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Mombasa tea auction threatened?

11 March 2012

According to press reports, the withdrawal of supplies of tea by Tanzanian and Malawian producers from the Mombasa tea auction floor is threatening the viability of the auction site. Mombasa’s tea auction is one of 11 tea auction sites across the globe. The amount purchased outside the auction system has risen from 20% of sales to 30%, and has seen ‘only 30 of the 70 registered exporters ... active at the auction’. This has left about 18% of tea unsold each week.

According to the Chairman of the East African Tea Trade Association, Mr Peter Kimanga, this trend is attributed in part to government administrative requirements (the lodging of a TSh10 million deposit and a requirement to invest in warehousing, without any guarantee of future licensing of operations) and in part to the operation of the EU’s Everything But Arms (EBA) initiative, from which Malawi and Tanzanian benefit, but Kenya does not. Mr Kimanga maintains that ‘if the number of buyers continues to fall at the auction, the reduced competition will lead to a price crash.’

Press analysis notes that ‘although direct tea sales are pegged on auction prices, farmers are attracted to individual contracts because the costs of storage, transport costs and brokers’ fee is borne by the buyer.’ The activities of the Dubai Tea Trade Centre (DTTC) has also attracted business away from Mombasa, with major players such as Unilever, James Finlay and Kenya Tea Development Agency (which is the marketing agent for 500,000 small-scale farmers) all signing up to trade pacts with DTTC. Representatives of the Kenya Tea Development Agency said that while they ‘still supported the Mombasa auction ... the interests of growers affiliated to [KTDA] come first’.

Editorial comment

It is feared in Africa that the shifting of marketing activities offshore to a non-tea-producing location could undermine the functioning of the tea supply chain, to the further detriment of producers. While the regulatory framework in Kenya allows direct sales outside the tea auction arrangement, there is concern that a balance between marketing channels should be maintained.

Experience of privatisation in other sectors suggests that while in the first instance producers may gain better prices and improved access to inputs as a result of competition, over time, if strong producer organisations are not maintained, these benefits can be lost. While currently the Dubai Tea Trade Centre may be offering farmers better prices, a number of questions arise, such as:

  • How long will these prices be sustained?
  • Will there be full transparency and free access to trade information for all actors along the supply chain?
  • Will farmers using the Dubai Tea Trade Centre be able to track their sales through an electronic system such as that introduced by the Tea Board of Kenya?

These would all appear important issues to be addressed in determining the future marketing arrangements for Kenyan tea. What is clear is that the threat of collapse of the Mombasa tea auction has highlighted the need for reform of current arrangements, in order to respond to changing global market realities. In parallel with studying the attractiveness of Dubai’s TeaTrade Centre for the farmers, any review will need to look at the relative attractiveness of Mombasa compared to Dubai for big players such as Unilever: Dubai appears to have more modern facilities available, which makes it easier to transact business. It also provides a range of associated services, such as outsourcing of labelling.

The alleged link between differential market access treatment of EAC members by the EU and the withdrawal of Tanzania and Malawi from the Mombasa Tea Auction raise the important issue of the impact on regional commercial cooperation activities of any failure to conclude the EAC–EU EPA process.

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