Presented byMrs. NANCY C. CHERUIYOT ,

Managing Trustee, COMMODITIES DEVELOPMENT FUND

• Coffee is one of the most important cash crops in Kenyagenerating annual revenues of up to $ USD 100 Million.

• It is estimated that 6 million Kenyans are employeddirectly or indirectly in the coffee industry.

• The total production potential is 130,000 MT per annum.This is in comparison to current production levels of50,000 MT.

• Although Kenya coffee global market share is small; at1%, the quality of coffee is highly rated in the worldmarket thus highly demanded by Roasters who mainlyuse it for blending other coffee varieties.

•The total area under coffee is estimated at 109,795 hectares.•Two thirds of all cultivation (73,196 hectares) is handled bylow yield, resource poor smallholder farmers with an averageyield rate ranging from 0.2 – 0.7 tons/ha.

Source: Coffee Board of Kenya, Ministry of Agriculture (2009)

60%

40%

Approximately 600,000

smallholders

organized in

cooperative societies

Approximately 3,000

large, small/medium

private estate farmers

Illustration of National Coffee Production: Coffee

Estate Farmers Versus Smallholder Coffee Producers

The smallholders produce 40% of the crop while

Estate plantations produce the remaining

60%.

Commodities Fund is a state corporation under theMinistry of Agriculture in Kenya.

The Fund was established by theGovernment in 2006 as a Coffee

Development Fund to specificallyfinance the coffee sub-sector

after years of low Production trends.

On 1st august 2014, the coffee development Fundbecame Commodities Fund with additional mandate tofinance additional commodities including; Sugar, Tea,Horticultural Crops, Sisal, Cotton, Cereals And Tubers,Coconuts and all Nuts and Pyrethrum

• Commodity Fund’s mandate is to provide sustainable,affordable credit and advances farmers for farm inputs,farming operations and income stabilisation.

• Bulk of farmers receiving loans are smallholdersorganized in cooperatives

BUSINESS

CLIENTS

SERVICES

/MANDAT

E

SPECIFIC

TO

COFFEE

IMPACT

ELIGIBILI

TY

FINANCING FARMERS

SMALL HOLDER FARMERS/ESTATE FARMERS/COOPERATIVE SOCIETIES

PROVIDING ACCESSIBLE, AFFORDABLE CREDIT AND FINANCIAL SOLUTIONS TO THE COMMODITY SECTOR

$USD 23.5 MILLION

78,000 COFFEE FARMERS +400,000 OTHERS

COFFEE FARMERS WITH A PRODUCTION RANGE BETWEEN 0.5 - 3 KG OF CHERRY/TREE

FUND

SIZE$USD 235 MILLION

• Government of Kenya 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’

• One commercial bank which previously targeted

financing to coffee farmers has recently stopped.

• The sub-sector is need of approximately US $ 100

Million to meet its credit demand.

Direct lending

Direct to Individual farmers

Directly to societies, women

groups, youth groups and companies

Intermediary approach

Wholesale

Conduit approach

• Different value chain segments requiredifferent types of financing.

• Smallholders populate the lower end of thevalue chain segment (Production) in Kenya.

• The production segment attracts the greatestcredit need. Currently the Commodities Funddirects 60 % of its credit towards thissegment.

• The interest on loans is highly subsidized andranges between 5% and 10%

FINANCING SEGMENTVALUE SECHAIN

APPROACH

CREDIT LINES

AACTIVITIES

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 Undertaken

Unpredictable weather patterns affecting coffee production, leads to losses in potential revenue which is likely to affect loan repayments.

Training farmers to incorporate climate change management in coffee farming.Financing irrigation infrastructure, rain water collection in the farm and at factory levels

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.

Poor quality coffee attract poor prices and hence less income for the farm

Cooperate Governances challenges in FCS leads to mismanagement of funds

Use of obsolete technologies in coffee processing

Poor Agricultural practices

Increased demand for coffee inthe global market presents anopportunity for smallholdercoffee farmers to intensify effortsin production.

However, measures need to beput place to ensure sustainabilityof goodquality and sufficient quantitiesproduction.

Competition from real estate development in farms bordering the city of Nairobi and other towns in the Central Region

• Mobilize Expansion of coffee farming to non traditional coffee regions to repalce those taken by real estate

OLD COFFEE TREES• Replacing old trees

and old varieties of coffee with new improved varieties.

Poor Quality of coffee

-Improved primary

processing through use

of current processing

technologies and

machineries and

storage.

-Training on good post-

harvest handling and

storing

Strong farmer groups is key in financing

the coffee sector effectively and

efficiently

The repayments of loans by farmers

depends on application of GAP. The fund

must get involved in ensuring that GAP is

followed by their beneficiaries.

Advancing loans to Farmers who are

financially illiterate is doomed to fail

Capacity building in areas of corporate governance to ensure better management of farmer resources

Establish linkages with other bodies working with coffee such as regulatory and research bodies leads to better results in financing.

In general a holistic approach in development of coffee is paramount

Successful Value Chain Financing requires incorporation of• Capacity Building

• Collaborations

• Sufficient Monitoring and Evaluation

• Birds view/ sectoral approach of the whole value chain