Markets & Finance

Coffee, tea farmers hit by fall in prices to seven-year low

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A coffee farmer in Nyeri. Prices of coffee and tea have dropped to a seven-year low even as input costs surge. Photo/FILE

Millions of coffee and tea farmers are set to be hit after prices of the two commodities dropped to a seven-year low even as input costs surged following the recent scrapping of value added tax remissions.

The East Africa Tea Trade Association (EATTA) on Monday raised the alarm saying the livelihoods of up to two million farmers in the region are at risk as prices at the Mombasa auction have fallen below the production costs.

Tea prices have plummeted to lows last seen in 2008 according to EATTA, while coffee prices have plunged to levels last recorded in 2007, according to the International Coffee Organisation (ICO).

“There can be no doubt that in many countries the prices received by coffee growers fail to cover the unit costs of production, while at the same time the prices of basic goods, such as food and energy, are rising. Indeed, coffee is the worst performing agricultural commodity of the last two years, with a downward trend that has so far shown no sign of improving,” said ICO in its report covering up to November.

Coffee prices averaged 107.03 US cents per half a kilogramme in October as per the ICO composite indicator price, a 4.3 per cent decrease on September levels and its lowest level since March 2009.

The drop in coffee prices has been attributed to increased global supplies.

“The price at which we sell our commodity at is dictated by international prices,” said Mr Daniel Mbithi, chief executive officer of the Nairobi Coffee Exchange (NCE).

The ICO report came as Lerionka Tiampati, the EATTA chairman and MD of the Kenya Tea Development Authority (KTDA), issued a statement appealing to the government to reduce taxes in the tea industry to save farmers from further losses.

“The whole industry is facing serious cash flow problems as teas are selling below their cost of production,” said Mr Tiampati who estimated that more than two million people directly earn their livelihoods from tea growing, while 10 million benefit indirectly from the sector.

EATTA runs the Mombasa Tea Auction , which is the largest black tea auction centre in the world.

Tea farmers received a record bonus of Sh69 billion this year helped by a higher output, but this growth in production volume is also dealing the industry a blow as it has depressed international auction prices.

Edward Mudibo, managing director of EATTA said yesterday the group has engaged the government on several occasions over the high cost of production and on levies that are charged on tea but so far they are yet to get any feedback.

“The cost of tea production in the country is high compared to other regional countries and when the world price falls, we are hit the most because our tea becomes uncompetitive at the market,” said Mr Mudibo.

Just like coffee, 95 per cent of the locally made tea is exported while the remaining five per cent is consumed in the country.

Mr Mudibo said that tea should be put under the category of food as opposed to beverage, where it has been classified currently, a move that will exempt the commodity from the 16 percent VAT levy.

Mr Mbithi said the drop in coffee prices has been so sharp that they have had to conduct auctions after a fortnight, as opposed to the customary weekly sales.

“There has been a drop in supplies from the farmers and this has forced us to cut down the number of auctions,” said Mr Mbithi.

Despite a slight decrease in September, total exports for coffee year 2012/13 reached a record volume of 110.2 million bags, comprising 68.5 million bags of Arabica and 41.7 million of Robusta according to the weekly auction report.

The report further states that the total production in 2012/13 is also estimated at a record volume of 145.2 million bags.
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