Numbers that explain the storm in tea cup
This year will end on a gloomy note for many tea farmers, whose earnings from the commodity dropped following a rough year for the industry, not just in Kenya but globally.
The sector has experienced turbulence due to different factors that include growth in tea production, while consumption has not kept up the pace.
“World production of tea was at 5.6 billion kilogrammes while consumption was at 5.3 billion kilogrammes. At the moment, there is a surplus of 200 million kilogrammes of tea. The world is producing more tea than consumers are taking,” said Lerionka Tiampati chief executive Kenya Tea Development Agency (KTDA).
“Rwanda has focused on improved quality following the privatisation of their industry while there has been a resurgence in the tea industry in Uganda and Tanzania. All these factors have led to increased production while demand has not kept pace.”
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Major buyers of Kenya tea have also experienced challenges, with some of them reporting a decline in the amount of the product they purchase.
Others such as the UK that in the past was the largest buyer has slid from the top and was last sitting in third place. A spat between the US and Iran has hurt earnings, with America hitting the Arab country with more sanctions following suspicions that it was involved in an attack on Saudi Arabia’s oil facilities two weeks ago.
The recent sanctions are in addition to last November’s trade blockade that affected critical sectors of Iran’s economy.
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Iran has in the past been on the top ten list of leading buyers of Kenyan tea.
It has however been dropped following the initial sanctions by the US in November last year.
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Other factors that have affected major buyers of Kenyan tea are the devaluation of the Pakistani currency.
The country recently got a bailout from the International Monetary Fund (IMF) and as part of the deal, the country was to devalue its currency by 50 per cent, making it more expensive to buy imports.
Other major buyers include Sudan that had been experiencing political crisis and Egypt as well as other Arab countries that experienced high inflation and other economic challenges following the Arab Spring but have never fully recovered.
The industry has also experienced a surge in the cost of doing business. Key among them has been a ban on logging that fueled increased power cost.“The current low returns to the multinational tea companies and the KTDA small-scale tea farmers in the form of the annual final payments popularly known as ‘tea bonus’ is a reflection on the increased costs of production and the low international prices. Some tea producers have actually recorded losses,” said Gideon Mugo, Chairman East African Tea Trade Association.
“While tea prices have been on the decline or stagnated, the industry is grappling with increased costs of production such as labour, fertiliser, electricity and fuel,” Mugo noted.
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“With the prevailing low average price of tea, most producers are not able to sustain the costs of production.”
He noted that a skewed tax regime that does not encourage local consumption of tea, as well as poor implementation of sector regulations, has bred tea hawking.
This has also contributed to the drop in prices of tea.
Currently, only five per cent of the tea produced in Kenya is consumed locally, with the bulk of the product – 95 per cent – exported.
This is unlike in other markets where the local markets consumed upwards of 30 per cent and some up to 50 per cent of the tea produced locally.
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An increased local market for tea could help the industry absorb shocks in the export markets.
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