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Future of Kenyan tea lies in value addition

FINANCIAL STANDARD
By | May 25th 2010
By | May 25th 2010
FINANCIAL STANDARD

By Tim Chege

After water, tea is the most consumed beverage in the world. Locally, tea is one of the main foreign exchange earners and a source of livelihood to four million Kenyans directly and indirectly.

Traditionally, Kenyan tea has been sold to the market in bulk form and is much sought after by leading tea companies to blend and add taste to the most respected tea brands in the world.

Kenya is the second largest tea producer in the world, with 80 per cent of its production going to only five countries: Pakistan, UK, Egypt, Afghanistan and Sudan.

This lack of diversity of customers places Kenya in a precarious position, where a drop in demand from any one of these countries could have a major impact on revenues from Kenyan tea exports.

Kenya risks losing major key tea markets, if it does not combine bulk and value addition in the production of tea.

Value addition is today being driven by consumer choice and this is encouraging tea firms to look into new ways to add value to their teas.

Packing tea into tea bags in many forms has become popular because of convenience and it can be considered as an effective form of value addition. Selection of environmentally friendly packing materials, which are bio-degradable, recyclable and re-usable, has become a favourable factor.

Flavouring of tea using natural mixtures of spices, herbs and extracts in liquid or granulate form has become very popular in most of the market segments of specially teas. Strong artificial flavours are also used widely to flavour conventional teas.

Carbonated drinks

Ready to drink teas have great potential in both the local and export markets. Ready to drink teas can substitute popular carbonated drinks in the market based on awareness of the beneficial heath factors, the ready to drink teas will soon become a popular market product.

A major factor that is driving countries to look into value addition is a drop in global prices for bulk teas in recent years.

The challenge facing firms today is to improve the quality of produce as opposed to increasing quantity.

Kenya can borrow a leaf from Sri Lanka, which is a major exporter of value added teas. In less than two decades, Sri Lanka’s tea exports shifted from 100 per cent exported as a bulk commodity to 60 per cent. The export of fully-processed teas in packets and tea bags accounts for 40 per cent of the total export volume. Currently, over 60 per cent of Sri Lanka’s total tea exports are absorbed by the Middle East.

Over the last few years, Kenya has only managed to increase the volume of value added tea sales from under five per cent of total sales to about 12 per cent. To date all the tea exported to Sudan is packaged under company brand names. This is proof that with sustained investment in marketing activities, export sales of value added teas is a viable business.

With rising global competition in the value added market, and particularly for the value added black tea, factors such as quality, standards on food safety, maximum residue levels, and labeling rules are expected to have a major effect on price realisation.

The situation today demands tea companies offer value added and pure tea in both export and local markets.

Local tea

Kenya Tea Packers (Ketepa) has been at the forefront in pushing for the export of branded teas. The firm has featured in the local market where it commands over 75 per cent of the branded tea market. We have embarked on aggressive export marketing strategy in order to grow our market share in the regional markets as well as the Middle East.

Kenya exports value added tea to Sudan, Saudi Arabia, Dubai, Zanzibar, Egypt and the US.

Ketepa recently opened an office at the Dubai Tea Trade Centre to ease coordination of marketing efforts in the Middle East market.

While the value added market offers new opportunities and prospects, there exist a number of obstacles that the government needs to address.

A major challenge facing the Kenya’s tea export market is cumbersome laws and high cost of doing business.

From a infrastructural point of view Kenya suffers from the high cost of power, expensive infrastructure, and high import duties hence resulting in very high costs of raw materials. All these combine to make our products very expensive in the shelves and hence uncompetitive.

Manufacturing plants

There seems to be lack of strong support for the manufacturing sector. Several companies have shut down their manufacturing plants in Kenya due to the high costs.

Most of these companies have transferred their manufacturing to Egypt.

This trend is very dangerous for our economy as these closures lead to decreased employment and hence decreased purchasing power.

Investment costs are considerable for the establishment of viable processing plants and for undertaking marketing efforts.

Branded value added products may increase earnings, but having them recognised and accepted at the global and national level is challenging and expensive.

A major player in the value added tea business in the Middle East has spent approximately over an equivalent of Sh1 billion in advertising and promotion in the last five years.

The Tea Board of Kenya is doing a gallant job of marketing Kenyan tea but lack of funds is a major hindrance to the achievement of their objectives in this area.

From a marketing perspective, for Kenya to be able to compete in such an environment the entire Kenyan tea fraternity and the Government must work together to promote Kenyan tea. This has already worked in the tourism sector and there is no need to reinvent the wheel.

The writer is the managing director of Ketepa Ltd.

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