In order to target new markets in the Far East, the Kenya Tea Development Agency Ltd (KTDA), a private company providing management services to small-scale tea farmers for the production, processing, and marketing of teas in Kenya, is planning to introduce processing of orthodox teas. Orthodox teas are “whole leaf teas manufactured using the traditional process”, and generally fetch higher prices than those manufactured by the “crush, tear and curl” (CTC) process. KTDA’s target level of production for orthodox teas is 60 million tonnes per annum, with at least one factory in each production zone manufacturing the product.
KTDA’s move needs to be seen against the background of a 13.3% decline in the average price of teas exported in 2013 compared to 2012 (export values fell from US$3.09/kg in 2012 to US$2.68/kg in 2013). Despite the lower prices, the volume of Kenyan tea exports increased by 20.6%, from 33.5 million kg to 40.4 million kg, reflecting good weather conditions in Kenya. Economic and political instability in major export markets, however, meant that the improved production levels resulted in the country’s total export earnings from tea increasing by only 2%.
According to KTDA, “tea prices at the Mombasa auction have suffered a 30 percent decrease since July 2013 as a result of increased supply.” This in part reflects the state of the global tea market, where production exceeds consumption by 200 million kg (4.8 billion kilograms is produced, compared to consumption of 4.6 billion kilograms).
As a result, smallholder farmers have been criticising KTDA, questioning how multinational tea factories can offer higher basic prices than KTDA (KSh25/kg – approx. €0.21 as at 24 May 2014 – compared to KSh14/kg). However, this neglects end-of-season bonuses paid by KTDA, which in 2013 amounted to KSh31/kg, taking the final payment to KSh45/kg (approx. €0.38).
There have been calls for KTDA to review its bonus payments system to spread payments across the season. However, KTDA reckons that bonus payments in 2014 are likely to be the lowest in 4 years. This is unfortunate, since smallholder farmers have increased tea production by one-third since the financial year 2011/12.
Low demand on the international market and the absence of buyers from Egypt and Pakistan have resulted in weaker prices for East African teas in 2014. Rwanda reported a 1.4% decline in earnings from tea exports in February 2014 despite an 11% increase in export volumes. Prices reportedly “fell to $2.48 in February from $2.79 in January”. This follows a decline of 15.6% in total export earnings from tea in 2013 compared to 2012. Approximately “60 per cent of Rwandan tea is sold at the Mombasa Auction, while 37 per cent is bought by individual buyers from different countries.”
The current effort to diversify tea production is commendable and could potentially impact positively on smallholder farmers, provided that this translates into increased final payments. However, there are always tensions between investments by farmer-owned bodies in both processing and support for improved farming techniques and current distribution of income. Innovation invariably carries a financial price in terms of the short-term distribution of income.
In terms of government policy initiatives, while the tea industry in both Kenya and Rwanda is largely run by the private sector, governments could assist smallholder farmers in lowering the costs of production by improving access to fertilisers and lowering energy costs. In addition, in Kenya, the broader process of parastatal reorganisation taking place in Kenya could have a positive impact by reducing the number of agricultural parastatals, thereby increasing efficiency and reducing costs to the tea industry (in the tea sector, both the Kenya Tea Board and the Tea Research Foundation are funded through levies on the tea industry).
In the longer term, the regional tea industry needs to collaborate with other producer countries in developing strategies to bring greater stability to tea markets by boosting demand. The developments in two major importing countries, Pakistan and Egypt, have had such a strong impact on the Kenyan tea sector that there would appear to be a need to explore market diversification, as well as product diversification.
Scope also exists for developing local tea markets, including through the development of packaged products that could later be launched onto international markets.