expensive stop-gap loans.
- High Cost of Production: Cooperatives often charge high fees for milling, marketing, and input sourcing, which, combined with rising prices for fertilizer and labor, drastically reduces the final amount the farmer takes home.
- Obsolete Infrastructure: Many wet mills (factories) and union-owned dry mills use outdated equipment, leading to inefficiencies, lower quality coffee grades, and higher processing costs.
- Traceability Gaps: The practice of bulking (mixing) coffee from multiple smallholders at the wet mill makes it difficult to trace a specific high-quality lot back to an individual farmer, which can hinder the payment of premium prices.
📈 Impact of Recent Reforms (DSS and Licensing)
The government’s recent reforms are specifically designed to bypass or fix the historical weaknesses in the cooperative structure:
| Reform Action | Goal and Impact on Cooperatives |
|—|—|
| Direct Settlement System (DSS) | Goal: Force transparent, fast payments. The DSS, managed by Co-op Bank, channels sale proceeds from the NCE directly to the cooperative’s account for management fees, and then promptly to the farmer’s individual account, reducing the cooperative’s control over the cash flow timeline. |
| Broker Licensing by CMA | Goal: Inject professionalism. By requiring Cooperative Unions to meet strict criteria to be licensed as coffee brokers (like NKPCU), it ensures only financially viable and compliant entities can sell coffee at the NCE, protecting farmers from poorly managed union brokers. |
| Freedom of Choice | Goal: Break monopolies. Farmers and their primary Cooperative Societies are now legally empowered to choose any licensed miller or marketing agent, promoting competition and accountability across the entire value chain. |
These changes represent a major shift, moving the focus of financial governance from the cooperative society to regulated financial systems, with the explicit aim of putting more money into the farmer’s pocket, faster.
By Kenya Coffee School and Barista Mtaani