The Capital Markets Authority (CMA) is yet to have the Direct Settlement System (DSS) up and running as envisaged to weed out cartels in the sector potentially exposing farmers to diminished earnings, a situation which prompted tighter regulation of trading in the first place.
The DSS was mooted to guarantee speedy and transparent payment of proceeds from sales to farmers and was heralded as the cure to a recurring problem once the regulation of the coffee sector was taken away from the Agriculture and Food Authority’s Coffee Directorate and domiciled under the CMA.
In a statement to newsrooms on Monday, CMA Acting Chief Executive Wycliffe Shamiah directed the existing payment mechanisms be utilized in the interim period as the DSS is being put in place.
“Details of direct coffee sales will be reported to the Nairobi Coffee Exchange; all disputes that may arise in relation to coffee sales should be forwarded to the Authority to ensure follow up and resolution for the benefit of the coffee growers; and an industry committee be constituted to address any gaps that exist and those that may emerge during the transition period,” said Shamiah.
“The Nairobi Coffee Exchange is granted permission to operate as it works towards full compliance with the Regulations; all the applicants intending to offer coffee brokerage services are allowed to continue performing the role once they apply and as they work towards full compliance,” added Shamiah.
The Capital Markets (Coffee Exchange) Regulations 2020 gazetted on April 3 give CMA the mandate to regulate all coffee functions including the incorporation of the coffee exchange, licensing of brokers, establishment, and operationalization of a direct settlement system for expedited and transparent payment of coffee sales proceeds.
The regulations also give CMA the mandate of conducting of trading in a secure, stable and transparent manner in an environment of fair competition; and protection of the interests of the grower, the buyer and other stakeholders at an exchange.
In February, The Coffee Exchange Regulations were harmonized with the Capital Markets (Commodity Markets) Regulations, 2020.
By mandating CMA to oversee the coffee sector, Treasury wanted proceeds of the sale of coffee at the auction 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,” Treasury Cabinet Secretary Ukur Yatani said in the draft Coffee Exchange Regulations, 2020.
Under the DSS framework, 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.