COFFEE DEVELOPMENT FUND
Financing Smallholder
Coffee Farmers In Kenya
Presented by
Mr. Patrick Nyaga, Managing Trustee, CoDF
during the
International Forum on the
Social and Solidarity Economy
(FIESS), Montreal, Canada,
October 17 - 20, 2011
Kenya’s Coffee Sector Profile
• Coffee is one of the most important cash crops in Kenya
generating annual revenues of up to $ USD 100 Million.
• It is estimated that 6 million Kenyans are employed directly or
indirectly in the coffee industry.
• The total production potential is 130,000 MT per annum. This is in
comparison to current production levels of 50,000 MT.
• Although Kenya coffee global market share is small; at 1%, the
quality of coffee is highly rated in the world market thus highly
demanded by Roasters who mainly use it for blending other coffee
varieties.
•The total area under coffee is estimated at 160,000 hectares.
•Two thirds of all cultivation (113,333 hectares) is handled by
low yield, resource poor smallholder farmers with an average
yield rate ranging from 0.2 – 0.7 tons/ha.
Illustration of National Coffee Production: Coffee
Estate Farmers Versus Smallholder Coffee Producers
40%
Approximately 3,000
large, small/medium
private estate farmers
The smallholders produce
40% of the crop while
Estate plantations
produce the remaining
60%.
Approximately 600,000
smallholders
organized in
cooperative societies
60%
Source: Coffee Board of Kenya, Ministry of Agriculture (2009)
BACKGROUND
• Coffee Development Fund is a state corporation under
the Ministry of Agriculture in Kenya.
• The Fund was officially
established by the
Government in May
2006 as a financing
vehicle for revitalizing
the coffee sub-sector
after years of low production
trends.
• CoDF’s mandate is to provide sustainable, affordable
credit and advances to coffee farmers for farm inputs,
farming operations and income stabilisation.
• Bulk of farmers receiving loans are smallholders
organized in cooperatives
COFFEE DEVELOPMENT FUND-FACT SHEET
BUSINESS
FINANCING COFFEE FARMERS
CLIENTS
SMALL HOLDER FARMERS/ESTATE
FARMERS/COOPERATIVE SOCIETIES
SERVICES/
MANDATE
PROVIDING ACCESSIBLE, AFFORDABLE CREDIT AND
FINANCIAL SOLUTIONS TO THE COFFEE SECTOR
FUND SIZE
$USD 13 MILLION
IMPACT
61,245 COFFEE FARMERS
ELIGIBILITY
COFFEE FARMERS WITH A PRODUCTION RANGE
BETWEEN 0.5 - 3 KG OF CHERRY/TREE
CURRENT FUNDING STATUS
•Public financing through Coffee Development Fund
largely remain the main source of coffee financing.
•The sub sector is less attractive to private investors due
to long turnover periods and a client base considered
‘high risk’
•Only one commercial bank provides targeted financing
to coffee farmers.
•The sub-sector is need of approximately US $ 125
Million to meet its credit demand.
FINANCING APPROACH
Value chain Financing approach
FARMER
(Production)
FACTORY/
SOCIETY
(Primary
Processing)
MILLER
(Secondary
Processing)
MARKETING
AGENT
(Marketing)
Financial Requirements
Financial Requirements
Financial Requirements
Financial Requirements
*Credit for farm inputs and
farming operations.
*Credit for farm
establishment.
*Cherry Advances.
*Factory Rehabilitation
*Factory Operations
*Asset Finance –
purchase of machinery
Asset finance-Upgrading
or purchase of new milling
stations.
Working Capital
Pre-export financing.
Financing entry to
certification Programmes
e.g.
Fairtrade, UTZ Kapeh
FLOW OF CREDIT
VALUE CHAIN FINANCING IN COFFEE
•
•
•
Different value chain segments require different
types of financing.
Smallholders populate the lower end of the
value chain segment (Production). in Kenya.
The production segment attracts the greatest
credit need. Currently the Coffee Development
Fund directs most of its credit towards this
segment.
FINANCING CHALLENGES &
INTERVENTIONS
Financing Challenges
Interventions Undertaken
Dispersed and remote location of coffee
farmers presents a challenge in credit
delivery.
Formation of lending partnerships with
26 rural-based financial institutions.
Lack of adequate collateral.
Adopt social collateral (group lending)
to make credit easily accessible to
deserving coffee farmers.
High cost of production due to high cost
of inputs
The Fund continues to facilitate bulk
acquisition of inputs among
cooperatives to minimize costs of
production to growers.
Governance issues among cooperatives
Work closely with other sector players
to build capacity for improved
governance of cooperatives.
FINANCING CHALLENGES &
INTERVENTIONS
Financing Challenges
Interventions Undertaken
Unpredictable weather patterns affecting
coffee production, leads to losses in
potential revenue which is likely to affect
loan repayments.
Develop appropriate weather risk
management tools such as crop insurance
to cushion smallholders against
unpredictable weather patterns.
Lack of a social support system which in
the past encouraged farmers to remain in
coffee production e.g. cherry advance to
meet farmers’ daily needs as the farmer
awaits payment in six months.
Offer cherry advances to smallholders as
an incentive to remain in coffee
production.
Delays in coffee payments leads to
multiple borrowing among smallholders
increasing the level of indebtedness.
Developed an M-Banking service to
facilitate convenient, cost-effective and a
faster mode of payment.
FUTURE OUTLOOK
• Increased demand for coffee in the global market
presents an opportunity for smallholder coffee
farmers to intensify efforts in production.
•
Increased
consumer
awareness
on
environmental
issues is likely to generate
demand for financing into sustainability
Programmes such as Fair-trade and Rainforest
Alliance.
• Farmers are diversifying into speciality coffees
given the growing demand in the market
THANK YOU