If there is anything that has put Kenya on the global map, then it is her teas. While the country has been forced to compete with Ethiopia and Uganda for crown coffee, South Africa and Tanzania for game safaris and Rwanda and Nigeria for ICT start-ups, it has easily overcome competition for its black tea.
During the year 2019, a total of 497 million kilograms of tea were exported, 23 million kilograms higher than the 474 million kilograms exported in 2018. During the period, the tea sector contributed Ksh117 billion exports and Ksh22 billion in local sales towards the country’s GDP. Kenyan tea competes with tourism, diaspora remittance and horticulture as the highest foreign exchange earner.
The sector also supports the livelihood of over five million Kenyans with approximately 70% of tea production in the country undertaken by small scale tea farmers.
However, the black gold has been on a free fall as global prices tumble, coupled with poor local management, a changing climate and corruption that has taken over the previous success. The situation has intensified with newcomers like Rwanda and Burundi managing to establish lucrative deals in Europe and North America as Kenya watches.
There have been fervent appeals by tea farmers and other stakeholders to the government to intervene and stabilise the dwindling fortunes of the tea sector. In some extreme cases, there have been instances where some farmers have uprooted tea bushes in protest thus compounding the threats to the tea sector both as a rewarding enterprise to the farmers but also as a significant foreign exchange earner to the country.
The lure of more stable income has led many farmers especially in rapidly urbanizing regions like Kiambu and Nyeri to uproot their crop and replace it with real estate.
The problem over time has been attributed to an archaic trading model, which has been operational for years as well as mismanagement within the Kenya Tea Development Agency (KTDA), the main manager and trader of Kenya’s teas.
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KTDA-run tea factories currently sell between 180,000 to 200,000 million kilograms of tea from over 600,000 smallholder tea growers annually. According to the ministry of agriculture, the challenges facing the tea sector and more particularly the tea farmers, can be categorized into three broad characteristics namely “a dysfunctional tea auction system; control and predatory behaviour of KTDA and its subsidiaries in the tea value chain; and low and unstable tea prices.”
In describing the Mombasa-based auction as dysfunctional, the movement feels most of the deals undertaken at the sale work to disadvantage tea farmers.
“The structural character of the tea auction in Mombasa in terms of management, governance and decision-making processes is that it is a club where all value chain players that have a direct commercial interest in the outcome of the auction process run the auction. This is a serious conflict of interest that predisposes the auction process to capture by vested interests, insider trading, price-fixing and other malpractices,” notes Kenya agricultural minister Peter Munya as he unveils measures to control the sector.
The East African Tea Trade Association is a voluntary organization bringing together tea producers, buyers (exporters), brokers, tea packers and warehouses, all working to promote the best interests of the tea trade in Africa.
The auctions are held weekly. Presently there are offerings from Kenya, Uganda, Tanzania, Rwanda, Burundi, Democratic Republic of Congo, Malawi, Madagascar, Mozambique, and Ethiopia. Producers from as far as New Guinea and Indonesia have expressed their wish to join the Association and have their teas offered in the Mombasa auction. Mombasa is now the only auction center in the world trading in straight-line teas from more than one country.
The ministry is keen to rein in on KTDA which it accuses of conducting its business in an overt manner leading to poor tea prices, non-payment of tea supplied by farmers and negotiating prices with international buyers whose prices are much below the trading amount at the auction.
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“KTDA that supply over 60% of the tea traded at the auction has consistently used its market power, dominance and influence to undermine the auction, curtail price discovery and exploit the vulnerabilities of smallholder tea growers,” noted the cabinet secretary.
This process is further catalyzed by a credit facility of between 30 to 120 days given by KTDA to buyers without any requirement to provide any guarantees for the teas bought. As a consequence, buyers interested in Kenyan tea do not have any commercial incentives to compete and push tea prices at the auction. According to the ministry, some end up not paying for tea bought from KTDA.
With a sale agreement between KTDA and small scale farmers meant to earn the agency 2.5% for every sale, farmers each year hand the agency between 1.6 to 2 billion shillings leaving farmers impoverished, the ministry notes.
Even with this amount, farmers have to live with partly monthly payments and an annual bonus whose formula is hardly understood.
To seal loopholes, the government has moved to repair a broken system by instituting measures both geared at raising the amount of money a tea farmer gets, as well as saving an industry that has been controlled by cartel-like operators.
The ministry of agriculture has ordered that all teas produced in Kenya for export shall be sold exclusively through the auction process hence outlawing the sale by private treaty commonly known as Direct Sales Overseas.
The ministry has also ordered all registered tea auction organizers to establish an electronic trading platform for tea auction with those organizers existing before the commencement of these regulations required to establish and migrate tea trading to an electronic trading platform by June 2020.
Equally, tea sellers have been ordered to submit to the Regulatory Authority (AFA) a performance bond in the form of a bank guarantee equivalent to 10% of the estimated value of the tea they intend to buy in order to underwrite commercial risks associated with buyers who fail to pay in full for the tea bids they win at the auction.
Other measures put in place by the ministry include reduction of the number of tea factories that a tea brokerage firm can consult to a maximum of 15 while the factories have been instructed to ensure farmers are paid within 30 days reducing long waiting hours that farmers normally undergo. Farmers will receive 50 percent of these payments and the remainder as a bonus at the end of the financial year.
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