The opinion piece by Kenya Tea Development Agency (KTDA) CEO Wilson Muthaura titled 'Tea Sector Reforms: big hope for small scale farmers' that was published on January 4, 2023, is misleading, inconsistent, and inaccurate.
First, KTDA manages tea on behalf of 640,000 farmers and not 750,000 as stated in the opinion piece. Additionally, KTDA-managed factories processed 53 per cent of the national crop last year and not 65 per cent.
This is the lowest fraction since privatisation because farmers are increasingly losing confidence in the organisation’s leadership and are diverting their crop to independent factories and multinationals as acknowledged by Williamsons Ltd in their recent article.
One of the main issues that has faced small-scale tea farmers is the low prices for their tea leaves. This is due to several factors, mainly overproduction in the world market, lack of bargaining power, and low levels of value-addition.
A possible solution that was bulldozed through the so-called tea reforms of 2020 via an executive order was the introduction of a fixed minimum reserve price of $2.43 for a kilo of made tea for KTDA-managed factories.
Producers through their brokers have always had a reserve price for their teas, but it is not this fixed minimum price as it follows the quality of the tea and prevailing market prices.
Mr Muthaura stated that this $2.43 minimum price has been a boon for farmers but what he conveniently forgot to mention is that this artificial price has had unintended consequences.
Farmers have belaboured the point that the price of tea is driven by forces of supply and demand and their respective quality attributes as discerned by buyers. All teas are not of the same quality to attract this $2.43 base price and therefore some teas will be sold below above and some below this price.
By placing a base price, teas that do not attract this $2.43 are left unsold which raises the quantity of unsold stocks. Buyers are now buying alternative teas from other markets and factories, at the expense of KTDA farmers.
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Available information is that tea prices have improved across the world and closer home, Tanzanian tea prices have risen by 23.5 per cent, the highest at the Mombasa auction over the last year, also benefiting from the same unintended consequences of the minimum price. It is quite telling that it is only KTDA teas that have a fixed minimum price for all teas sold in auctions across the world.
This stock that is left unsold is put back to the auction through a process called reprinting which is costly because for every sale, a 4 kg sample must be drawn from the tea for distribution to the buyers. This leads to loss of revenue for the farmers. It is common knowledge that KTDA is carrying huge stocks of unsold stocks.
Mr Muthaura should come clean on the effect of the minimum price on quantity and age of unsold stocks, the loss occasioned by the reprinting process and how he intends to sell these teas.
Camellia Plc, one of KTDA’s competitors, is honest to this reality. The farm which has tea plantations in Kenya, stated in its latest report: “We see some risk of downward price pressure for the remainder of the year due to high stocks of unsold teas in the market and lower prices in the last couple of auctions support that concern.”
Additionally, Mr Muthaura stated that the tea reforms, which are now under a barrage of court cases, resulted in KTDA registering a 3.5 per cent increase in revenues to Sh23.76 billion from Shs22.96 billion in the previous financial year.
What he conveniently did not mention is that KTDA’s latest annual report states that the depreciation of the Kenyan Shilling against the dollar from Sh108.74 to Sh113, a 4 per cent weakening, was a boost to farmers and was a major contributor to the growth in revenues.
In addition, a thorough scrutiny of the accounts show that group and company’s comprehensive income, the real reflection of how the group performed, declined from Sh1.094 to Sh1.072 billion and from Sh635 million to Sh453 million respectively; driven in part by a 50 per cent rise in directors' emoluments from Sh86.6 million in 2021 (58.8 million in 2020) to 129.1 million in 2022.
Globally tea prices have also been on the rise and this cannot be solely attributed to the controversial reforms.
The list of other issues affecting tea farmers is not exhaustive. However the tea reforms as they stand do not address these underlying issues, and as such, it is unlikely they will lead to significant improvements for small-scale farmers.
The tea reforms have the potential to bring benefits to the more than 640,000 small-scale farmers, but only if they address the root causes of the challenges that we as farmers face.