Efficiency earns tea growers a record bonus
Efficiency at the factory level proved the main factor in the record payments being made to small- scale tea farmers who market their produce through the Kenya Tea Development Agency for the crop season ended in June this year.
An analysis of the payment commonly known as bonus shows a substantial improvement in the ratio of earnings that growers will be taking home this year compared to the proceeds from made tea sales in the international markets.
Across the seven regions, growers earned an average 70 per cent of the Sh36.3 billion paid out to factory companies, signalling the benefits of an effort spearheaded by KTDA to contain variable costs with key savings emanating from packaging, fuel wood and furnace oil.
This performance was an improvement from the previous crop year where farmers on average took home 67 per cent of the total Sh30.2 billion earned at the various factories.
“The good performance is attributed to improved tea quality due to upgrading and modernisation of production processes in our factories,” KTDA said in a statement.
High cost of electricity and furnace oil, which constitutes over 30 per cent of processing costs, have been identified as a major drawback to the tea business.
Consequently, most tea factories have in the recent past converted their steam boilers to use wood fuel instead of furnace oil.
Concerns have also been raised over erratic supply of electricity with frequent outages, leading to equipment breakdown and repairs, down- time and reduction in quality of tea.
Some factories have in some cases been pushed to run generators which increased the cost of production considerably.
Details of the bonus payments showed that growers affiliated to Rukuriri Tea Factory in Embu led in earnings with Sh44 per kilogram of green leaf followed by those allied to Imenti with Sh43.50 and Kinoro with Sh42.65.
In efficiency rankings, however, Mogogosiek tea factory growers took home 77 per cent of the total income followed by those from Rukuriri and Imenti with 76 per cent.
Kapsara Tea factory was the worst performer paying only 51 per cent of earnings, 11 percentage points poorer than the other two laggards - Ogembo and Gianchore - at 62 per cent.
KTDA further attributed the good run to better prices on improved quality over the season as well as a decline in tea production worldwide on foul weather conditions.
Statistics by the Tea Board of Kenya (TBK) showed an 11.6 per cent slump in production of the commodity in the first eight months of the year to 182 million kg compared to a similar period of 2008.
There was a similar slump in export volumes with some 225 million kg of leaf shipped out to foreign markets by August this year compared to 251 million kg last year.
On the flip side of this drop in production, prices at the auction rallied to 24-year highs, cushioning the fortunes of the industry whose earnings this year are expected to hit the Sh66 billion mark.
The TBK said in the first eight months of this year, average earnings from the commodity climbed 22 per cent compared to a similar period of 2008.
The firm run, expected to carry on into early 2010, continued this week where Kenyan tea prices jumped to a new record high at on renewed demand at the weekly Mombasa auction.
Market reports showed that the average price for Best BP1s leapt to $5.02 per kg from the previous week’s record of $4.47 per kg and another high of $4.31 per kg at the previous sale.
“Brighter BP1’s met very strong competition and gained $0.34 to $0.66,” a regular market report by the Africa Tea Brokers(ATB)said with analysts pointing out that the prices are likely to defy sentiments on improved weather as rains returned to most parts of the country.
A task force recently appointed to identify challenges in the sector unearthed anomaly in the existing marketing structures of the commodity that could be denying growers maximum earnings.
Producers currently have the option to sell their made teas through three market outlets of their choice including the Mombasa auction, direct private sales or factory door sales.
About 70 percent of the tea produced in the country is sold through Mombasa auction, 20 per cent through direct sales and 10 percent through factory door sales.
The proceeds from the tea sold through the auction are remitted to the individual factory accounts on the prompt of nine working days.
The tea brokers remit their funds less their fees of 0.75 per cent of gross proceeds from each factory.
“However, there is perceived lack of transparency in the auction system with buyers and brokers accused of collusion and conflict of interest thus denying the growers fair pricing and income,” team said in a report submitted to the government.