Tea prices take a hit even as dollar firms up against shilling

Tea Auction: A Tea taster and Tea trader David Mugambi samples tea flavors during a tea auction at the Mombasa tea trade center recently.PHOTO BY MAARUFU MOHAMED/STANDARD

Tea prices at the Mombasa auction started 2017 on a slow note to register a sharp drop compared to prices at the last auction of 2016.

According to data released by the African Tea Brokers (ATB), the highest price of the best Kenyan tea, also known as Best Broken Pekoe Ones (BP1s), this week ranged between $3.38 (Sh344.76) and $4.20 (Sh427.52) per kilo.

This is compared to $3.50 (Sh356.27) and $4.26 (Sh433.63) per kilo at the last auction of 2016.

Kenya is the world’s top exporter of black tea, which is one of the country’s main foreign exchange earners.

The sharp drop in tea prices comes despite the strengthening of the US dollar against the shilling, a trend industry insiders had hoped would have lifted farmers’ earnings.

A strong dollar means good returns for Kenyan tea farmers and traders since tea is auctioned at the Mombasa tea auction in dollars.

On Tuesday, the shilling hit a 15-month low to exchange at 103.30/20 to the dollar.

This was amid a huge demand for the greenback from importers, who analysts said are in a rush to meet their dollar requirements after the festive season.

East Africa Tea Traders Association (EATTA) Managing Director Edward Mudibo said the sharp drop in prices could be as a result of traders returning from the long festive season when market activities remained low.

He, however, expressed confidence prices could still pick up with time.

“I think the drop is not about any form of market dynamics. In all the 52 weeks of a year, the last week of the year is when the auction does not take place. So this could simply be traders trying to get a bearing as the year starts,” explained Mr Mudibo.

He said he was pleased with the strengthening of the dollar, since tea farmers are now going to earn more per kilo.

“Small-scale tea farmers have everything to be happy about with the strengthening of the dollar. The only people who will suffer in this industry are the few large-scale farmers who have bought heavy machinery through loans taken in dollars since they have to repay them in the same currency,” said Mr Mudibo.

While he remained optimistic that prices would pick up as the years goes along; Mr Mudibo at the same time expressed fears of a possible slump as the election period kicks in.