President Uhuru Kenyatta, acknowledging the worst financial return for tea growers in a decade, has called for significant reform of the Kenya Tea Development Agency (KTDA). To achieve his goal of shortening the supply chain, Kenyatta is enlisting the support of Mombasa tea brokers in a national rescue plan to stabilize prices.
KTDA processes and markets 60% of Kenya’s tea on behalf of 650,000 smallholders. One in 10 Kenyans depends on the tea industry, which generates more than $1.4 billion in foreign exchange dollars. Most tea is sold at auction in Mombasa, but tea sold direct brings the best prices.
Citing evidence that significant earnings are diverted from farmers by profiteering middlemen, Kenyatta ordered the Ministry of Agriculture, the Attorney General, and the Competition Authority to prevent brokers from selling tea.
“Empirical evidence abounds; as a result of poor corporate governance, farmers who would be earning about Sh91 ($0.91) per kilogram for their tea, are currently earning about Sh41 ($0.41) with Sh50 ($0.50) going to brokers and middlemen,” Kenyatta said.
He called on law enforcement officials to break agricultural cartels in maize and tea “that have become leeches sucking away the blood and sweat of hardworking Kenyans and confront them with every instrument available.”
The newly imposed “Tea Regulations 2019” pricing policy requires KTDA to pay farmers no less than 50% of their deliveries in monthly payments. The balance is due at year-end as an annual bonus.
Only registered tea growers will be permitted to sell green leaf, according to the new rules. To better manage prices at auction, limits will be imposed on volumes traded. No more than (a recommended 20%) of tea on offer can be sold direct each week, ensuring that 80% is auctioned.
The East African Tea Trade Association (ETTA) managing director Edward Mudibo, representing brokers, welcomed “positive” reform but cautioned that “controlling volumes could be counterproductive, considering that every trader expects to sell all tea brought to market.”
Kenyetta counters that controlling supply will guarantee better pay for farmers. Low returns are a result of market saturation, he said.
During his State of the Nation address, Kenyatta said it was “clear the governance of KTDA and entire marketing of tea will require to be restructured if we are to assure our tea farmers get more revenue from their tea sales.” He appointed Trade Minister Peter Munya Cabinet Secretary for Agriculture to carry out his mandate. Munya replaces Mwangi Kiunjuri, who was axed from the cabinet.
A new Kenya Tea Council will set limits on how much tea can be marketed directly. Tea lobby chairperson Irungu Nyakera called for the establishment of the Green Leaf Pricing Formula Committee and a competent Kenya Tea Council in two weeks, according to reports in the Daily Nation.
“These directives by President Kenyatta will help rescue the sector and put it back to its place as a leading source of foreign exchange and major employer in Kenya,” said Nyakera.
Kenya is the world’s largest exporter of black tea, a top foreign exchange earner. A 25% dip in earnings brought only $463 million (Sh46.5 billion) to farmers during the 2018-19 harvest compared to $617 million (Sh62 billion) in 2017-18. The annual tea bonus declined by 36%.
In 2000 the Kenya Tea Board launched a range of specialty tea, but only 11 of Kenya’s 69 KTDA tea factories currently produce loose leaf tea. Orthodox production opens doors to markets where whole leaf, bespoke teas, and custom infusions are rewarded with higher prices, said Grace Mogambi, KTDA’s manager of specialty products. But instead of mass-producing CTC, Kenyan must consider the destination market before export.
“Russians like whole leaves, Germans prize tips, Saudis demand jet black and Sri Lankans dislike stalks,” explained Mogambi. Consumers in these markets feel that if they are spending more money on a cup of tea, they prefer given characteristics to be present.
Kenya exports about 95% of the tea grown, but buyers are few. Its primary trading partners include Pakistan, Egypt, the UK, and Iran. Together these countries import 70% of the annual harvest. All but the UK are growth markets, but Egypt experienced several years of political turmoil, Iran has failed to make timely payments and conflicts in nearby Yemen and Sudan have limited sales. Production soared in 2018 to a record 493 million kilograms, which convinced large numbers of growers to expand their gardens. In response, 2019 prices at auction fell by 21%.