Kenya’s massive and methodical tea industry is under stress as forces of nature combine with human nature to reduce exports.
Precipitation during the country’s “long rains” season from March to May is well below the long-term average, leading forecasters to predict dry conditions that will result in food scarcity and water shortages. Meteorologists say that tropical cyclone Idai, a storm that killed thousands across East Africa, redirected moisture away from the region putting 1.1 million Kenyans in jeopardy.
Tea production is down by half since the beginning of the season. Last week plantations sent half their workers home on leave, assigning others to lower paying non-core duties. Kenya earns one-third of its revenue from agricultural exports led by tea and including coffee and flowers. Small holders responsible for 60 percent of Kenya’s tea have experienced a 17 percent price drop at auction. That is likely to change as Kenya now expects to harvest no more than 416 million kilograms of tea, down from a record 492 million kilograms harvested in 2018. At $1.93 per kilogram, prices last week were only $0.5 per kilogram above operating costs.
The only bright spot are tensions between Pakistan and India that virtually halted exports between the two sabre-rattling countries. Sales picked up after India refused to sell tea to Pakistan, the world’s second largest tea importing country. Pakistan imports 70 million kilograms of Kenyan tea annually and is now the biggest buyer of Kenyan teas, paying $500 million in 2018, according to The East African.
Sanctions disrupt trade
In 2016, when a previous round of sanctions was lifted, exports surged and profits rose for traders supplying CTC (cut, tear, curl) to Iran’s 80 million tea drinkers. Iran is the world’s fifth largest tea consumer at 88,000 metric tons. Tea exports steadily increased with India, Sri Lanka and Kenya earning $350 million in sales through November 2018 ― only to be halted once again.
Kenya’s share of the Iranian tea market amounted to $280 million in 2018. Last year Iran consumed almost 20 percent of Kenya’s $1.4 billion in exports. Rwanda, Tanzania, Uganda and Burundi also supply tea to Iran via the tea auction at Mombasa.
In February the Kenya Tea Development Agency (KTDA) announced that lower earnings for 2018/19 are due, in part, to sanctions that caused a severe economic downturn in Iran. Oil continued to flow during the past six months and tea continued to find its way to Iran but that may stop entirely next week following a U.S. decision to cancel waivers as of May 2. Turkey, India, Italy, Japan, South Korea, Taiwan and China, all of which held waivers, must now weigh the possibility of U.S. sanctions restricting their own trade if they do not stop buying petroleum products from Iran.
President Donald Trump has warned countries not to do business with Iran. Kenya appears to be heeding that warning as trade with Iran fell from $5.79 million to $3.49 million during the first three months of the year. India is also likely to curb exports, according to reports in the Hindu Business Line. Iran purchased 31 million kilograms of tea from India last year totaling $100 million.
Sanctions are broad, naming 50 Iranian banks and subsidiaries, more than 200 shipping vessels and the nation’s airline. Tea traders are scared to transact with Iran for fear of not getting paid. The European Union said it will not comply with U.S. sanctions, which could enable bankers to trade in euros instead of dollars. But dealing with Iran’s banks could also lead the U.S. to blacklist Kenyan banks, preventing the exchange of dollars which could prove catastrophic.