On 18 September 2012, the Kenya Tea Development Agency (KTDA) ‘announced record earnings by smallholder farmers of KSh61.4 billion, a 12.5 per cent rise from the last financial year’. This resulted in a pay-out to smallholder tea farmers of KSh45.3 billion, 12% higher than in the 2010/11 season and 19% higher than in 2009/10, according to KTDA.
The improved returns were attributed to ‘better tea prices, favourable foreign exchange rates, effective cost management by the tea factories, efficient management and higher tea production’ (up 8%). According to KTDA’s chief executive, ‘the average net selling price for tea per kg increased to 3.2 US dollars (equivalent to KSh273.08) in 2011-2012 from 3.07 US dollars (KSh248.95) in 2010-2011…, [representing] a 9.7 per cent increase.’ Of the increased earnings, 7.7% in Kenyan shillings was reported to be attributable to exchange rate movements between 2010/11 and 2011/12.
Payment rates for green leaf tea rose to 50.1 Kenyan shillings per kg in 2011/12, an increase of 3.3%, ‘maintaining the position of KTDA’s small-scale tea farmers as the highest paid in the world’. KTDA’s 65 tea processing factories ‘are owned by 54 tea factory companies, whose shareholders are the more than 560,000 small-scale tea farmers who are also the suppliers of the leaf’. Comparative figures on payments to tea farmers in other tea producing countries, reported in Kenyan Tea Board figures, highlight the gap in payment levels: small-scale tea farmers receive 41.19 Kenyan shillings per kg in Sri Lanka, 24.019 KSh/kg in India and a mere 9.21 KSh/kg in neighbouring Tanzania.
The Kenyan tea sector, however, still faces major challenges ‘relating to high cost of production, unpredictable exchange rates, decreasing farm sizes and adverse weather’. In the past year, operating costs have risen by 15%, and as a consequence a number of initiatives have been launched to reduce input costs, particularly energy costs. In the longer term, climate change is seen as posing a serious threat to Kenyan tea production: the FAO has supported the development of a climate change mitigation pilot project, many organisations are mapping the forecast impact and identifying adaptation practices, and tea industry stakeholders have formed a sectoral working group.
The Tea Board of Kenya’s performance report for June 2012 shows a recovery in tea production after a bad start to the season, with the plantation sector outperforming the smallholder sector (+12% in June 2012 compared to June 2011 figures). Tea production in 2012 is projected to be 4.5% below production in 2011 (360 million kg compared to 377 million kg).
Exports in the first 6 months of 2012 were 1.9% below exports levels in the comparable period of 2011: exports to the EU fell to 16% of total exports, compared to 19.6% in 2011. Kenyan tea exports to EU destinations such as Holland, Finland and Greece more than doubled, but this was overshadowed by a declining trend in UK tea imports. Egypt now accounts for 21% of Kenya’s tea exports, with Pakistan, Russia and Sudan also among Kenya’s major export destinations.
The bright picture of improved returns to Kenyan smallholder tea farmers has a number of short-term and long-term clouds overhanging it. In 2011, concerns were expressed about the impact of the depreciation of the Kenyan shilling on inputs costs, particularly in view of the wider increases in agricultural input costs taking place at the global level. In addition, general inflationary pressures were seen as a factor behind industrial unrest among plantation workers. It was felt that these cost factors needed to be taken into account when considering the relative profitability of the Kenyan tea sector vis-à-vis other tea producers.
However, despite these concerns over the input costs effects of depreciation of the Kenyan shilling, between September 2011 and September 2012 a significant appreciation in the value of the Kenyan shilling against the US dollar took place (+14.5%), easing these pressures somewhat.
In the medium term, increased competition from the Dubai Tea Trading Centre could pose challenges for the Mombasa tea auction, with traded volumes in 2011 being 5% below traded volumes in 2010. Sales in the month of June 2012, however, were 29% below the volumes auctioned in the corresponding month of 2011, suggesting an intensification of competition.
In the longer term, processes of climate change threaten the Kenyan smallholder tea sector. Major current areas of tea production in Kenya are expected to become less suitable by 2020, and unlikely to be tea-growing zones by 2050. Developing a new tea zone map for Kenya is of critical importance, as is developing weather risk insurance products for the agricultural sector and supporting farmers in engaging with climate-related restructuring processes. Promoting value addition in the context of lower overall tea production would also appear to be an important issue facing the Kenyan tea sector.
At the government level, a concerted East African strategy to mobilise assistance for climate change-related tea sector restructuring could potentially yield considerable benefits.