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Why automation at tea auction is not panacea for low prices

By Salaah Balala | Apr 11th 2017 | 2 min read
By Salaah Balala | April 11th 2017

When tea prices tumbled in 2014, proponents of e-auction  in Mombasa rooted for electronic trading of the commodity, which had earlier been voted down by stakeholders.

They roped in the government and pressured the industry to implement the system without ascertaining its viability. It was suggested from some quarters that once digitalised, the auction may result in higher tea prices.

This had been the driving force behind plans for automation. However, project implementers recently said an e-auction would have no affect on tea prices. It can only serve to improve the trade’s efficiency and effectiveness as well as transparency and accountability. It must be understood that the main factor affecting tea prices is supply and demand, as with any other product. Automation affects neither. Prices aren’t set to change upon implementation of the project, which would be a disappointment to producers’ expectations.

Transparency is one of the core functions that e-auction is expected achieve, with unproved whispers of collusive activities at the manual auction. The auction has a live streaming service which is available to any interested party for viewing - as a measure of transparency.

The total cost of the entire operation is unknown, although project implementers   estimate the cost to be Sh150 million.

Installation costs

This remains an estimate based on similar projects carried out, post installation costs of maintaining and developing the new system have not yet been taken into account.

With improvement in transaction costs, what the project is supposed to achieve is unclear. There hasn’t been a cost - benefit analysis presented to the stakeholders and therefore there isn’t any certainty of change in transaction costs. Should the changes in transaction costs be negative or negligible, then stakeholders must seriously rethink carrying out such a costly exercise. The funds would be better placed in marketing Kenyan tea which would have an actual impact on prices through boosted demand.

Moreover, the tea industry attracts several buyers to the auction, as Kenya is the largest exporter of black tea.

Several multinationals and local companies have invested heavily in the country to cater for the export market.

It has been suggested occasionally that the e-auction would enable sovereign buyers from all over the world to buy and import tea directly, without the need for local intervention.

This would lead to a reduction in investments, thereby reducing employment as well as transfers of technology and productive techniques into the country.

This lessens the industry’s competitiveness and efficiency, resulting in a lowered economic growth, along with exposing the country to tax avoidance from these sovereign buyers.

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