Why reforms in tea sector failed to yield desired results

Bernard Mutai, a casual labourer, plucking tea at a farm in Kericho County. [Kipsang Joseph, Standard]

Recently, a former chairman of a KTDA factory wrote an article questioning whether the tea reforms were a blessing or a bane for the tea farmers. One of the issues the writer picked was the setting of auction minimum prices.

As he rightly put it, teas not achieving the floor price are withdrawn, and re-offered for sale three weeks later at the same floor prices. For every re-printing, the farmer loses four kilogrammes that are re-sampled for distribution to buyers. Besides losing some freshness, the farmer also incurs additional storage charges when the tea is finally sold, if it ever does.

Unless there is an unanticipated drop in tea supply or surge in demand, it beats logic to imagine that a tea that could not achieve a certain price when fresh would achieve it after being re-offered for sale several weeks later.

Recent government interventions on the tea sector have failed miserably because they are conceived in boardrooms with little or no tea stakeholder engagement.

Since the minimum prices were for KTDA teas only and were bench-marked on cost of production (not quality), some teas were valued higher than their quality value. Buyers had no option but to increase their buying of teas that the minimum prices matched their quality, and ignored those that were over valued.

The setting of the minimum price happened at the wrong time when Kenya’s two main buyers, Pakistan and Egypt were and are still going through a difficult financial time. Of the 558 million Kilogrammes that Kenya exported in 2021, Pakistan and Egypt imported 212.5 million and 98.8 million kilogrammes respectively.

Unable to buy some of their favoured overpriced KTDA teas, especially from the West of Rift, the buyers started increasing their purchases of plantation teas since these did not have a minimum price, and some are as good as KTDA’s, if not better. The minimum price has therefore been a blessing to many plantation teas from Kericho, Bomet, Nandi Hills and the regional teas, and a bane to some of KTDA’s.

With the increasing production courtesy of the rains, prices will continue to dip and unless the minimum prices are reviewed or removed, we will see more unsold teas in the forthcoming sales. Sadly though, that small monetary premium that the KTDA name used to carry, especially in Pakistan, is being eroded as buyers discover suitable and cheaper replacements.

I am delighted that the new regime is keen on accelerating value-added exports. Our tea is consumed globally but after being packed outside Kenya. Unless some policy and tax regimes are addressed, we are simply pushing a vehicle without wheels for it is commercially unviable to value add in Kenya for export.

While imported packaging materials like paper attract 35 per cent import duty, Kenyan tea packed in Egypt is imported back into Kenya duty-free under COMESA protocols. Other bureaucratic policies like packer’s not being able to buy teas from the zero-rated tea auction should be removed. Paying 16 per cent VAT upfront and claiming back after export (which takes years) akes Kenyan packed teas uncompetitive in the overseas markets.

 -Mr Kimanga is a tea trader based in Mombasa