Value addition will enhance Kenyan tea's international competitiveness

Agnes Wangechi a worker at Chinga Tea Factory in Othaya ,Nyeri ,monitor the withering process which reduces the moisture content in the fresh green leaves On 7 December,2022. [Kibata Kihu, Standard]

Tea is a commodity that contributes significantly to global trade. Data on global trade estimate that in 2021, global tea trade amounted to approximately 7.23 billion dollars. China is the leading tea exporter, with 2.1 billion dollars worth of tea being exported last year, contributing to 29 per cent of the global tea exports.

Kenya came in second after exporting tea worth 1.2 billion dollars and contributing to 16 per cent of the tea trade, while Sri Lanka and India were third and fourth with tea exports of 732 million dollars (10 per cent) and 688 million dollars (9 per cent) respectively.

The bulk of China’s tea for exports is green tea. With 30 per cent of the global tea trade, Kenya is the leader in the export of bulk black tea, followed closely by Sri Lanka with a trading volume of 20 per cent and India taking a 15 per cent share of the global black tea trade.

Kenya’s main destinations for black tea are Pakistan, Egypt, the United Kingdom, United Arab Emirates (UAE), Russia, and Yemen in that order. Sri Lanka, on the hand, sells its bulk black tea to Hong Kong, Vietnam, and Malaysia through China, Iran, UAE, Russia, Turkey, Iran, Iraq, and Azerbaijan while importers of India’s black tea are Iran, UAE, and Russia.

The competitiveness of Kenya’s tea industry is critical to the country’s economy, contributing to political, economic, and social stability by providing a livelihood for many rural dwellers, especially women, as well foreign exchange earnings.

Despite Kenya holding nearly one-third of the bulk black tea global market, Sri Lanka’s tea enjoys more attractive prices than Kenya's because of their value-addition and domination of the orthodox tea sales, which fetches higher prices.

The volatility in the tea industry and long-term price pressures dictate that Kenya must continue re-accessing its production and marketing strategies if the sector is to remain profitable to the farmers while at the same time earning the country foreign exchange.

The emergence of new entrants such as Rwanda, Vietnam, and Malawi which enjoy a comparative advantage in factor conditions, will continue to offer stiff price competition. The only way out for Kenya to compete favourably is by shipping higher quality and higher-value-added products.

Kenya's tea industry must develop brands, perhaps even forge marketing alliances, and move closer to the end consumer in its target markets. This is the only way to shield the industry from price volatility while creating value in the market.

In early 2020, President Uhuru Kenyatta issued a number of directives to relevant government ministries and agencies to initiate reforms in the tea sector. Uhuru had observed that the tea sub-sector had experienced several challenges key among them diminishing earnings to tea farmers and governance issues at KTDA, which manages 70 factories of the smallholder sub-sector that accounts for approximately 60 per cent of tea production in Kenya.

This led to agitations by farmers and several leaders from tea growing areas and the concerted pressure culminated in the passage of the Tea Act, 2020 which brought back the Tea Board of Kenya as a tea regulator.

The Tea Act requires that tea buyers and exporters should put in place structures to ensure that at least 40 per cent of their annual exports are value-added we can learn from what Sri Lanka.

While Kenya ships over 30 per cent of the international tea trade, Sri Lanka with roughly 21 per cent, receives higher prices because it adds more value to their tea between the auction and the port than other tea-producing nations.

Sri Lanka exports its tea, in packet form for eventual consumption as loose tea. On the hand, Kenya exports its tea to the world market in bulk which is mainly used for blending low-quality teas from other countries.

Bulk tea fetches low prices, leading to depressed revenue for tea growers and low foreign exchange for the country. This makes the country vulnerable to fluctuating and declining commodity prices and increasingly fierce competition from cheap imports.

President William Ruto seems to have picked up the push for more structural and administrative reforms aimed at boosting the tea sector. The State House Cabinet dispatch of September 27 stated that government would expand the scope of fertilisers subsidy programme to include fertiliser for tea under KTDA.

The dispatch went further to pour cold water on an earlier attempt by former Board members of KTDA who wanted to forcefully take over the management of the agency by warning them that the government will not condone the move as it may reverse the gains of the reforms.

President Ruto had earlier asked the Ministry of Trade and other agencies to commence the process of ensuring that in the near future Kenya’s tea is sold as a brand and not in raw form so as to fetch higher prices. The President, while speaking to manufacturers on October 19, hinted that Kenya is considering banning the sale of unprocessed tea and he gave a government assurance to inject resources for the setting up of a one-stop facility for value addition in Mombasa to be implemented under the Public-Private Partnership arrangement.

The president has also pledged Sh6 billion for the installation of orthodox tea production lines in a number of factories. Industry experts indicate that the price of value-added tea is higher than that of bulk CTC tea with the lowest price difference ranging between 0 to 25 per cent and the highest price difference ranging between 76 to 100 per cent.

The government's push to impose restrictions on the sale of bulk tea and move to value addition should be supported.

Going forward, Kenya needs to scale-up activities such as processing, branding, quality certification, and accreditation that increase the market value of primary products.