The performance of Kenya’s tea sector is mixed as the effects of good rains at the beginning of the year fueled increased production and exports but pulled down earnings for both the country and farmers—partly because of the oversupply.
The Kenyan government has identified four key development pillars to drive the country’s economic blueprint, known as Vision 2030. These include identifying new markets for its key exports such as tea. The commodity is still largely exported to Pakistan, the United Kingdom, the Netherlands, Afghanistan, Iran, Sudan, United Arab Emirates, Yemen and Egypt.
But more importantly, Kenya is pushing to grow domestic tea consumption through aggressive awareness campaigns on the health benefits of drinking the beverage. This resulted in local tea uptake increasing to 37.2 million kilograms in 2017, up from 27.4 million kilograms in 2016.
Kenya’s Tea Directorate targets production of 452 million kilograms of tea (mainly black) in 2018 and growth in value of exports to $1.35 billion during the same period.
However, these targets will largely depend on how growers respond to increasing concerns over low pay for their green leaf. Smallholder tea producers grow 60 percent of the country’s tea and they are becoming more productive – while receiving less pay.
The nearly 600,000 small scale tea producers are affiliated with 54 tea companies that form the Kenya Tea Development Agency (KTDA), which carries out services such as extension, transportation, processing, and marketing and manages 68 tea factories in the country.
Tea laborers nationwide complain of working longer hours for less. Kenya is the world’s largest exporter of black tea, earning Sh120 billion ($1.2 billion) on 480 million kilograms of tea auctioned in Mombasa. This is the second highest total in five years.
While total revenue has increased, the price per kilogram is down, according to KTDA Chairman Peter Kanyago. He told The Standard that annual bonus, based on factory performance, will likely be lower than in 2017.
“Even as we report that the revenues in the tea sector have increased, we must tell farmers that tea prices have been down since April and now in August the price is still very low,” he said at the time.
In October, growers anticipated receiving a bonus of Sh50 ($0.50) per kilogram but the rate will vary considerably from a low of Sh19 ($0.19) to Sh52 ($0.52). KTDA estimated it will be about Sh10 ($0.10) per kilogram below last year, on average.
Currently tea is processed in factories owned by KTDA, but country governments are considering allowing individual farmers to purchase and process tea. In Embu County, Governor Martin Wambora favors a county tea development board to sell tea manufactured at three factories located there.
KTDA is a private entity accused of exploiting farmers, but factory managers caution that licensing entities other than KTDA would cause confusion and lower the overall benefits enjoyed by growers. KTDA’s foundation supports education, health, and environmental programs.
Iran is the fifth largest importer of Kenya tea, spending $280 million for an estimated 20,000 metric tons in 2017, according to the Kenya Food and Agriculture Organization.
Kenya’s government buys much of its oil from Iran, a country sanctioned by the United States, which has threatened to extend penalties to those doing business with Iran. As a result, Kenya accelerated shipments to Iran from a low of 3,200 during the last period of sanctions (ending in 2016).
“The pain of stopping trade with Iran will be two-way as East African countries that export tea to Iran — which accounts 20 percent of their market — will have to seek alternative markets,” according to reports in The East African.
Tea is traded in U.S. dollars and sanctions; effective Nov. 5 prevent direct payment and money transfers. Rwanda, Tanzania, Uganda and Burundi also consider Iran key market for their tea. Iran is one of the world’s largest tea importers, consuming 88,000 metric tons of tea annually. The market is valued at $350 million.
Production and pricing
Kenya’s national green leaf production dropped in February to 28,000 metric tons down from 41,000 metric tons in January. Although the volumes rose to 31,000 metric tons in March and 45,000 metric tons in April, tea production began a steady decline in May and June when 43.4 metric tons and 43.3 metric tons were produced.
Despite the mixed performance in tea production volumes in the first six months of 2018, the fall in auction prices per kilogram was constant since February when the crop earned $2.98/kg. This price then commenced a downward slide in March, April, May and June at $2.81/kg, $2.67/kg, $2.61/kg and $2.55/kg respectively.
A similar trend was observed in the first four months of 2018 when the value of Kenya’s tea exports dropped from an all high of $148 million in January to $97 million in April. However, some recovery was made in May when value of the country’s tea exports rose to $116 million and $123 million in June.
Earnings from sales of Kenyan tea during the first tea auction in October this year is expected to be lower than the closing two sales in September because of the lower volumes available for auction.
“Even though 2018 started with a slow pace due to the dry weather experienced in the first two months of the year suppressing crop volumes, it is expected that we will see good improvement in crop yield with increased rainfall that started at the end of February,” said Dr. Richard Korir, chairman of Limuru Tea Plc, a subsidiary of Unilever Tea Kenya Ltd., in the company’s 2017 annual report released in the first quarter of this year.
He said, the company, which widened its pre-tax loss for 2017 to Sh31.6 million ($3.2 million) from the Sh26.7 million ($2.7 million) the previous year, is banking on the anticipated improved weather conditions in quarter two of 2018 and possible market stability and cost management to improve on its results by end of year. The performance of Limuru Tea Plc for 2017 and first half of 2018 is replicated across the tea plantation sector in Kenya where industrial action by employees agitating for higher pay led to decreased production volumes, hence pulling down the plantation producers’ turnover.
For example Korir says Limuru Tea Plc’s turnover dropped to $792,000 in 2017 down from $1 million in 2016 “as a result of the lower volumes produced in 2017 and employees’ industrial action.”
East African Tea Trade Association shows during Sale 40 scheduled for October 1 & 2, Kenya has offered for auction 6,166,098 kilograms of main grades and 436,282 kilograms of secondary grades.
The last auction in September in Mombasa brought $2.50/kg for primary and $1.26/kg, which is a drop from the $3.20/kg and $1.98/kg the tea earned at a similar auction in 2017.