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Agency says farmers will lose benefits of economies of scale

By Wainaina Ndung'u | April 28th 2020
Workers place dry tea leaves on a processing machine at Gitugi Tea Factory in Othaya. The Kenya Tea Development Agency has warned new rules by Agriculture ministry will erase gains made in tea export. [Kibata Kihu, Standard]

Small scale tea farmers are at risk of losing their traditional dominance of Africa tea exports if proposed government reforms sail through.

Kenya Tea Development Agency (KTDA), which runs 69 tea factories bringing together almost 700,000 small scale farmers, claims the reforms proposed by the Ministry of Agriculture might do more harm than good to the Sh100 billion-a-year sector.

In their response to the proposed Tea Industry (2020) Rules, KTDA claims that it is an attempt to break the economies of scale and dominance built by the largest organised union of small scale farmers in over 60 years.

Notably, KTDA only supports one proposal in the rules, which ring fences its leaf collection centres from use by rivals.

Oppose restructuring

KTDA strongly oppose radical reorganisation of the tea export market in the country that revolves around the Mombasa Tea Auction. It says by outlawing Direct Overseas Sales, it will rob its factories of an arrangement they have dominated over other producers from nine other African tea belt nations.

KTDA argues that lucrative buyers will most likely shift to other East African factories that sell tea at Mombasa auction. British conglomerates Unilever, Twinnings and Taylors of Harrogate are some of the buyers trading in Mombasa. KTDA has now warned it may discontinue its support to boost water, energy, nutrition, women empowerment and health projects in the tea growing zones.

"Clients and producers have ongoing contracts whose termination will not only attract legal actions, but also leave clients bitter and disrespected," the KTDA document adds.

Although KTDA factory volumes dominate the Mombasa auction, the agency warns that buyers could change their preference to any of the rivals brands, which has over 150 factories from Madagascar to Rwanda all selling their produce in Mombasa.

Secretarial services

The agency also queried what it called 'an attempt to exclude management agents' from offering procurement and company secretarial services to factories. It noted that procurement of inputs such as top dressing fertiliser and machinery at lowest cost due to economies of scale will become a thing of the past.

Removing the KTDA from offering company secretarial services, the agency claims, will rob the sub sector elective system of uniformity and expose individual directors to personal responsibility in their work.

The agency, which became a private entity in 2000 when the government exited the sub sector, denounced a proposed Green Leaf Pricing Formula Committee that will set the minimum earnings for farmers from time to time.

"The proposed committee has not been envisaged in the Crops Act nor elucidated on the draft regulations. Its membership, term and functions are not clear," says the response.

The agency also opposes a limit of three years between the time a factory gets a licence and before it starts processing tea.

"This means that farmers will not have adequate time to accumulate the required equity to build satellite factories," it says in the memorandum.

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