Kenya is very dependent on foreign income earned from its position as the world’s largest exporter of black tea. As prices teeter and markets shift, the tea industry, which generates $1.3 billion or 4% of the nation’s Gross Domestic Product, has become the focus of political second-guessing and turmoil.
At the heart of the problem is excess supply.
Prices at the Mombasa Auction have fallen on huge surplus destined for export and there is no domestic market to take up the slack. Little is branded tea and only 5% of the nation’s tea is consumed by Kenyans.
Once-reliable markets in the Middle East remain upended, beginning with Egypt’s power struggles and Libya’s dissolution into chaos. Pakistan is the largest buyer of Kenya’s CTC (cut, tear, curl tea), a market now threatened as relations thaw between India and Pakistan. A resumption of trade between the two adjacent countries would seriously erode the millions spent by Pakistan. Tea exports are down 31%
Russia and its sister CIS countries are Kenya’s other key export market and that relationship is now threatened by sanctions and the uprising in the Ukraine, itself a major buyer. The remainder is shipped to Afghanistan and Sudan with output from the largest plantations destined for UAE and the United Kingdom.
In many ways the evolution of Kenya’s tea industry is a model for African and Asian countries seeking a profitable export crop grown and manufactured by small holders. Smallholders produce 60% of Kenya’s tea. The industry employs 65,000 workers of which 560,000 are managed by the Kenya Tea Development Agency (KTDA) an agency that operates 66 tea factories and assists financing; facilitates training in agricultural best practices and coordinates bulk purchase of fertilizer, pesticides and herbicides. KTDA’s marketing arm is developing branded tea for the domestic market where demand is building as incomes rise and the population learns of tea’s many health advantages.
In the past few years 48,000 smallholders have attended 1,600 outdoor Farm Field Schools to learn about irrigation and soil management and the best harvesting techniques. The Schools, operated by KTDA, are championed by the Ethical Tea Partnership and IDH The Sustainable Trade Initiative. Quality has improved to the point where some specialty grades have gained a reputation and unprecedented prices in direct sales to European and North American retailers. Yields have increased by as much as a third.
Normally that’s good news.
In this instance 84% of all the tea grown is auctioned in Mombasa. A kilo of tea that sold for $3.22 in October 2011 last week sold for $2.22.
“If you take January 2013 as the base period compared to the average for May 2014, then you will note that the four grades (namely BP1, DUST1, PD and PF1) have declined by 42%, 30%, 31% and 40% respectively,” according Edward Mudibo, managing director of the East African Tea Trade Association.
The auction operates on forces of demand and supply. When the volume of tea offered increases against a static demand the price will decline. In 2013 the tea offered for sale in the auction was 75 million kgs above the amount offered in 2012. This is a huge increase in volume and the effect is expected to be felt in the auction price of tea,” he explained.
Last week Kenya’s President Uhuru Kenyatta visited the Nandi last week, asking key agricultural agencies to concentrate on value addition to increase the price of local produce in the international markets, while discouraging age-old practice of merely auctioning tea at the Mombasa Port, according to a report in
The Standard.
“We want to begin seeing jobs being exported created here at home for our young men and women through value addition processes,” he urged. He also told the agencies to explore new international markets for the product instead of concentrating on the conventional traditional markets, according to the news accounts.
“The problem is we have done very well in increasing tea production over the years but have done little to explore new markets yet we have unexplored markets, including within the African continent and even China, even if they do not necessarily consume the kind of tea we produce,” said President Kenyatta.
During the spring harvest KTDA tried to discourage the flood of crops, urging growers not to bring excess tea to market. They were unsuccessful and in March KTDA failed to pay growers a scheduled mini-bonus. The payout was delayed and later postponed and ultimately would have not materialized had President Kenyatta not intervened. The payments, promised June 30, have still not arrived.
This month farmers were furious to discover KTDA’s directors on June 30 received a payout 19.2% greater than last year, earning a cumulative Sh98.78 million ($1.1 million), according to reports in
All Africa.
All Africa reported “Non-executive directors' emoluments increased by 35% to Sh42.57 million from Sh31.53 million, while executive directors' remuneration rose by 10% to Sh52.61 million from Sh47.73 million. An additional Sh3.6 million was paid out as "fees for services as a director."
KTDA’s employees, meanwhile, took a cut in pay and benefits.
Farmers received 8.7% less this year for green leaf at Sh45.65 (52-cents) per kilo compared to last year’s Sh50.01 (57-cents). Inventories are now three times the previous year which is likely to perpetuate the cycle.
The Standard reported KTDA’s response: “The fact is that KTDA’s reason for existence is the welfare of smallholder farmers and it is not possible that it can watch as their rights are being trampled upon without as much as making an attempt to intervene.”
KTDA was formerly known as the Kenya Tea Development Authority but changed into an agency in 2000 after a nudge under the World Bank's structural adjustment programs of the 90s to curtail high overhead costs through privatization.
Concerns have however arisen that the reforms have neither significantly improved the quality of governance at the agency nor improved farmers' livelihoods as intended, according to the
All Africa report.
Sources:
All Africa,
The Standard
Kenya is very dependent on foreign income earned from its position as the world’s largest exporter of black tea. As prices teeter and markets shift, the tea industry, which generates $1.3 billion or 4% of the nation’s Gross Domestic Product, has become the focus of political second-guessing and turmoil.
At the heart of the problem is excess supply.
Prices at the Mombasa Auction have fallen on huge surplus destined for export and there is no domestic market to take up the slack. Little is branded tea and only 5% of the nation’s tea is consumed by Kenyans.
Once-reliable markets in the Middle East remain upended, beginning with Egypt’s power struggles and Libya’s dissolution into chaos. Pakistan is the largest buyer of Kenya’s CTC (cut, tear, curl tea), a market now threatened as relations thaw between India and Pakistan. A resumption of trade between the two adjacent countries would seriously erode the millions spent by Pakistan. Tea exports are down 31%
Russia and its sister CIS countries are Kenya’s other key export market and that relationship is now threatened by sanctions and the uprising in the Ukraine, itself a major buyer. The remainder is shipped to Afghanistan and Sudan with output from the largest plantations destined for UAE and the United Kingdom.
In many ways the evolution of Kenya’s tea industry is a model for African and Asian countries seeking a profitable export crop grown and manufactured by small holders. Smallholders produce 60% of Kenya’s tea. The industry employs 65,000 workers of which 560,000 are managed by the Kenya Tea Development Agency (KTDA) an agency that operates 66 tea factories and assists financing; facilitates training in agricultural best practices and coordinates bulk purchase of fertilizer, pesticides and herbicides. KTDA’s marketing arm is developing branded tea for the domestic market where demand is building as incomes rise and the population learns of tea’s many health advantages.
In the past few years 48,000 smallholders have attended 1,600 outdoor Farm Field Schools to learn about irrigation and soil management and the best harvesting techniques. The Schools, operated by KTDA, are championed by the Ethical Tea Partnership and IDH The Sustainable Trade Initiative. Quality has improved to the point where some specialty grades have gained a reputation and unprecedented prices in direct sales to European and North American retailers. Yields have increased by as much as a third.
Normally that’s good news.
In this instance 84% of all the tea grown is auctioned in Mombasa. A kilo of tea that sold for $3.22 in October 2011 last week sold for $2.22.
“If you take January 2013 as the base period compared to the average for May 2014, then you will note that the four grades (namely BP1, DUST1, PD and PF1) have declined by 42%, 30%, 31% and 40% respectively,” according Edward Mudibo, managing director of the East African Tea Trade Association.
The auction operates on forces of demand and supply. When the volume of tea offered increases against a static demand the price will decline. In 2013 the tea offered for sale in the auction was 75 million kgs above the amount offered in 2012. This is a huge increase in volume and the effect is expected to be felt in the auction price of tea,” he explained.
Last week Kenya’s President Uhuru Kenyatta visited the Nandi last week, asking key agricultural agencies to concentrate on value addition to increase the price of local produce in the international markets, while discouraging age-old practice of merely auctioning tea at the Mombasa Port, according to a report in The Standard.
“We want to begin seeing jobs being exported created here at home for our young men and women through value addition processes,” he urged. He also told the agencies to explore new international markets for the product instead of concentrating on the conventional traditional markets, according to the news accounts.
“The problem is we have done very well in increasing tea production over the years but have done little to explore new markets yet we have unexplored markets, including within the African continent and even China, even if they do not necessarily consume the kind of tea we produce,” said President Kenyatta.