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Coffee farmers up in arms over VAT on inputs

Coffee production will continue to dwindle if the government does not remove 16 per cent Value Added Tax (VAT) on agricultural pest control products, farmers say.

Speaking at Ruiru Coffee Research Foundation during a stakeholders’ exhibition organised by Cabrio, a pesticides selling company, farmers lamented that increased VAT will ultimately mean an increase in cost of pesticides which will translate to an increased cost of production and thereby low returns for their produce.

The tax increment through tax law (Amendment) Act 2018, of Agricultural Pest Control Products, was imposed by the government in July last year, a move that farmers feel will continue hurting their farming business. “At least 40 out of 100 per cent losses that coffee growers suffer is as a result of pests and diseases and if interventions through pesticides are not done, the industry will continue to suffer,” farmers said.

Previously, the pest control products were zero-rated but in July last year, President Uhuru Kenyatta assented to the tax law amendment that introduced a 16 per cent VAT.  Agrochemicals Association of Kenya CEO Evelyn Lusenaka said she expected an increase in counterfeit pesticides in a market where 18 per cent of all counterfeits in the country are pesticides.

The farmers said the use of pesticides is necessary for the improvement of agricultural production thereby supporting one of President Uhuru Kenyatta’s Big Four agenda (food security) and supporting a value chain of players involved in the production.  The farmers implored the government to protect them as well as coffee consumers, whom they said, will also continue to suffer from the tax increments.

Led by John Munene Gitari, a Kirinyaga farmer, the farmers lamented spending over Sh50 in production of a kilogramme of coffee berries, which according to them is far too high to make any profit. “There is a rapid increase in diseases and pests affecting coffee growth. Given the 16 per cent VAT on pesticides, smallholder farmers are incurring huge losses. We have to sustain our crops by instilling so much yet we are getting no returns,” said Gitari.

Joseph Karanja, a farmer lamented that Central Kenya region is the most affected.  He said coffee farmers are uprooting the crop and instead shifted to other land uses such as construction of highrise buildings. “Uprooting coffee will continue if the government does not intervene to end the VAT standoff. The same government, which has been encouraging us to embrace agricultural activities to sustain and increase our food security has turned against us by introducing this VAT thing that is hurting us most,” said Karanja.

Tired of corruption in the coffee cooperatives movement, high input costs and poor global prices, many farmers have abandoned the crop. Karanja said higher returns from the real estate industry has also led to  a rise in land values which lures farmers away from coffee growing.

Statistics compiled by the Coffee Directorate indicate that production of the commodity in Kenya has reduced from 140,000 tonnes annually in the 1980s to about 40, 000 tonnes in 2017.    

James Ngunjiri, from Bio Medica, a pesticides supplier based in Nairobi, said his company has been forced  to extend augmented prices to end users. “Coffee farming is a strenuous production process and farmers are making poor returns,” he said.

However, according to Eliud Magu Mutitu, a pesticide specialist at BASF Company, all is not lost for the farmer who has commercialised the agribusiness. He said profit-oriented farming will increase economies of scale, reducing the extra costs that a farmer has to bear.

“Commercialisation of coffee farming will help us develop a margin that will sustain the farmer. We have seen so many large-scale farmers doing very well and there is hope for coffee farming,” he said.

The event brought together coffee industry stakeholders including growers, millers, roasters, crop protection companies, exporters, marketers, farm inputs and equipment suppliers. 

Kiambu deputy governor James Nyoro, who was the chief guest, urged the government to effect a report given by Coffee Sub-sector Implementation Committee. The report indicated that Sh7.2 billion is needed to revive the coffee industry and that provision of adequate finance is crucial to boost production and reduce poverty among farmers.

Although coffee was once a higher foreign exchange earner for Kenya, the sector continues to face grave challenges raising serious concerns about the risk of the country losing its position in the global market.

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