Capital Markets Authority to regulate sale of coffee in Kenya

KENYA – Coffee trading in Kenya will now be regulated by the Capital Markets Authority (CMA) as the Treasury moves to tame cartels, who have been blamed for diminishing earnings by farmers.

Draft regulations published by Treasury Secretary Ukur Yatani state that coffee trading companies as well as the weekly commodity auction will now be regulated under the Capital Markets Act — a departure from the current situation where the operations are controlled under the Coffee (General) Regulations through the Agriculture and Food Authority’s Coffee Directorate.

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The Treasury said the changes to be effected through Section 12(1) of the Capital Markets Act would cover all key coffee trading functions, including licensing of brokers, establishment of companies trading in the commodity, as the establishment of a direct settlement system would guarantee speedy and transparent payment of proceeds from sales.

And in a move aimed at limiting diversion of sales proceeds, the Treasury said a direct settlement system shall be established by a licensed commercial bank competitively selected by a coffee trading company subject to approval from the CMA.

Proceeds of the sale of coffee at the auction will be remitted by a coffee buyer or roaster through the direct payment system for onward settlement to the service providers with the net payment going to the grower.

“(The new regulations) will provide for the protection of the interests of the grower, the buyer and other stakeholders at an exchange,” Mr Yatani further states in the draft Coffee Exchange Regulations, 2020.

According to the new rules, officials will now be required to maintain a database for records of coffee sales at the auction floor and establish a linkage between the direct settlement system provider and licensed coffee warehouses to facilitate release of coffee to buyers or roasters upon payment.

Further, coffee trading companies will be required to establish a direct link between their systems as well as software with the CMA’s in a move meant to boost transparency in their transactions.

They will also be required to disseminate market information for every coffee auction and an analysis of performance on a daily, weekly and monthly basis.

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Isabella Nkonge, the head of the Coffee Directorate, confirmed the far-reaching changes, saying the directorate would continue regulating other aspects of coffee farming as the CMA takes over the trading function. “The auction will no longer be under us as it has now been taken by the Capital Markets Authority,” she said.

According to Business Daily, farmers have the option of selling their coffee directly to international buyers, or they could contract and authorise their marketing agents to sell through the weekly Nairobi Coffee Exchange (NCE) auctions.

About 85 percent of Kenya’s coffee trade at the weekly auction is managed by NCE. Much of it is exported after the auctions.

Daniel Mbithi, the chief executive officer of the NCE, welcomed the new directive by the Treasury, noting that this will enhance the performance of the auction.

“We are looking forward to it as it is expected to improve our performance,” he said.

In other related news, the government plans to merge the National Cereals and Produce Board-NCPB with the Strategic Food Reserve in a restructuring programme aimed at improving efficiency and elimination of duplication of roles.

Agriculture Cabinet Secretary Peter Munya says private millers will also be allowed to store their cereals at the NCPB at a cost.

In addition, Munya says NCPB facilities will also undergo a facelift to increase capacity that will allow farmers and private millers to store their cereals at a fee.

This is aimed at earning the silos more income as well as enhancing food security for the country.

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