Kenya grows some superb teas that lose identity as the crop moves through bush-to-cup logistics and ends up as a commodity ingredient in a tea bag blend. The value chain is marked by many disconnects: conflicting interests, resource gaps, climate volatility, financial structures and global market factors. Much of Kenya’s tea policy and negotiation are made in the courtroom.
Kenyan growers are creating more and more innovations even as they face increasing challenges. For the retailer and consumer, the irony is that there are superb bargains and first-rate teas that are little known and distributed. The world’s largest exporter is among its least branded. Surveys across countries uniformly show low consumer awareness of Kenyan tea in general.
The smallholder-multinational disconnect
Perhaps the biggest disconnect is between the two components of the industry: “G” and “D” in the names of the two largest players in the market: the multinationals and large plantation owners that are members of KTGA – Kenya Tea Growers Association – and KTDA – The Kenya Tea Development Agency, that is mainly comprised of 560,000 smallholder farmers and 65 tea factories.
Smallholders’ average yield is just over 2 metric tons per hectare versus 2.7 for the large plantations. The megaplayers are well-managed, more productive and with advantages of integrated logistics. But the smallholders make better tea and are moving into specialty tea. Small farmers produce 60 percent of the harvest but just six multinationals account for two-thirds of the sales on the Mombasa auction, the largest in the world and Kenya’s export gateway. G is higher yields, lower quality tea and vertical integration. D is mostly low yields, quality without supporting branding and fragmented distribution.
All the players are export-centered. A unique feature of Kenya among the top global producers and exporters is that it has almost no domestic market. Worldwide, 60 percent of tea is consumed in the country of production. In Kenya, the figure is around 5 percent. This locks it into being price-takers in the intensely tough commodity market. China and India, Kenya’s largest trading rivals, have a dynamic base for growth in targeting the key millennial segment, bringing new beverages such as cheese and bubble tea to market and opening up attractive retail locations.
Responding to erosion of traditional export markets
Around 60 percent of the tea shipped from Mombasa is black fannings, and 12 percent dust, the lowest grades and 12 percent is broken pekoe. These are all bulk commodity grades in an intensely competitive price-driven global market. Roughly ten nations purchase 75 percent of Kenya’s outputs. Leaders are Pakistan, which accounts for 40 percent of foreign earnings, Egypt and the UK. Growth in Pakistan is flat on long-term trends. Exports to Egypt fell 15 percent in 2017. Since 2012, UK growth has been down while that of Rwanda tea has increased 21 percent. A sustained initiative to expand into the large Iranian market was crippled by the U.S. President’s withdrawal from the nuclear treaty and imposition of sanctions beginning Aug. 4.
One of the main smallholder priorities is increasingly to escape the limits of commoditization and low price-low grade lock-in and break away into high margin premiumization.
Getting the tea to market is a set of disconnects. One of the most far-reaching – or far-blocking – is processing. There are not enough dedicated factory production lines to leverage purple tea, the emerging Orthodox China-style black teas, and some fine greens and oolongs. A factory may serve 3,000 farms. Efforts are underway to add capacity and technology in the right locations. The growers are more than ready to meet the government goal of 10 percent of output being specialty teas, versus today’s 1 percent or so. But… there is disconnect.
There’s a disconnect between producer and customer, too. Kenyan tea brands are entirely absent on the U.S. supermarket shelves, but Kenya tea blends are everywhere among the bag brands. The leading online sellers offer very, very few Kenyan estate teas. None of the prize-winning ones, that include Emrok and Milima, are more than sporadically listed. One of the very best estate’s online sites has no buyer capability, just a message: “Contact us for ordering.”
The innovation path
This summary is not exactly sunshine and celebration. It omits growing labor conflicts over the introduction of machines, the maze of 40+ tax levies and fees, and low wage levels. These all get “debated” in the law courts.
That said, the innovation path for Kenyan tea is recognized and becoming well-traveled. Wherever Kenyan specialty tea reaches buyers, it’s at a price premium. A late 2017 survey reported that some green and purple teas were selling for $15-300 a kilogram. Orthodox black teas are at a market premium of 20 percent or more.
The East Africa Tea Trade Association (EATTA) is Kenya’s primary base for expanding inter-continental trade. Kericho has received substantial loan financing to expand into Malawi. EATTA is encouraging the addition of a Mombasa specialty tea auction. Efforts to reach out to international sellers are active through trade delegations and collaborations with large distributors.
A unique asset of Kenya that is easy to overlook is its agricultural heritage. It was a relative late comer to tea growing, starting in the 1900s but reaching critical mass only in the 1950s. Tea slotted into the nation’s heritage and identity. Paris Inman, a Maryland-based entrepreneur who works closely with small farms in Kenya, notes that it is a country of skilled farmers and traders and that it retains its focus on agriculture. As China and India move more and more towards industrialization, in the process losing much of its skilled labor force’s experience and family ties, Kenya retains its artisan touch.
Barely livable wages, harsh conditions and frequent social injustice have made the tea fields and remote locations of Assam and other large producers less and less appealing for younger workers. Meanwhile, Kenya retains its key skills in hand plucking and leaf handling. Inman states that the quality of tea bought in small quantities at the factory gate is far superior to that in the large brands’ blends. Kenya has a strong research tradition, which produced the purple tea clone, along with more than 900 others between 2000 and 2010. Fifty of these created superior crops and 13 are recorded as providing some of the world’s highest yields.
It’s hard to test his assessment, though it is well-supported by experts and enthusiasts. Neither the smallholder or the mass market tea is easy to access. One indicator is that the multinationals buy substantial amounts of smallholder harvest to improve the quality of that from their own plantations.
Generally, good teas find customers at good prices. Nepal is an example of such premiumization in action. Kenya’s future may depend on removing the disconnects and building identity: Innovate or Die.