It is going to be a sour season for tea farmers in East Africa, with low international prices dropping from a high of $2.98 per kilogramme in 2017 to a low of $1.76 per kilogramme in July.
At a media briefing to discuss global trend in tea prices, the state of the tea industry and the proposed Tea Bill in Kenya, the decline in international prices was blamed not only on overproduction amid depressed global demand but also currency devaluation and instability in key markets in Asia and Africa and international politics that have seen Iran slapped with more economic sanctions.
Egypt, a market that nearly collapsed due to the Arab spring, has been hit by high inflation that reached highs of 20 per cent in 2018 but is projected to drop to 14 per cent this year while the United Kingdom continues to be unpredictable in the wake of uncertainties associated with Brexit.
The high inflation rates in Sudan, which hit 70 per cent and the recent political developments is another major worry for Kenya while the reintroduction of United States-led sanctions to Iran is bound to have far reaching ramifications to the tea sector.
Global tea production in 2018 was estimated at 5.85 billion kilogrammes up from 5.81 billion kilogrammes in 2017, 0.68 per cent increase with Africa’s contribution standing at 717 million kilogrammes accounting for 12.2 per cent.
Total global exports were 1.8 billion kilogramme, with Africa contributing 654 million kilogramme accounting for 35 per cent.
However, global consumption posted a marginal 2.4 per cent increase to 5.6 billion kilogrammes compared with 5.4 billion kilogrammes in 2017.
In what is shaping out to be a bad year for farmers particularly in Kenya where production hit a record high of 492 million kilogrammes in 2018, earnings are expected to nosedive as the market experiences a glut.
The tea industry contributes about four per cent to the country’s gross domestic market and more than 20 per cent of foreign exchange. Last year the country earned $1.3 billion up from $1.2 billion in 2017.
The predicament facing Kenyan tea farmers is bound to get more gloomy in the coming years due to declining quality of tea at a time when emerging competitors like Rwanda, Uganda and Ethiopia are investing in high quality teas that are fetching premium prices.
Rwandan tea, for instance, is selling for as high as $6 per kilogramme at the Mombasa tea auction. The country produced 27.8 million bags of tea from in the year ended June 2018 up from 25.1 bags in the previous year, earning $88 million compared with $74.5 million during the same period in 2017.
Quality of tea
This comes at a time when the cost of production for Kenyan farmers is on the rise yet it is already among the highest globally at $2 per metric tonne compared with a regional average of $1.5 per metric ton.
Costs in Kenya are driven up by high wage, transport, energy and fertiliser costs.
The situation is compounded by high taxes that discourage value addition, low domestic consumption and failure to explore new markets. About 90 per cent of Kenyan tea is sold raw, 75 per cent being through the Mombasa tea auction.
“Kenya needs to focus more on quality than volumes. This is what countries like Rwanda are doing making its tea fetch good prices,” said Gideon Mugo, chairman of the East African Tea Trade Association.
He added that the quality of Kenyan tea is on the decline due to weak enforcement of regulations resulting in leaf hawking, mushrooming of new factories and substandard processing machinery.
Uganda is also seeking to emerge as a major tea producer riding on quality and is targeting to produce 100 million kilogrammes, while Ethiopia is making inroads in Kenya’s traditional markets of Pakistan, Egypt, United Kingdom, Sudan, Yemen, United Arab Emirates and Iran.
In Kenya, the over 600,000 small scale tea farmers affiliated to the Kenya Tea Development Agency (KTDA) and who produce about 75 per cent of the country’s tea have been warned to brace for as much as 30 per cent decline in bonus payment. KTDA is expected to release the bonus in the coming weeks.
Payment of bonus
In the year June 2018, KTDA paid farmers $815. 8 million, up from $745.3 million in the previous year.
The decline in earnings is inevitable after the volumes of tea traded at the Mombasa auction rose to over 400 million kilogrammes in 2018 compared with 390 million kilograms in 2017. The tea trade in 2018 was worth $1 billion. In July, this year, the auction witnessed the lowest average price of $1.76 per kilogramme that is however on an upward trend averaging $2.05 per kilogramme currently.
“We are witnessing a decline in month-on-month production this year and the market is responding favourably,” noted Mr Mugo.
Despite Kenya posting significant increase in production last year in line with global trends, consumption increase only marginally.
Kenya is taking consolation from the fact that the low tea prices are also being witnessed in competing tea producing countries such as India and Sri Lanka.
“Some of our markets are going through turbulence that have contributed to the declining tea prices,” said Alfred Njagi, KTDA operations director.
In particularly, Kenya is feeling the impacts of currency devaluation in Pakistan considering the country is the leading importer of Kenyan tea at 38 per cent.
As part of efforts to salvage the tea sector from mounting challenges, Kericho Senator Aaron Cheruiyot has sponsored a Bill that seeks to completely overhaul the way the cash crop is managed.
In particular, The Tea Bill, 2018, aims to reorganise the sector by transitioning of the regulatory and commercial roles currently undertaken by the Agriculture and Food Authority to the Tea Board of Kenya.
EATTA, however, contends that Kenya should have prioritised developing an agricultural policy and a national tea policy before publication of the Bill to clearly define the roles of the national and county governments.