Inside Politics

AG faults price discovery at Mombasa tea auction

Tuesday, April 27th, 2021 12:00 |
Tea farming. Photo/Courtesy

Mombasa Tea Auction is characterised by poor price discovery mechanisms, investigations conducted by the office of the Attorney General have revealed. 

The investigations by the AG further revealed that the poor price discovery mechanisms follows incidences of deliberate withdrawal of tea at the auction commodity known as out-lots and subsequent sale outside the tea auction at lower prices.

And sharing of lots by buyers where they collude to place bids for each other instead of competing at the tea auction.

Price discovery is a process which determines market prices, mostly through interactions between buyers and sellers.

The method is often referred to as a price discovery process or price discovery mechanism.

Agriculture Cabinet Secretary Peter Munya shared the findings of the AG investigations in a statement released to the media.

The scrutiny and investigations was conducted by the office of the AG under section 800 of the Companies Act following concerns expressed in the President Uhuru Kenyatta Executive Order No.3 of 2021.

The order observed that setting of tea prices in Kenya remains an opaque and exclusionary process that is sharply dissimilar from the process in other comparative jurisdictions.  

The AG had been directed to conduct an inquiry into the alleged statutory and regulatory compliance breaches allegedly committed by Kenya tea development agency (KTDA) and its directors.

“The breaches include potential price and auction manipulation, abuse of dominance, insider trading, wastefulness and breach of directors’ fiduciary duties and all other alleged malfeasances by or within KTDA,” said Munya.  

Price manipulation occasioned by collusion between buyers, brokers and producers AG observed has caused price stagnation and decline for the last ten years.

For example, whereas the average price of tea at Mombasa tea auction for Kenyan tea declined to an average of $2.20 (Sh237.82) per Kg in 2019 from $3.19 (Sh344.84) in 2017, that of Rwanda-a CTC tea producer just like Kenya, have been oscillating above $2.70 (Sh292.68) and that at Kolkata tea auction in India, which sells relatively lower quality tea, has remained above $2.40 (Sh260.16). 

This is largely due to lack of a transparent price discovery mechanism at the auction for Kenyan tea,” Munya added.  

Last year, Munya in a raft of regulations, outlawed direct sales of tea which suck up about 30 per cent of all tea produced, citing grand corruption by value chain players involved.

The new Tea Act, 2020 has capped fees paid to a tea broker to not more than 0.75 per cent of gross sales.  

The auction has 14 registered brokers, 93 buyers, 12 packers, 90 producers and 27 warehouses. Pakistan is the leading buyer of Kenyan tea at between 36 per cent and 40 percent annually. 

Meanwhile, Kenya Tea Development Agency (KTDA) chairman Peter Kanyago has been replaced as a director of Chinga Tea Factory in Othaya in polls held as ordered by Agricuture  CS Peter Munya.Mark Mwangi was elected as Director of Mumbuini West area during the polls held at Gichiche grounds attended by huge crowd of farmers.

However, Kanyago did not participate in the polls since KTDA had obtained orders barring the poll.Additional reporting by Seth Mwaniki

More on Inside Politics