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Tea market price falls raise supply chain issues in Kenya

19 August 2013

In April 2013, it was reported that Kenyan tea prices had fallen by US$0.5/kg since the start of 2013. This was attributed to a combination of increased production and “fluctuating demand from seasonal and lower end of market buyers”, with exports in February 2013 down 4% on February 2012. This contrasted sharply with the experience in the previous season “when farmers enjoyed high returns from the produced supplied to the Mombasa-based auction house”. In 2012, tea prices at auction had hit record highs of US$3.18/kg.

The Managing Director of the Tea Board of Kenya (TBK), Sicily Kariuki, expressed concern over the “possible effect on overall earnings in the short term”. As a consequence, the TBK was “assessing the entire supply and marketing chains to establish the cause of the dip in prices”, so as to be able to identify remedial actions that can be taken to ease the consequences of price falls for Kenyan tea producers.

Press reports suggested that fears of post-election violence in Kenya played a role in the unusual market behaviour. This saw a glut of tea in warehouses prior to the election, amid fears of later disruption of tea supply chains. No such problems, however, emerged. Difficulties were also reported in the system for processing export orders, which may also have contributed to a slowdown in exports.

In the longer term, with high tea prices having encouraged an expansion of investment in the processing of tea, four newly licensed factories were expected to add an additional 60 million kgs to annual processing capacity.

Press reports noted that the Kenya Tea Development Agency (KTDA) considered that the fall in prices might not affect the final payout to tea farmers, given the price gains made in the second half of 2012. The KTDA maintained that prices should “stabilise from [May] with the onset of [the] cold season that would see the supply of green leaves drop”.

Meanwhile, Dormans, Kenya’s leading coffee roaster and packer, took the opportunity of the Fairtrade Eastern Africa launch in Nairobi on 8 May to announce the company’s plans to enter the tea market, with the launch of four brands. This move is part of the company’s expansion strategy. In contrast to Dormans’ coffee operations, where its supplies are from cooperatives, its tea supplies will be bought at auction. Fairtrade Eastern Africa also announced at the launch that four new fair-trade tea lines in Kenya would be on sale in June.

The Chairman of the East African Tea Trade Association, Peter Kariuki, expressed reservations about the Fairtrade labelling of tea, maintaining that the “strict terms coupled with expensive fee imposed by Fairtrade were prohibitive for local brands that sought the mark”. He maintained that improved terms of access to Fairtrade labelling were required if more than a handful of companies were to benefit. As part of a broader defence of the current auction system, denying that it favoured buyers over producers, Mr Kariuki argued that “buying tea straight from the farmer is unsustainable” due to the impact of erratic weather and global price fluctuations. 

Editorial comment

Current price trends (linked in part to broader uncertainties in Kenya) and the expansion of tea processing capacity suggest an urgent need to look at how the functioning of tea supply chains can be strengthened to reduce the vulnerability of tea farmers to price fluctuations. The differences in opinion regarding the expected impact of price falls on smallholder farmers voiced by the two leading agencies in the sector, the TBK and the KTDA – though not wholly unexpected – point to the existence of gaps and limitations in analysis of the tea market by these institutions.

There would appear to be a need for a more efficient market information system for tea that generates adequate market intelligence and understanding of market fundamentals on both the supply and demand situation. Such improved market information could greatly assist in identifying the specific measures required to improve the functioning of Kenya tea supply chains.

The creation of new processing capacity also suggests a need to identify and promote new outlets for Kenyan tea, in order to avoid gluts on traditional markets, which then affect prices.

While product differentiation through fair-trade and organic certification can improve prices, if Kenyan tea producers are to be net beneficiaries of improved prices, then ways will need to be found to reduce the costs of certification.

However, current EU proposals to standardise food and feed control across the EU could actually see costs increasing (see Agritrade articles ‘ New EU food and feed controls to include full cost recovery’, 7 July 2013 and ‘ Concerns expressed over impact of revision of EU food and feed controls...’, 11 August 2013).


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