New tea sector investment goes ahead in Tanzania while Kenya tea sector is deregulated
26 October 2013
According to a corporate press release, “Unilever and the government of Tanzania have agreed to establish an ambitious partnership to reinvigorate the Tanzanian tea industry.” Press reports indicate that the aim of the partnership is to double tea production in Tanzania. Government representatives maintain that “Unilever has aligned its investment strategy with the Tanzania Tea Industry Development Strategy and the Transformation of Smallholder Tea Sub-sector, as championed by the Tanzania Smallholder Tea Development Agency.” It is envisaged that the partnership will “create 5,000 jobs linked to the Unilever Mufindi tea estates, develop 6,000 hectares of smallholder tea farms”, and improve the incomes of approximately 30,000 people in the smallholder farming sector.
Unilever reports that “the tea produced in Mufindi is exported to Unilever tea blending factories around the world and used in brands such as the UK’s market leader, PG Tips.” The Mufindi estate currently produces “around 10,000 tonnes of tea per annum”.
Unilever aims to secure all the tea used in its Lipton tea bags “from Rainforest Alliance-certified estates by 2015”, and to sustainably source 100% of its tea requirements by 2020, thus consolidating moves towards sustainable sourcing that were first initiated by the company in 2007. These moves form part of a wider corporate sustainability sourcing policy, with commitments being made to sustainably source all agricultural raw materials by 2020, and interim targets of 10% by 2010, 30% by 2012 and 50% by 2015.
In neighbouring Kenya, an amendment to the Tea Act has been proposed that would allow tea farmers to supply tea to “more than one processing company”. This will allow multinational companies to compete with the Kenya Tea Development Agency (KTDA) for the tea produced. The reform is expected to reduce the role of intermediaries in the sector. According to KTDA, which manages “more than 50 factories on behalf of over 600,000 smallholder tea farmers…, the liberalisation was a blessing in disguise, especially during peak seasons when its factories could not cope with the bounty harvest”.
Editorial comment
The Unilever sustainable sourcing initiative in Tanzania can be seen as a positive development, given growing consumer concerns over the environmental sustainability of products it purchases. However, issues related to the costs of certification will need to be addressed in order to ensure that additional costs to primary producers are kept to a minimum. Similar collaboration in Kenya to promote sustainable tea production has significantly improved farming and processing practices, with both smallholder producers and the tea factories planting thousands of trees to meet fuel-wood needs in a more environmentally friendly manner.
The deregulation in the Kenyan tea sector needs to be seen against the background of price development in 2013. While tea auction prices were down 7% over the first 6 months of 2013, overall tea export prices from Kenya rose by 4.9%, from an average price of 245 US cents in January–June 2012 to 257 cents in January–June 2013. This suggests that prices secured under long-term contracts were better than prices obtained on the Mombasa auction floor, through which 30% of Kenya’s tea is sold.
However, as the experience in the Kenyan coffee sector demonstrates, reform processes need to be carefully managed. When coffee farmers were allowed to freely choose processors, several ‘coffee wars’ broke out as divergent views emerged over which factory should be selected as the processor. This led to the disintegration of some coffee cooperative societies that had previously worked very well in providing services to their members.
To date, the KTDA has been quite successful in managing smallholder tea production, returning substantial profits every year (see Agritrade article ‘ Kenyan smallholder tea farmers enjoy higher prices’, 18 November 2012). There is a danger that regulatory changes could disturb a fairly efficient system that has clearly benefited smallholder farmers. However, deregulation could also lead to improvements in KTDA’s overall performance, as the Agency strives to protect its share of the smallholder tea market.
