The chapter on governing coffee production was dedicated to discussing the evolution of the coffee sector in Kenya. This was done by exploring the development of the coffee sector since the colonial period up to the present day. Most of the discussion on governing the coffee sector was focussed on the post independent regime and on the supporting institutions inherited by the post colonial rulers. The colonial legacy was not without its problem; part of the review in this chapter was devoted to examining the problems, particularly those arising from the regulatory regime implemented by the post colonial rulers in Kenya. As a result of the persistence of these problems, particularly within its institutions the coffee sector had to endure adverse outcomes in terms of inefficiency, governance and rising cost.
The accumulation of all of these political and economic problems led the IMF in collaboration with the GOK to embark on a series of reforms by aiming to liberalise the economic and the political sectors of the country. General reform programmes within the state and public owned enterprises in Kenya were first addressed by the GOK with the assistance of the IMF in 1990s. The overarching aim of liberalisation was to free the economy of Kenya, particularly in the agricultural and the utilities sector from any direct political control so that rent creation and rent extraction opportunities can be minimised. This also meant the regulatory regime and its inward policies had to be deregulated and the role of the market promulgated.
The liberalisation of the Kenyan economy in the 1990s was supposed to mark the beginning of a new era in the development prospect of Kenya. During this period the IMF sponsored liberalisation programme did not always go smoothly. The flow of funding and other forms of assistance from the IMF and other bodies were not only irregular but was also characterised by distrust and hostility between the IMF and the GOK. The failure of the GOK to keep up its reform commitment particularly in monitoring and tackling the problems of corruption was one of the main sticking points between the IMF and GOK. The conflict between politics and market were particularly intense during the two decades (1982 to 2002) of single party rule.
When considering the coffee sector the problems included: mismanagement and poor governance at local cooperative levels; the increasingly slow payment to the farmers; the decline of the small scale farming area devoted to coffee growing; the dominance of the foreign subsidiary in the auction market; the rising input cost; the poor flow of information between the marketing agent and farmers; the monopoly of the KPCU marketing agent; lack of accountability from the CBK to the farmers and the over-lap of the role of CBK as regulator and distributor of farmers income.
The cumulative effect of these problems over the period of two decades (1980 to 2000) weighed down on the morale of the coffee farmers, especially among the small scale producers. Small scale farmers blamed the GOK for the pessimistic outlook and the decline in production and income among the coffee producers during the period.
During this period the politics of Kenya was characterised by lack of political leadership in addressing the core problems within the coffee sector. More generally the performance of Kenyan economy was also set on a deteriorating trend. The economic performance of Kenya can be summarised as going through the stages of high growth (1963 to 1983) followed by stagnation and decline (1983 to 2003).Although some of the targeted sectors were successfully privatised over the period from 1990 to 2001, questions remained over the method and the consequences of the reform.
Despite the early enthusiasm for reform in Kenya, it was only in the late 2001 with the election of a new government that the programme of liberalisation was given a fresh impetus to go forward. In terms of the coffee sector, the reforms were finally fully implemented in 2002 with the enactment of Coffee Act 2001. Since 2002 the Kenyan coffee industry has undergone numerous changes and challenges however the effective implementation of the reform programme was dependent on the credibility of institutions in seeing through the series of the reform programmes aimed at the various sectors.
When assessing the case of the Kenyan coffee sector and its related institutions, the IMF and the GOK led the reform programme by liberalising the institutions such as the regulatory board, the marketing agents, the local cooperatives servicing, the Coffee Exchange and the coffee selling structure.
One of the major changes to face the coffee sector under the Coffee Act 2001 is the freedom of the local cooperative institution to establish and dissolve themselves. Prior to the Coffee Act 2001, small scale farmers must seek the permission of the Ministry of Cooperative before forming a cooperative. This change is crucial because, it now gives small scale coffee farmers within a geographical region to group together and form themselves into a cooperative thereby allowing them to pool and share resources together without belonging to a larger cooperative. The aim of giving the small scale farmers the independence to break- away from the bigger cooperation is to force the cooperation’s to be cost efficient, to be competitive and to increase their bargaining power in the liberalised coffee sector. The findings in this thesis show that this has not been achieved.
Although low coffee prices and drought are partly to be blamed, the findings in this thesis show that the deteriorating quality of governance in the coffee sector institutions and the lack of government determination to reform the sector are the two main reasons for the failure in reviving the optimism and production of the coffee sector.
Some of the other challenges are identified and discussed in the chapter on findings and analysis. This is done using the methods and methodology presented in chapter three of the thesis.
When assessing the IMF PRSP paper for the coffee sector, the improvement in the institutions of the coffee sector has not been achieved based on the examination of the qualitative data. Additionally the objective of increasing the smallholder farm-gate price has also not been achieved according to the quantitative data analysed and presented in the findings chapter.
Although the trend in the ratio of farm to world price appears to be rising from its lowest point in 1992 but by 1999 the trend has reversed and was on declining path. The full implementation of the coffee reforms in 2002, failed to arrest this decline. In fact the ratio fell from almost 100 cents per-pound in 2002 to just above 0.60 cents per-pound of coffee. This is a fall of almost 40 percent in the ratio of farm to world price experienced by the Kenyan farmers in a single year (2002 to 2003).
The fall in the ratio of the farm to world price follows the fall in the coffee prices received by coffee growers in Kenya and other coffee producing countries. However in the case of Kenya, this is made worse by the poorly executed IMF and GOK liberalisation programme on the coffee sector. This is substantiated and discussed in detail in the findings and analysis chapters using qualitative and quantitative data.
So what are the main changes to have impacted the coffee sector in Kenya? The summary of findings from the qualitative and quantitative analysis shows that small scale producers have been losing their position as premium coffee producers since the full implementation of the IMF and the GOK led reforms. This is manifested by: the increasing subdivision of smallholder coffee cooperatives which has led to a steady increase in the cost of coffee processing; the widening disparity between small and large coffee estates in achieving efficiency; the pervasive problems in transaction between marketing agents and smallholders; the over-concentration of traders among the few foreign subsidiaries that drives out local traders, which is crucial for re-investment in the domestic coffee sector; the lack of domestic consumption of coffee in the local market which impedes growth and; a lack of clear strategy in the sector for innovation and marketing as a single origin product.
The quantitative findings show that: there is a very high correlation between domestic coffee grower’s price and world price, however the co-relation shows that smallholder and estate production moves in the opposite direction to the ratio of domestic to world coffee price. This is explained by the quantity of supply of coffee to the world market, as the total supply of world coffee rises, we expect the prices to be depressed as demand remains unchanged in the short- run. Given that smallholders produce more coffee than the estate farmers, the former will depend more on the structure of the cooperatives to process and sell their coffee than the latter. Hence the problems within the cooperatives will have a major impact on the majority of coffee producers in Kenya.
7.3 Conclusion
The findings and analysis in this thesis show that although the IMF liberalisation was well intended in fixing the economic problems faced by Kenya, the same level of determination and aspiration were not shared by the GOK consistently over the period of implementation. As a result of this the coffee sector failed to appreciate and seize the opportunities presented in the liberal market economy. The coffee growers especially the small scale farmers saw the process of liberalisation as an opportunity to increase their bargaining power at a higher cost and lower output, therefore the newly derived bargaining power within the free market has not delivered significant positive impact on the small scale producers.
It can be concluded from the analysis of the qualitative and quantitative data that what matters is not whether it is the market or state oriented policies that are used to respond to the problem of underdevelopment but rather It is the extent of the quality of governance within the institutions of government, business chambers, trade union, judiciary, the press, commodities and utilities board, etc which supports the implementation of the state policies that makes a crucial difference in reforming and improving the performance of the respective sectors and the economy in general.
The contribution in this thesis has demonstrated that the implementation of a liberal market agenda as a carte-blanche response to the problem of underdevelopment has not helped to remove the various impediments to the problem of economic development. This is because in most developing countries the issues of governance and institutions still largely remain unaddressed. It can be concluded from the literature review that most developing countries had opted for the market oriented response without giving extensive consideration to the necessary initial conditions prior to implementing the market style liberalisation programme. In the case of Kenya the programme of liberalisation was undertaken without taking into account the extent of the deep seated political and rent seeking problems within the institutions prior to implementing the reforms. It can be claimed that for liberalisation to be successful, institutions should be in a position to prioritise the finances, absorb the ideas and translate the terms of liberalisation into concrete programmes of action. This thesis has demonstrated that good quality of governance and credible set of institutions might hold the key to freeing developing countries from the bane of underdevelopment.