Small-scale farmers affiliated to Kenya Tea Development Agency (KTDA) are staring at low returns.
The decrease in the annual bonus is attributed to overproduction, socio-economic and political factors in international markets.
East African Tea Trade Association Managing Director Edward Mudibo in a statement attributed the situation to, among other factors, overproduction of tea as a result of increased plant husbandry and rehabilitation.
“Tea production was 350 million kilos in 2012, 432 million in 2013, 445 million in 2014 and 339 million in 2015. The production was 473 million kilos in 2016, 439 million in 2017 and 492 million in 2018,” said Mr Mudibo.
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Mudibo said external socio-economic and political factors have also contributed to the declining tea prices.
“Pakistan continues to be a major player in the global tea trade and the impact of currency devaluation in that country continues to be felt,” he said.
Inflation in Egypt reached 20 per cent in 2018 but is projected to drop to 14 per cent in 2019. The UK continues to be unpredictable in the wake of uncertainties associated with Brexit.
High inflation rates in Sudan hit 70 per cent and the recent political developments are a concern for tea trade. The reintroduction of US-led sanctions on Iran is also bound to have far- reaching ramifications.
Mudibo said the decline in quality of some tea was as result of weak enforcement of regulations resulting in leaf hawking and mushrooming of factories.
“Other contributing factors to the decline in tea prices and returns include the levying of VAT on direct sales by local exporters, levying of VAT on buyer inter-trading, lack of adequate consumer-driven research, development and promotional activities,” he said.
The cumulative green leaf production for smallholder tea farmers under KTDA rose to 868.9 million kilos in the first nine months of the 2018/19 financial year (July 2018-March 2019), amid a 19.5 per cent drop in prices over the same period.
This compares to 824.8 million kilos of green leaf delivered to KTDA-managed factories in the first nine months of the previous year (July 2017-March 2018). However, the month of March 2019 recorded a decline of 25 per cent compared to a similar month in 2018.
“The increased production during the nine months period was largely attributed to the reliable rainfall experienced in tea-growing areas late into 2018, as well as intensified sustainable agricultural practices such as fertiliser application,” KTDA CEO Lerionka Tiampati said.
The average price of KTDA teas in the first nine months of 2018/19 dropped to $2.62 per kg from $3.25 for the corresponding period - 2017/18.
“Despite the drought experienced in the last several months, high production of tea towards the end of last year continued to dampen the prices. The drought has recently led to reduced production and we anticipate this reduction could see prices improve as less tea volumes are offered for sale,” said Tiampati.
Turbulence in the international markets such as economic sanctions imposed on Iran by the US and high inflation rates in Egypt also negatively impacted tea market.
Compared to last year, the exchange rate dropped 1.6 per cent as the shilling strengthened against the dollar. Tea is traded in the US dollar, which is then converted to Kenyan shilling.
Other tea-producing countries such as India also reported higher tea production in 2018, adding to global tea stocks, which pushed prices down.
“Despite the reduction in production due to drought, it is not anticipated that prices will improve significantly between now and the close of the financial year in June 2019. Farmers should, therefore, expect to receive lower total earnings for their produce this year,” he added.
In October 2018, KTDA announced record income of Sh85.74 billion from the sale of tea supplied by smallholder tea farmers.
A total of Sh62.35 billion (representing 74 per cent of income) was paid out to farmers as monthly and second payments.