Tea: Last cash crop standing but for how long?

 “When you have nobody you can make a cup of tea for, when nobody needs you, that’s when I think life is over.”

A quote attributed to the late British film and fashion icon Audrey Hepburn that local tea industry players might cringe on reading.

It could remind them that unless both government and private sector players pull in the same direction, Kenya might have no one to make tea for in the years to come.

Not because the market will have disappeared but rather the industry may have followed in the footsteps of other cash crops that ruled the country as key exports a few decades ago, but are now shadows of their former selves.

The tea industry has for years stood firm as among the largest foreign exchange earners. Long after crops such as coffee, cotton and pyrethrum fell to their knees after churning out millionaire farmers and traders in the 1970s and 80s, tea has scaled the heights and continued to soar.

It has recently, however, been through a rough few years and appears to be faltering.

This is partly seen in tea being overtaken by horticulture as the second leading forex earner in 2019 after tourism.

The sector earned Sh113.55 billion in the year to December 2019, compared to Sh122.9 billion earned from exporting the combined fresh produce of cut flowers, vegetables and fruits.

Last year was the second in a row that tea export earnings declined and there are fears that it might follow in the footsteps of crops that are now in the list of has-beens. 

Industry players acknowledge that the sector has stumbled, pointing at a myriad of factors, including regulatory blunders such as disbanding of the Tea Board of Kenya and the Tea Research Foundation.

High production costs, land subdivision and taxation have also been cited as among the factors driving down the industry.

While the government has admitted to some of the problems including the regulatory blunders, it has also pointed out that there are many rogue players iin the industry who thrive at the expensive of the farmer.

This in turn has had the impact of dis-incentivising farmers from making continuous investments in the crop, with some abandoning it altogether.

“The industry is at a crossroads. It has been a very stable sector since it was established over 70 to 80 years,” Kenya Tea Growers Association (KTGA) Chief Executive Apollo Kiarie told Weekend Business.

“It has been self-regulating as over time it has developed solid internal regulatory frameworks. If you look at all commercial crops in the country they have all gone down. Only tea has remained.”

Kiarie noted that the major blunder was disbanding the Tea Board of Kenya and the Tea Research Foundation. The board, as was the case with other agriculture sector regulatory bodies, was collapsed under Agriculture and Food Authority (AFA) as a directorate.

The research arm was moved to the Kenya Agricultural and Livestock Research Organisation (Kalro) as Tea Research Institute.

AFA was formed in 2014 through the AFA Act, 2013 and was part of operationalising the Crops Act, 2013. The process entailed merging eight directorates that had previously been charged with development of different crops.

The move, Kiarie said, weakened the regulatory oversight and development of the tea industry — such that for close to a decade now, there is little research in new tea varieties and market dynamics.

“The rain started beating us when the tea board was killed in 2013,” he said, adding that the sector has since been on auto-pilot.

“That regulatory body (now the tea directorate) has remained moribund, it has no human capital and the officials there are on interim basis. How can you let a cash crop that brings a lot of revenues to the country remain without a board for over eight years?

“When the Tea Board was killed, the sector did not have an apex body that would ensure we are growing tea using right crop husbandry practices or manufacturing tea using the right practices. There has been no one to ensure that quality is maintained and marketing is done systematically and progressively.”

Kenya Tea Development Agency (KTDA) attributes the sector’s falling fortunes to local land practices, where family-owned parcels have been sub-divided to a point that smallholder farmers are unable to derive value from the crop.

Other factors cited by the agency include numerous taxes and high costs of production.

More recently, KTDA said, there has been over production of tea, which has resulted in a decline in prices and returns for farmers.

“The industry is going through some difficult times, attributed to low prices as a result of high world production-above-demand levels. Tea prices continue to decline as production increases,” KTDA told Weekend Business by email.

“For instance, prices for KTDA teas over the last four months have, on average, dropped 10 per cent compared to a similar period in 2019, while production has gone up almost four per cent over this period.” 

The agency added that the Covid-19 pandemic has disrupted global trade, cautioning farmers to brace themselves for yet another tough year “unless there’s unforeseen change in world production and demand balance”.

According to KTDA, smallholders are now left with small parcels that has made it difficult to enjoy economies of scale, which offers better production and returns.

“With decreasing land sizes, farmers earn less yet family and societal needs continue to rise, driving up discontent. It might get to a point where the business is unsustainable beyond a certain land holding threshold,” it said.

“Another challenge is the multitude of taxes levied on the tea trade. Tea farmers are charged up to 42 different taxes and levies across the value chain. This compounds an already difficult business environment.”

KTDA said the government needs to review the taxes to give farmers a reprieve, noting that the one per cent turnover tax and the changes in investment deductions allowance will make the income situation for smallholders worse.

Production costs are also unbearably high which have, to an extent, rendered Kenyan teas uncompetitive when pitted against their peers in the global trade.

KTDA noted that a key component remained energy costs, which accounts for 30 per cent of production expenses.

The firm has been trying to mitigate this cost by setting up small hydropower stations where possible, for use by tea factories, but noted that much needed to be done to control energy costs.

Production costs in Kenya are also high, estimated at about $2.1 (Sh226) per kilo. Sometimes, prices have sunk below $2, which meant that producers sold the tea at a loss.

KTDA said to prevent the industry from collapse, there is need to lower the cost of production, with focus on cheaper electricity as well as lower prices of inputs such as fertilisers.

Other areas of focus that need both government and private sector input include increased earnings for farmers and diversification into other teas.

“We need to increase the portion of tea value that gets to the farmers. This can be achieved through investment at the market and consumer level or what is generally called value addition,” KTDA said.

“This is a capital intensive undertaking and smallholders would require government help to increase the general value of our tea exports.”

“Another strategy is diversification of the tea products that the country produces to enable access to other markets and smoothen incomes for farmers. A number of KTDA managed factories have ventured into orthodox and specialty teas as a way of diversification.”

Sustainability

Diversification remains elusive despite been hailed as among the factors that Kenya needs to delve into to ensure sustainability of the industry. 

While there is drive by farmers and processors to plant a wider variety of tea away from the Black CTC teas that Kenya is known for, this is far and between.

The government recently said it plans to do away with AFA and reintroduce the different regulatory bodies that used to oversee operations of different crops.

Peter Munya, the Agriculture CS, said AFA has fallen short of expectations and key value chains had not been getting the required attention.

This has put at risk key crops that have in the past been the mainstay for Kenya as key foreign exchange earners, as well as the country’s food security.

The CS announced a raft of measures aimed at reforming agriculture, which will include the disbanding the authority. In its place will be autonomous boards that will oversee development of the various crops.

The ministry has drafted five new bills, which have proposed the formation of boards and authorities, all of which will be hived off from AFA and given more powers.

These include the Coffee Bill 2020, the Fibre Crops Development Authority Bill 2020 and the Food Crops Development Bill 2020.

The others are the Horticulture Crops Authority Bill 2020 and the Miraa, Pyrethrum, and Industrial Crops Bill 2020.

A separate draft law — the Tea Bill, 2018 — seeks to re-establish the Tea Board of Kenya. The Bill was sponsored by Kericho Senator Aaron Cheruiyot, and has since been submitted to the National Assembly for consideration.

Kiarie said this is a move in the right direction in getting the sector back on a firm footing, but stressed the need for a legal framework that ensures stability and competitiveness.

“We must get the tea board back and also have representatives of the  sector in the board, they are the people who wear the shoes and know the challenges on the ground. We do not want prescriptions (from non-players) on what to do,” he said.

“Tea research under Karlo has performed poorly. It was put up with money from tea farmers and it is not serving them now. It should come back to the tea industry as a technical division of the tea board.”

The Agriculture ministry, though admitting it erred in disbanding the board and research foundation, points out that there are many rogue players in the sector.

“Our agriculture is infested with entrenched cartels who continue to exploit the farmer and who continue to use the law and the courts to make sure that nothing happens,” Munya said.