Sharp fall in tea prices to eat into farmers’ earnings

By Nicholas Waitathu

Kenya: More than 500,000 small scale tea farmers affiliated to Kenya Tea Development Agency (KTDA) are likely to earn less following low prices of the crop at the Mombasa tea auction for the last nine months.  

The prices of tea at the auction have dropped by up to 30 per cent since July 2013, a situation feared will have serious consequences on farmers’ returns from the crop.

KTDA explained that a kilo of made tea sold at the auction last week retailed at an average price of Sh199.52 ($2.32) for small holders’ auction, against Sh270.90 ($3.15) for the same period last year. Prices for other teas averaged Sh172 ($2) per kilo of made tea at the same auction.

“This is a steep drop in prices compared to previous years. However, this is not a unique phenomenon. In 2008, tea prices dropped drastically from Sh208.98 ($2.43) to Sh146.20 ($1.70) and this affected farmers earnings,” said KTDA Chief Executive Officer Lerionka Tiampati.

“The short term situation may look bleak, but in the long term, prices will rebound as production and consumption balance out.” In a statement yesterday, Tiampati attributed the sharp price drop to oversupply of tea in the market as a result of favourable weather conditions and improved crop husbandry.

 The situation is also blamed on political instability in some of Kenya’s key markets such as Egypt. “Tea producers in the country will be negatively affected by the drop in tea prices. The decreased earnings are also likely to have a negative impact on the economy, as tea is the leading foreign exchange earner,” said Mr Tiampati.

Price recovery

The problem will persist owing to the fact that long rains have kicked off and thus may take longer for the prices to recover to previous levels due to high production.  In 2012/2013 financial year, Kenya produced 432 million kilogrammes of tea compared to 370 million kg in 2011/12, accounting for 17 per cent. Globally, Tiampati explained that tea production stands at 4.8 billion kgs of made tea against a consumption of 4.6 billion kgs.

In 2013, 384 million kgs of tea were sold at the Mombasa auction compared to 322 million kgs in same period the previous year. In 2012/13 financial year, tea production by the small-scale tea sub sector increased to 258 million kgs of made tea from 211 million the previous year, representing a 22 per cent increase.

Tiampati also said despite the drop in tea prices, small-scale tea farmers will still earn relatively good returns. Last year, the small scale tea farmers earned a total of Sh35.6 billion as second payment (bonus) at an average rate of Sh31.65 per kilo of green leaf.