What's Wrong with the Kenyan Coffee System?

Rust-red earth gives nutrients to spindly SL-28, SL-34, Ruiru 11, and Batian coffee trees, which tower over our heads by at least 2-3 feet in many cases.

There is the scent as we walk through the coffee farms in Nyeri, Murang’a, Embu, and Kirinyaga, of green growing things and of the rich soil that gave them birth. Coffee flowers whiter than a clean sheet of paper smell fiercely floral, each variety a particular different jasmine-perfumed scent.

We are midway through 2022, walking through these coffee farms and grateful that the rains have held off the last few days. Some of us left the 110°F cities of Portland, Oregon and Redding, California, and are thrilled to have landed across the world in the winter rain of Kenya.

By the time we had returned from 3 weeks in Ethiopia and Kenya, I was thinking, a lot, about what people told me when I asked them: “What’s not working in the Kenyan coffee system?”

We spent time with the management and day laborers at coffee factories (washing stations, to our Ethiopian perspective) throughout the coffee-growing regions of Kenya. In cement-walled board rooms overlooking demo farms full of glossy grafted seedlings standing underneath coffee trees much taller than we were, with the forest loam under our feet, and with our tennis shoes planted firmly on each side of washing channels that carved up the hillsides into geometric designs, we asked this question.

Remarkably, we heard nearly the same answer from every single person.

Before sharing those answers, I’d like to give you a quick overview of how the Kenyan coffee system currently works. Consider this a very high-level overview, broad strokes only.

Top-down approach open doors for buyers—and few else.

So, Kenya was colonized by the British, and the entire coffee system was created by foreign interests FOR foreign interests. Let’s just get that out of the way first thing.

Coffee does not naturally occur in Kenya, although it’s not too far south of the birthplace of coffee, Ethiopia. In 1893, missionaries brought the Brazilian Bourbon variety to Kenya and began to grow and cultivate coffee there. Two years later, when the British colonized Kenya, they seized control of all agricultural crops including coffee. It was, for many years, illegal for a Native Kenyan to own a coffee farm, and many Kenyans worked for subsistence wages on the increasingly-powerful, foreign-owned coffee farms. And even when Kenyans began to receive the land for farms, only those who closely served the British received the privilege.

Though Kenya achieved its independence in 1963, the vestiges of colonialism are everywhere, and nowhere more than in the coffee system where a remarkably well-organized process ensures that foreign interests have exceptional (total) visibility, control and profit potential while the smallholders remain trapped at the bottom of the chain with very little to show for their efforts and as much as a year between when they deliver their cherries and when they (may) get paid.

Kenyans are practical. If something doesn’t work, they won’t keep trying. And as children see their parents make less money with less visibility for their backbreaking work, they are letting their coffee trees go fallow or ripping them up to replant with more profitable products.

The average age of a Kenyan coffee farmer is now greater than 60 years old.

Think about that for a moment.

This isn’t working.

The key players in the Kenyan supply chain

I’m presenting this to you in the top-down view because that’s how it plays out in real life. However, one of the greatest opportunities ahead of us is to view this from the bottom-up, considering what producers need in order to thrive before considering factories, and continuing this pattern all the way up to the Exporter level.

There are six key players here (not counting the importer, various service providers, and the roaster, or final buyer). 

Established in 1933, the Auction is, since COVID-19, electronic instead of an in-person approximation of a stockbroker’s pit. Every week there is a new auction; every buyer receives the same list of available coffees from the marketers and can also receive samples of everything if desired. Purchase price, outturn number, and other relevant information is visible to every auction participant, excluding the smallholder farmers.

Marketers are responsible to find buyers for coffee lots–for a fee–as well as executing various necessary aspects of the job such as warehousing coffee in Nairobi, pulling samples for buyers, and handling the purchase paperwork. They work with millers and factories to bring coffee to the auction in 60-kg increments. Factories get to choose their Marketing Agent once a year—and quite commonly, corruption plays a part in who gets selected. As well, Marketers are often sister companies to the exporters and millers. They may provide some services to the Factories such as agriculture or financial support (though usually at a steep cost to the producer, it should be noted). There’s a minimum financial requirement to be a Marketing Agent which is prohibitive to most, contributing to the overarching influence of foreign multinationals in this sector. Today, in a nation of 56,268,481 people, there are only 11 Marketing Agents in Kenya.

The smallholder producer, much like in Ethiopia, has a small plot—often only a couple of acres or less–and brings their cherries to the Factory. Coffee isn’t as easy to grow in Kenya as it is in Ethiopia, though, and production can vary per tree depending on a number of factors—there are 80-year old trees on some of these farms! CBD, or Coffee Berry Disease, and CLR, or coffee leaf rust, are common problems for these producers.

The dirty secret that’s right in front of us

Foreign Direct Investment isn’t just easy in Kenya: it’s actually easier to be a foreign business than a Kenyan business. Almost the entire coffee system that actually makes money (read, Millers, Marketers, and Exporters) is comprised of foreign companies. Most of them have affiliate Miller, Marketer, and Exporter licenses, and achieve an enormous slice of the pie by owning so much of it.

There ARE Antitrust laws in Kenya, but it’s easy to avoid bumping into them because the system is so friendly to foreign entities.

Lately, a new, “Kenya for Kenyans” entity was created called New KCPCU. The aim is to offer milling and marketing services that are friendlier to Kenyan coffee producers, and there has been some success. However, the terms surrounding financial advances are currently making factories wary of working with New KCPCU so they don’t get locked into long-term disadvantageous arrangements.

What’s not working in Kenya’s coffee system?

This much confirmation points to real, universal problems.

Problem #1: Lack of Visibility & Control for Smallholder Producers & Factories/FCSs

Once the cherries leave the smallholder’s hands, in exchange for a small paper chit which they will tender much later to receive payment, it is common for them to go for six to twelve months before they see any money for their coffee. Even then, they have no real control or visibility over who has purchased their coffee, how much money was received by the exporter, marketer, miller, or factory, and what percentage they receive once everyone else gets their cut.

FCSs and Factories have a similar situation, though they do have more agency than a single smallholder producer does. Members of FCS leadership receive salaries for managing their responsibilities, but cannot see where the coffee eventually lands in the world after it is sold to the exporter or what the final FOB purchase price was. (They do receive a printout with the details surrounding their auctioned coffee, which is something, if not enough).

Even something as simple as milling loss works against the smallholder producer and the Factory. It is typical to have 18-25% loss when a coffee lot is processed for export (in Kenya, it’ll essentially be processed twice, once before it goes to the auction and once after the final buyer has purchased it). But what the producer does not usually know is that the loss from those millings is NOT actually lost.

It will be utilized by the miller for other coffee grades, repurposed for one of the value-added coffee roasting companies it’s affiliated with, or sold on the local market. Not only do the coffee farmers not receive anything for this “loss,” but the Factory management teams we talked with did not receive any credit for this coffee either, nor know that others were benefiting from it.

The examples go on and on here, but are all unified in the problem that producers and Factories don’t have basic visibility on their own coffee, and (the second problem) they have zero control over how much and when they are paid.

Problem #2: Extremely delayed payment for cherries which may be diminished due to corruption

Referenced above, it may be a full year from when a young mother brings her burlap sack of bright red cherries to weigh and tumble down the great funnel at the Factory for processing until she receives payment for her cherries. Why?

Well, the producer usually doesn’t get paid until the FCS does, but the FCS may not get paid until the exporter does, and on up the chain. It is not uncommon for payment to ultimately be entirely withheld. Reasons given may be that a container went missing in transit or some other misfortune—but the FCS and the producer have no way to verify this.

The Factory will have more visibility in the process, but will have similar challenges with payment delays, and in both cases this often ends with the hardworking producers at the bottom of the supply chain being forced to take loans from millers, banks, or other lenders–often at disadvantageous terms. Living on credit is unsustainable for anyone, but it’s so much worse when your final buyer is also your creditor. Reminiscent of classic historical examples of corporate practices which provide both the goods for purchase and the credit with which to purchase it, laborers struggle to escape from this cycle.

Simply receiving payment at the point of purchase, as Ethiopian smallholders do, would solve enormous stacks of problems for Kenyan smallholders.

For Factories, the problems around payment frequency are too complex to dive into here, but if y’all are interested we can do so in the future.

Problem #3: Lack of creativity and boots-on-the-ground work by buyers

Let’s face it, this isn’t unique to Kenya. Everywhere we go, we see a general unwillingness to overlook the inconvenient truths, to sign off on purchases without probing what went into them, and to buy coffee lots off a veritable assembly line of options without asking what’s next or what went into them.

There exist real ways in Kenya to work directly with coffee farms and factories, though it isn’t easy.

You have to push past the exporter- and marketer-regulated gates, do some real footwork, and visit sites for more than just photo ops.

You have to put thought and communication into what is a real value proposition, and be willing to sit in hot rooms with lots of people and answer tough questions from producers with skin in the game.

And of course, to pay more for the privilege.

As I’ve shared these past couple weeks, we are really just getting started in Kenya, but we began by hiring a qualified Kenyan researcher to build us a case study on the value coffee producers really want from buyers. And then, once we were certain we could add value, we immediately began to invest in bringing our founders and leadership team to work directly with coffee producers throughout the country.

Heck, Michael and I bring our ten-year old daughter with us.

Skin in the game.

Footwork.

Care manifested in conversation.

With all the problems, is there a solution?

We’d like there to be a silver bullet, wouldn’t we? A single solution which fixes everything? But nothing in life is that simple, much less detangling a complex commercial system built around human greed and need, entrenched by more than a century of practices and laws that disempower the people who grow the actual coffee.

What I can say is this: we are here to discover the solutions, with integrity and generosity. We know it will take years, perhaps a lifetime.

And we know that with you and with our Kenyan brothers and sisters, it is not just possible but probable that this scene can change.

— Emily McIntyre, CEO
With the significant help of:
Dennis Shamala, Michael McIntyre, and Leslie Wyatt