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Farmers get Sh6b bonus cut as prices turn sour at tea auction

By Patrick Alushula | October 28th 2021

Tea farmer plucking tea leaves at Tukiamwana, Kisii County, May 2021. [Sammy Omingo, Standard]

Tea farmers across the country will receive Sh6.05 billion less in this year’s tea bonus payout compared to last year on reduced prices at the Mombasa Tea Auction.

The Kenya Tea Development Agency Management Services (KTDA-MS) yesterday said it had released Sh21.57 billion for the second and final payment to farmers for the financial year ended June 30, 2021.

The latest payment is Sh6.05 billion lower than the Sh27.62 billion that the 54 KTDA-affiliated factories paid out to farmers last year.

This year’s second payment comes against a backdrop of a 8.3 per cent drop in CTC (a method of processing black tea) tea prices at the Mombasa auction.

Tea prices at the auction fell from an average of $2.38 (Sh264) per kilo in the 2019-2020 financial year to $2.18 (Sh241) in the 2020-2021 financial year ending June 30, 2021.

The payout marks the third straight year of declining bonuses given that the smallholder farmers had received Sh28.8 billion in 2019.

KTDA-MS said the more than 600,000 farmers who deliver their produce to the 54 factories under its management will receive their money before the end of the week.

The payment comes months after the tea agency paid farmers a mini-bonus of between Sh2 and Sh5 a kilo for the monthly sales to its factories. Despite the decline in last year’s bonus payment, KTDA’s total payment to farmers had increased by 11.6 per cent to Sh51.9 billion from Sh46.5 billion in 2019.

Sales volumes also play a role in determining bonuses, with almost three-quarters of all the tea being sold through the Mombasa Auction and only a quarter through direct sales.

Other factors used in determining the bonus payments include the quality of tea by individual factories, prices fetched at the auction and how efficient the factories are at their operations.

The release of the funds follows the conclusion of meetings by factory directors from the KTDA-managed factories that were held between September 20 and October 1 to review the audited 12-month accounts of their factories.

KTDA Holdings Ltd Chairman David Ichoho said Sh600 will reflect in the payment per 50-kilogram bag of fertiliser in a bid to pass on the Sh1 billion fertiliser subsidy by the government to farmers.

Mr Ichoho urged farmers to reinvest their net earnings in increasing farm production quality to make their business more sustainable.

The KTDA-managed factories are already enjoying higher tea prices at the auction following the introduction of the minimum reserve price. The increased prices, if sustained, are expected to translate into higher earnings for the financial year ending June next year.

KTDA in July set the minimum reserve price for processed tea at the Mombasa auction in an unprecedented move to cushion smallholder farmers from losses

Tea prices at the Mombasa auction are not allowed to fall below Sh270 ($2.43) per kilo in line with the reserve price rules.

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