Bitter cup of tea for farmers as they stare at lower bonus

Thursday, September 12th, 2019 00:00 |
Tea farming. Photo/Courtesy

Small-scale tea farmers are staring at reduced bonus compared to the one received last year, amid 21 per cent drop in prices at the Mombasa auction.

Factory directors from the 69 Kenya Tea Development Agency (KTDA)-managed factories have begun meetings to review and approve the factories’ annual accounts for the 2018-19 production year ending June 30, ahead of the declaration of the second and final payment to farmers. 

The meetings to determine the second payments started on September 9 and run to September 26, and will be followed by a formal declaration of the second payments once the process is complete.

Financial year

Farmers took home Sh62 billion in payments for their deliveries in the 2017/2018 financial year, translating to Sh65.10 per kg which players say is likely to drop due to the low prices.

The likely drop in final payment follows severe decrease of CTC (crush-tear-curl) tea prices at the Mombasa Tea Auction from an average of $2.71 (Sh280.9) in 2017/2018 financial year to $2.14 (Sh221.80) in 2018-2019, accounting for 21 per cent decrease. 

A statement issued by KTDA yesterday said prices at the Mombasa Tea Auction have been low just like in other key global tea auction centres such as Colombo Tea Auction in Sri Lanka.

The drop in prices is therefore likely to impact heavily on the final payment (bonus) to the small-scale tea farmers.

Anthony Muriithi, the Interim Director General of Agriculture Food Authority (AFA) said the country experienced sustained rainfall last year thus contributing to high volumes of tea. 

“In addition to global markets dynamics, farmers are still grappling with the effect of the high output prices,” he said on phone yesterday.

The global market is currently grappling with high supply of tea from producing countries, leading to low prices in all varieties.

Colombo prices for orthodox teas have declined by 22 per cent from $3.99 (Sh413.60) to $3.26 (Sh337.90). Prices for Kolkata CTC teas have declined from $ 2.46 (Sh2.46) to $2.17 (Sh224.95), a drop of about 12 per cent.

Small-scale tea farmers in 2012 produced 350 million kilos, 432 million kilos in 2013, 445 million kilos in 2014 and 399 million kilos in 2015. 

The production was 473 million kilos in 2016, 439 million kilos in 2017 and 492 million kilos in 2018. Various export destinations of Kenyan tea have experienced challenges in the recent past.

For example, Pakistan that imports 35 per cent of Kenya tea has suffered high inflation and depreciation of up to 50 per cent of the Pakistani rupee has greatly impacting prices.

Other key export destinations such as Egypt have also witnessed high inflation and currency devaluations, making import of tea expensive.

Sudan, which is another key market has lately faced political upheavals, coupled with the loss of oil revenue to South Sudan. 

United Kingdom, a long standing export destination for Kenya has seen its consumption decline over time while its currency has sharply depreciated in the face of uncertainty over Brexit. 

Tea exports to Iran have also recently been affected by increased US sanctions on Iran. A number of quoted tea companies have issued profit warnings or registered losses during the year under review.  

Main markets

To mitigate against market concentration risk on black teas and overreliance on the four main markets which account for 70 per cent of tea exports, KTDA-managed factories have embarked on production of orthodox teas that are gaining global popularity and fetching better prices.  

Eleven KTDA-managed factories are currently producing orthodox teas. In the 2018-19 financial year, the factories produced about 2.2 million kilos of black orthodox tea.

More on Economy and Policy