A $1.5 million upgrade announced by the East African Tea Trade Association (EATTA) will for the first time automate the world’s highest volume tea auction.
Mombasa is a critical hub for black tea as it aggregates the production of 10 African countries. Buyers are concentrated in five countries that purchase 75 percent of the tea. Traders in neck ties who address each other as “sir” currently employ an “out cry” method to place and close bids, an inefficient and exclusionary means of price discovery.
Last Tuesday, Gideon Mugo, ETTA vice-chairman said technicians are in the final stages of rolling out a prototype that will “wholly computerize the auction process.” ETTA, a non-government association of 190 traders founded in 1956, operates the auction. Work will be complete within the next few months, according to a report in The Standard.
Expanding bidding to include online buyers is expected to cushion farmers from reduced earnings as a result of surplus production. Auctions worldwide report lowered warehouse expense and greater transparency.
The decorum of the whitewashed auction house dates to 1903. Decorum and tradition are evident in the fact that switching to digital trading was first proposed in 2013.
The upgrade is none-too-soon as bidders during the past 10 days displayed panic behavior as prices fell to five-year lows. The cause is a drought expected to dramatically lower production levels in 2019 following the record harvest of 2018.
Kenya produced 493 million kilograms of tea in 2018, a 12 percent increase compared to 2017. Teas from Kenya, managed by the Kenya Tea Development Agency (KTDA), account for 57 percent of volume.
Prices fell to KSH208 ($2.08) per kilogram from $2.19 marking the lowest price recorded at the auction in the last five years. Volume rose by 1.3 million kilograms to reach an unusually high 10 million kilograms last week, according to Business Daily Africa.
Traders rushed to purchase more of the commodity in anticipation of a shortage in supplies as a result of the ongoing drought.
Rwanda and Tanzania
Rwanda and Tanzania also rely on the Mombasa auction to export virtually all the cut, tear, curl (CTC) black tea produced in their countries.
In the current market Rwandan tea is outperforming Kenyan tea. The Tea Directorate there reports Rwandan tea on average fetched Rwf2,521 ($2.85) per kilogram against Kenya’s Sh230 ($2.30) last year.
Brokers withdrew 22 percent of the tea on offer when it became clear buyers would not meet price expectations.
While the auction in Colombo accounts for a larger transaction value, the International Trade Center reports that 55 per cent of tea sold in the world passes through the Mombasa auction.