All is Not Well in Co-Operatives Sector [opinion]

Oct 22, 2009 (Business Daily/All Africa Global Media via COMTEX) -- KNYCF | Quote | Chart | News | PowerRating -- The giant Kenya Planters Co-operative Union (KPCU) has finally been placed under receivership.

Kenya Commercial Bank who are the debenture holders in respect of monies owed to them by KPCU appointed Deloitte & Touche as receivers and managers of the company.

Firstly, there is urgent need for the receiver managers or the government to communicate to the affected farmers in a simple language the meaning and implications of the receivership.

The notice of receivership placed in the print media may not suffice.

There are farmers whose coffee is still being held in the KPCU stores and a clear decision needs to be taken regarding the fate of such coffee and the affected farmers informed immediately.

Whereas Kenya Commercial Bank holds a letter of hypothecation of stocks over coffee held in KPCU stores as part of its security, the Coffee Act is clear that coffee held by a miller or marketing agent remains the property of the farmer until it is sold off and then the proceeds paid to the farmer.

The situation should be resolved in favour of the farmers who may not appreciate the legalities surrounding the rights of the bank with regard to such coffee stocks.

Equally important is the fate of farmers whose coffee had been sold by KPCU, but the proceeds had not been remitted to the farmers.

There are indications that very substantial amounts are owed to farmers.

The legal position is that the affected farmers are unsecured creditors and rank second to the bank in the application of whatever funds are available from KPCU.

This will no doubt be the biggest question to the farmers who cannot understand the legalities of the receivership and why they have to be hapless victims of a company that appeared quite normal on the surface in its operations.

This blow to coffee farmers will pour cold water on the often trumpeted call for farmers to revive coffee farming across the country.

How did KPCU deteriorate from being a profitable company to a pale shadow of itself and now a weak institution on its deathbed?

The company's side of the story is that it has been unable to cope with the liberalisation in the coffee sector as well as stiff competition from well financed multinationals.

It has also been said that many farmers owe the company monies whose recoverability was complicated when such farmers switched loyalty to other marketing agents, thus scuttling the repayment of their debts.

The reality, however, from the available documentation and audits show that KPCU's fate has been precipitated by many years of outright gross mismanagement and abuse of office by directors and management as well as un-prioritised capital expenditures financed by heavy borrowing from the bank.

Not only did the company pay mere lip service to good corporate governance, there was no clear strategic plan regarding the organisation's future particularly in view of the stiff competition mounted by new entrants into the milling and marketing business.

It has been said, and with good reason, that receivers in Kenya have been known to bequeath the last 'kiss of death' to businesses as opposed to the reality contemplated by the law where the receiver managers should nurse the business back to health and liquidate the debts owed to the appointing creditor.

KPCU may not be different.

It is highly improbable that coffee farmers would deliver their coffee to a company under receivership, and where there are so many suitors courting them for the same business.

It is instructive that KPCU's market share had already fallen below 10 per cent before the receivership, indicating low confidence levels with the farmers.

The options available to the receivers would be the sale of the company's assets as well as collection of some of the huge debts owed to KPCU by farmers.

The receivers could also run a profitable milling business for the other marketing agents in the coffee industry since KPCU has excellent milling and warehousing facilities.

This would be a double win since the mills would be preserved and the receivers will not face the uphill task of wooing farmers to the KPCU mills.

It must be remembered that the Sh3.5 billion asset empire that is KPCU today was built by millions of coffee farmers across the nation contributing cents and few shillings over the years.

The farmers wanted facilities that could serve them at subsidised costs due to economies of scale.

The Wakulima and Ghala houses on Haile Sellasie Avenue have for years embodied the resilient spirit of the coffee farmer in Kenya.

For directors and management to recklessly mortgage away such assets simply because they are recognised by the law as the office holders for a given period of time is not only betrayal of the farmers' vision, but unforgivable impunity.

The fall of KPCU confirms that all is not well with the governance structures in primary, tertiary and national co-operatives.

The Ministry of Co-operatives Development must do what is needful to arrest the situation before more farmers' resources and assets slide down the drain.

The writer is the executive director of the Kenya Agribusiness Policy Centre and a former CEO of KPCU.

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