Tetu Inc. stirs controversy

Since the coffee industry reforms appeared to stall in 2001, focus on the industry has been rather muted. But in August, an admittedly little-known coffee marketer hell-bent on circumventing the system stormed into the scene, literary.

Tetu Inc, based in the US and bearing the name of the area in Nyeri, Central Kenya, where the best premium coffee world over is grown, seemed to suggest that it had the panacea for the industry that lost its luster well into the mid 1980s.
Its proposals have been sweet music to the farmer whose only reason for not uprooting the perennially loss-making crop has been hope.

The powerful trader and roaster, both locally and internationally, who are the only current beneficiaries of coffee have been seething, with all manner of propaganda hurled at the media to stop the plan on its tracks.

Coming only a few years after British charity, Oxfam, indicted roasters for making billions at the expense of the farmer, their self-righteous outrage has been quite unpopular in the grassroots.

The proposals at a glimpse first. Tetu wants to avoid the traditional auction system through the Nairobi Coffee Exchange [NCE] and buy directly from the co-operative society- basically centered around a factory called a pulping station, where red cherry is converted into parchment.

Whereas that is well within the half-implemented Coffee Act 2001, it would entail dismantling the NCE, which has been condemned by some as a centre for cartelbehaviour, yet hailed as the most viable option of selling clean coffee by others.
It would be direct competition to dealers and buyers who would be forced to raise their prices. This is because Tetu wants a contract with farmers that bind them to selling coffee to them for at least five years of the pilot programme.

With a guarantee for buying cherry at Sh50 ($0.70) a kilo, farmers who have been getting as little as a fiftieth of this through their corrupt co-operative system have been most welcoming.

Their argument is that if Tetu can guarantee instant payment of the initial Sh10 (an eighth of a dollar) for cherry as they are claiming, the farmer can easily do without the so-called support infrastructure, which usually puts him in hock over input supply from the current marketing and production system.

The firm, whose directors come from Nyeri, is asking for contracts with farmers that would guarantee them 30,000 tonnes of the farmer’s crop. This is just under
half what is expected to be produced this year and has been interpreted by opponents as constituting a monopoly similar to that one of regulator Coffee Board of Kenya, dismantled with cap 333 that regulated the industry before the new Coffee Act.

Their strategy is that they can avoid the auction and ship the clean coffee to US roasters, with whom they already claim to have reached agreement. The logic is that European traders by playing middleman in the industry cream off all the profits.

Other proposals by the firm are equally alluring. One is that pyrethrum be used to spray coffee and thus make Kenyan coffee organic and resulting in another $1billion income for the country.

Then they want the current grading system—where grades are determined according to the size of green coffee (clean) - bean scrapped. What critics have got wrong though is the fact that they want to sell Kenya coffee as brand—they have clearly said they want to brand their commodity according to the geographical region.

This is one point even opposed traders have been pushing for. Kenya coffee is usually used to blend inferior coffees but it is only the roaster who ends up benefiting from this.

Critics have quickly seized on the estimates that Tetu is making on the economic benefits of the scheme. Sh400 billion ($5 billion) income, up from Sh15 billion currently has been hyped. So have the one million jobs the firm reports can be created.

At present, the industry is largely controlled by an inefficient Kenya Planters’ Co-operative Union. Though the first to cry foul of monopoly, even as it controls 70 per cent of milling, it has been granted a marketing, auction, warehousing and export licenses. Tetu Inc will take all except milling and warehousing from them if they succeed.

KPCU is supported by Co-operatives and marketing minister Njeru Ndwiga who despite not legally being allowed to dabble in coffee has done so owing to the preponderance of co-operative producers—about 70 per cent of the total.
Agriculture minister Kipruto Kirwa in whose docket coffee is has been rather mute perhaps due to political factors. Now Mr Ndwiga appears to be losing the political side of the show.

Who is Tetu? The firm’s directors include Alex Mureithi, a relative of President Kibaki and a number of other unknown entities led by their president, an ex-air force man Job Kareithi.

Little as is known about them and their claimed activities in the Houston coffee district in the US.

But with exalted claims of bank guarantees including from the Exim Bank in the US and local banking institutions—and the support of Coffee Board—farmers are ready to give them a chance. Incidentally, the government officials have closely followed the developments and appear sold on the idea.

Whether their grandiose plans are workable is one thing. That coffee prices at the auction are already rising as the scent of competition pervades the air though shows that an exploitative industry has been jolted by the entry of Tetu on the scene.

It now remains to be seen whether they will manage to implement their scheme despite a loud din by the potential losers who are well connected internationally.