Listed tea growers are projecting their earnings to slow down significantly this financial year due to rising operational costs and the dry weather experienced at the beginning of the year, which hit production.
Williamson Tea and Kapchorua are some of the growers whose performance has come under pressure from lower rainfall, rising staff costs and introduction of new taxation and regulatory fees from the Kenya Bureau of Standards (Kebs), the Water Resources Management Authority (WRMA) and the National Environment Management Authority (Nema).
“The crop position is unlikely to be as strong because drier weather at the start of the year has led to lower production,” Nigel Sandys-Lemsdaine, the chairman of both Williamson and Kapchorua, said in a statement.
“The cost of doing business in Kenya continues to rise,” he said, citing rising wages and price of key inputs such as electricity and fertiliser.
Aside from regulatory fees to be paid to the standards and environmental watcdogs and to WRMA, tea growers will also be slapped with a new tax following the amendment of the Tea Act which will see them pay two per cent on all tea value made for export.
The lower-than-expected rainfall early in the year is set to lower production and devalue tea bushes which the growers usually count as gains or losses.
In the year ended March, for instance, two-thirds of Kapchorua’s net profit of Sh187 million came from a positive valuation of its tea bushes, with the rest of the earnings coming from operations.
But the weakening of the shilling in recent months led to significant gains among tea exports.
The shilling has depreciated by 18 per cent to trade at Sh94 against the dollar from Sh80 in January, with the tea grower’s export earnings rising by similar margins. The shilling had depreciated by more than a quarter for some weeks before strengthening to the current levels, a rise that sharply boosted tea export earnings.
Tea growers receive payments from their exports in euro, dollars, and British pounds, turning the depreciation of the local currency against the major world units into a boon for them.
Tea prices are have also risen significantly this year, an increase that could cushion the growers from rising operating expenses. International tea prices currently stand at about Sh265 per kilogramme, a 71 per cent rise from an average of Sh194.5 in the year to March.
The tea growers are among agricultural firms that pay some of the highest dividends at the Nairobi Securities Exchange (NSE) and their stocks are the best performing at the bourse that has recorded an overall decline due to high inflation.
Williamson’s share price has risen the highest at 58.3 per cent in the past six months to stand at Sh285, followed by Sasini at 41.1 per cent (Sh13.7), Rea Vipingo at 29.5 per cent (19.5) and Kakuzi at 19 per cent (Sh78).
