Record winter spell in Europe set to boost tea earnings

Increased demand arising from the winter season in European markets and a global shortage are set to boost tea earnings.

Improved supplies due to the ongoing rains will enable the country to fill the current deficit and meet demand arising from Europe’s chilly weather.

With other global black tea producers such as Sri Lanka, India and China preoccupied with meeting internal needs, Kenya’s improved exports for the black variety will help reduce the 130 million kilogrammes current global shortfall.

But contrary to a bumper 2009, weekly tea prices have plunged almost 20 per cent since the beginning of the year. The ongoing heavy rains in the world’s largest exporter are set to boost supplies, cooling off the high prices in one of last year’s best performing commodities.

Prices of premium tea grades continued to slide at the second successive auction, ending a firm run recorded last year when prices of the produce struck at a 24-year high.

At the Mombasa auction, last Tuesday’s prices settled at an average of $4.73 (Sh357) per kilogramme having sold at between $4.50 and $4.96 per kilogramme. Statistics show that this grade of tea hit a record high of $5.45 (Sh411) per kilogramme in mid-December. “The quality is good. The prices are overheating. There was panic the rains would not come but now they have come in a big way,” said Mr Peter Kimanga of the East Africa Tea Traders Association (EATTA).

Agricultural economists say while the drought led to substantial crop losses, ongoing rains may cause frost , thereby affecting maximum tea production.

Dr John Omiti, an agricultural policy expert at the Kenya Institute for Public Policy Research and Analysis (Kippra), says Kenya’s traditional buyers — Middle East countries — are likely to maintain their orders.

“China and India are heavy producers and consumers too. Kenya is likely to face competition from only Sri Lanka,” Mr Omiti said in an interview.

“Islamic countries will therefore take tea as they do not have alternatives like alcoholic beverages,” said Dr Omiti. With the contrasting weather patterns, it is expected that with leading packers unlikely to be holding substantial volumes of tea in their warehouses, they may have good reason to import more of the beverage than planned in the short term. More tea is also consumed during the winter season both to keep warm and also since most people spend long hours at home.

Cold wave

Snow has brought life to a halt in parts of Europe, mainly the United Kingdom and Germany, with Spain becoming the latest country to be hit by the cold wave. Britain, one of Kenya’s main tea export destinations is second only to Ireland in tea consumption per capita. About 165 million cups are consumed every day, compared with 70 million cups of coffee. Early this week, temperatures in the US reached freezing point. Industry regulator Tea Board of Kenya (TBK) says should the cold weather persist and importers call for more supplies, Kenyan producers are in a position to fulfill the need.

The five main markets for Kenyan tea are Afghanistan, Egypt, Pakistan, the UK and Sudan. They accounted for 73 per cent of the total export volume, with earnings expected to hit Sh65 billion for 2009. “Current happenings may or may not translate into higher exports because weather conditions are short-term,” said Ms Sicily Kariuki, TBK managing director.

“If due to the ongoing rains importers anticipate more production, there is a likely reduction of auction prices, the buyers may deliberately postpone their ‘buy’ decisions awaiting lower prices,” said Ms Kariuki.

The extreme weather conditions follow a devastating drought and higher tea prices in 2009 when small scale farmers earned between Sh19 and Sh35 per kilogramme of tea delivered at the auction.