Kenya is the world’s largest exporter of black CTC (cut, tear, curl) tea but produces relatively little of the more expensive and difficult-to-process orthodox whole and broken leaf teas favored by Russia and the Commonwealth of Independent States (CIS), collectively the world’s largest tea importers.
Last week, the chairman of the Kenya Tea Development Agency announced a US$963,000 (Sh100 million) investment in equipment to produce orthodox tea for export to Iran and Russia and the CIS. Kenya tea exports generated a record $1.2 billion (Sh125.25 billion) in 2015 but fell last year. The government projects exports will earn $1.28 billion (Sh133 billion) in 2017 on lower volume due to higher prices for improved quality tea.
“We have ordered the machines and by the end of this year, we are supposed to start manufacturing. We want to ensure that one-third of the tea produced around the country will be orthodox tea,” KTDA chairman Peter Kanyago told farmers at a gathering covered by The Star.
Iran tips the balance
Kenya sees an opportunity to expand its capacity to produce orthodox tea to meet Iran’s pent-up demand.
The imposition of United Nations sanctions against Iran a decade ago effectively eliminated trade with traditional suppliers such as Kenya. Iran has a huge thirst for tea. The country produces small quantities of tea (5%) for its domestic market, importing 95% of its tea. An estimated 55% of all the tea consumed there is smuggled.
India retains the upper hand in delivering CTC, but most Iranians prefer loose leaf. India defied the UN ban and continued to trade tea, establishing a closed rupee-based banking system that shut out competitors. As a result, India, Sri Lanka, and China now provide 90% of the legally imported tea consumed in Iran. Iran favored the workaround because it discouraged smuggling, but it also discouraged multinational tea companies from participating and it rarely involved high-value orthodox tea.
While Kenya ships tea to Russia, it is virtually all CTC, which competes with CTC from India and Sri Lanka, both global producers that economically export large quantities of tea to Russia and the CIS and Pakistan. In general, Kenya’s CTC sells for much less than its competitors.
Right now, Kenya is experiencing a serious drought that has curbed tea production by 30%. Dry weather drove tea prices higher by 10% to $2.85 per kilo last week, compared to the same period last year. Production is projected to decline by 12% in 2017. Earnings declined to $1.15 billion (Sh120 billion) in 2016, according to the Agriculture and Food Authority (AFA).